Four Ways Your ERP System Is Draining Your Profits
Manufacturers and OEMs often see their service organizations as a cost center – an area where parts must be ordered, stocked, or refurbished, or where technicians must be managed, deployed, and used efficiently. Recently, a trend of high-profile service-guarantee contracts in manufacturing is highlighting a renewed interest in service. This time, service is not a cost liability, but a revenue and profit generator.
To manage their service parts – a large part of many manufacturers’ and OEMs’ business – service leaders turn to several solutions, from a many-columned spreadsheet, to advanced service parts planning software solutions, as well as the Enterprise Resource Planning software (ERP) they’re already using to manage other functions of their business. But using an ERP system for service parts planning and management is a bit like digging a ditch with a teaspoon – you may get results, eventually, but that’s not what a teaspoon is for.
Here are four ways where your ERP system is costing you money:
1. An ERP system doesn’t perform optimization
An ERP system is designed to manage and plan aspects of a business, it is not designed to perform business optimizations. What does this mean? Service parts management always involves some type of tradeoff or balancing of service parts across the organization. An ERP system is designed to classify parts, according to cost, location, or other parameters, and all parts within a class get the same treatment. In an ERP system, there is no accounting for the peculiarities or particularities of each part. Service organizations with multiple parts locations and service level expectations are then underserved by an ERP system, because all parts in all locations are treated as the same. When service levels aren’t balanced, there is a great risk of overbuying parts, or not stocking a critical component to uptime.
2. Stocking levels and fill rates are just a beginning
Simply having a part available doesn’t guarantee equipment uptime, and service organizations can find themselves failing to meet service level agreements while still showing acceptable on-shelf availability. How does this happen? They are stocking the wrong parts, or the right parts in the wrong locations. ERP systems do not have the mechanism to correlate between part stocking levels and meeting service levels. All they can do is measure part availability per part request. To correlate fill rates to meeting service level agreements at multiple locations, you need a software solution with built-in statistical modeling. And, fill rates are some of the simplest service metrics to calculate. Trying to correlate fill rates to equipment uptime, and costs associated with downtime, is much more complex. A system that can’t make these correlations is costing you money or worse, leaving potential revenue on the table.
3. ERPs are not designed with service in mind
Your service organization may be spread out across the country or the globe, and can be responsible for nuts and bolts, as well as multi-million dollar components such as engines and turbines. Each component, and component location, doesn’t exist in a vacuum, it exists in the context of your customers, specific use cases, and untold number of permutations that affect how and at what rate a part is used. ERPs are not designed to account for a product structure system, different part locations, and the service theater. At their core, ERPs are a ledger, or a transaction system, not a calibration method. When systems aren’t designed for service, service organizations have to do a lot of estimating, often erring on the side of caution, or overbuying, leading to high stock level costs, as well as costs for obsolete parts, not to mention the cost of warehousing overstocks.
4. ERPs won’t generate new revenue streams
Having a service parts management system that’s especially designed for the manufacturing service industry allows you to drive both top line and bottom line revenue. How? Margins on service parts and service in general are higher than on the original equipment, so part sales and equipment service, when done optimally, can drive additional revenues and higher profits. Not only that, but when you have a system that can forecast, optimize, and adjust parts to correlate with service level agreements, you can ensure that you are pricing your parts and service appropriately. Even more, by being able to model out a contract, something simply not possible with an ERP, you can bid service-based contracts competitively. Your service parts management software can become a competitive differentiation.
It used to be that only the service department cared about service and service parts, but with new revenue and margin growth afforded by offering differentiated service options, the service organization can become the star of the show. Are you still using an ERP system to manage your parts? See how you can turn parts to profits with our white paper here.
For more information on PTC’s Service Parts Management solution, visit us here.