4 Reasons ERP Functions Won't Help You Increase Service Parts Revenue

Manufacturers and OEMs often see their service organizations as cost centers, but 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.

IDC discovered many OEMs turn to spreadsheets and enterprise resource planning software (ERP) to manage their service parts, but these systems do not enable manufacturers to reach service performance and inventory goals. 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 reasons why ERP functions cannot enhance service parts performance:

1. ERP functions treat all parts as the same

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.

As a result, because ERP systems treat all parts in all locations as the same, they underserve service organizations in charge of multiple parts locations and service level expectations. When service levels aren’t balanced, there is a great risk of overbuying parts or not stocking a critical component that determines an asset's uptime.

2. They can't correlate fill rates with equipment uptime

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 solution with built-in statistical modeling. Fill rates are some of the simplest service metrics to calculate. Trying to correlate fill rates to equipment uptime and the costs associated with downtime is much more complex. A system incapable of making these correlations is costing you money, or worse, leaving potential revenue on the table. 

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3.They don't analyze causal data

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 an 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 ledgers or transaction systems. When systems aren’t designed for service, service organizations have to do a lot of estimating, often erring on the side of caution and overbuying, which leads to high stocking level costs, obsolete parts, and warehousing overstocks.

4.They can't manage inventory according to service contracts

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 that simply isn't possible with an ERP - you can bid service-based contracts competitively.

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?

For more information on PTC’s Service Parts Management solution, visit us here.