4 Reasons ERPs Can't Optimize Spare Parts Inventories



IDC discovered many OEMs turn to spreadsheets and enterprise resource planning software (ERP) to manage their service parts. While ERPs do a fine job of tracking carrying costs and part locations, their stocking recommendations often fall short (if they provide any at all). Here are four reasons why:

1. ERP systems treat all parts as the same

To an ERP, the only difference between a carburetor and a brake pad is the cost. It doesn’t factor in service-specific variables such as lifecycle, customer importance, impact on safety, and criticality. As all of these factors affect the service level you want to deliver, a service parts management system must take them into account when developing stocking recommendations.

What does this mean? An ERP can’t fully optimize the tradeoff between the cost of carrying inventory and maintaining the service level you’re trying to achieve. To these systems, a carburetor and a brake pad are both just parts. In reality, that’s not the case. For example, it’s easy to inspect brake pads for wear and estimate when they’ll need to be replaced. Carburetors, on the other hand, may fail with no prior warning.

The problem with this shortcoming is that an ERP may make extremely expensive stocking decisions. If you want to maintain a 90% fill rate across all inventory, it will stock enough of each part to meet that goal. This compels you to procure more inventory than you need to keep an asset up and running.

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

Simply having a part available doesn’t guarantee equipment uptime, and your organization may fall short of service level agreements while still maintaining acceptable on-shelf availability. How does this happen? You are stocking the wrong parts, or the right parts in the wrong locations.

ERP systems do not have the mechanism to plan inventory according to uptime targets and the parts lifecycle information within service bills of materials. All they can do is plan for part availability per part request. To correlate fill rates with service level agreements across multiple accounts, you need a solution that can calculate how certain parts impact a system’s uptime.


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3. ERPs don’t account for utilization data

Temperature, humidity, and other operational conditions impact the rate at which certain parts fail. The only way to track these variables is to gather data from sensors installed on the assets themselves. Most ERPs aren’t designed to do this.

However, there are service parts management applications that connect directly to sensors and use that data to forecast when particular components will need to be replaced.

Suppose you have two drill presses, identical in both make and model. They use the same type of motor. However, the motor on one might fail before the other based on when it was installed, whether your shop personnel are using the machine properly, environmental conditions, and other factors. An IoT strategy for service can account for these factors, and by proxy, so too can a connected service parts management solution.

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? Service margins are higher than those of original equipment sales. So 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 part inventories to support service level agreements, you can ensure that your maintenance organization has the materials they need to keep equipment up and running.

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. Read the white papers below detail how discrete manufacturers are developing their aftermarket service strategies:

PTC IDC companion white paper on service journey