A Powerful Solution for Service Parts Logistics
Introduction
A few years ago, Cat Logistics and Ford Motor Co. faced similar supply chain issues. Both were operating with aging logistics IT systems that were becoming difficult to maintain. Together, they launched an ambitious project to design a next-generation software solution to manage their complex global service parts supply chain.
Throughout the 1990s, each company individually spent considerable resources upgrading these systems. While both companies were keeping up with the fast-paced technology curve, it became apparent that in order to continue to provide best-in-class processes into the future, a new solution had to be designed and implemented. Upgrades to legacy systems can only go so far and, as a result, the ability to stay ahead of the curve was becoming increasingly difficult.
The Challenge
With the aim of better-supporting its dealers and vehicle owners, Ford considered developing its own logistics IT solution to replace its global parts management systems. The automaker needed specific software to enhance warehouse management (inbound/outbound processing of service parts) and materials management. It also needed the ability to forecast slower-moving parts.
While Cat Logistics had systems capabilities, the company wanted to get out of the software development business. It wanted to focus its highly skilled resources on enhancing service parts management capabilities for itself and its clients. In essence, Cat Logistics' management decided the company should focus on what it does best - managing world-class service parts support networks and processes for its customers.
Ford and Cat Logistics conducted an extensive analysis of their service parts logistics activities. The companies recognized that they had a lot in common regarding preferred service parts logistics practices, from materials management and forecasting to warehouse operations. A detailed analysis showed 80 to 90 percent commonality in their logistics processes. Each is considered best-in-class in various parts of its operations.
After much deliberation, Ford and Cat Logistics reached the same conclusion: Why not put their talents and resources together to map an IT solution that would fulfill the long-term service parts logistics needs of both companies? They decided to seek a world-class technology provider with the kind of software development and marketing expertise required to launch and support a solution of this kind.
In November 2001, Ford and Cat Logistics signed an agreement to formalize their decision. From the start, Cat Logistics and Ford recognized that sustained top-level commitment would be critical to the project's success. They agreed to assign the talent and resources needed to support this long-term, highly sophisticated endeavor.
With a collaboration agreement in hand, the Cat Logistics-Ford team set out to find a technology provider. Team members identified a pool of potential vendors and subjected them to rigorous evaluation. True, the vendors all had supply chain product offerings. But none was tailored specifically to the service parts field.
As part of the evaluation process, the project team explained their service and capabilities requirements in detail, and ascertained that vendors under consideration were willing to make the investment required to develop a new service parts logistics solution. In terms of functionality, the team focused on three main areas related to service parts logistics:
- Commercial - Order processing and management, customer management, claims, returns, and related areas;
- Materials management - Forecasting, inventory planning, distribution requirements planning, replenishment, etc.; and
- Warehouse management - Picking, packing, shipping, wave management, cross-docking, etc.
Overall, Cat Logistics and Ford wanted Web-enabled software that would provide real-time transactional data and end-to-end supply chain visibility. This meant users would be able to log on from anywhere in the world and monitor and manage their service parts logistics.
The Solution
After much deliberation, the project team chose applications software developer SAP, believing that SAP's supply chain and customer relationship management solution was best suited for the job. The fact that SAP's enterprise resource planning (ERP) solution is so pervasive was an important deciding point as well. SAP has licensed more than 50,000 e-business software applications to 18,000 companies in 120 countries. It made sense to be able to link the new system to an enterprise backbone that is so widely accepted.
With SAP on board, the new team jointly developed logistics parameters for the software, including customer satisfaction metrics. Functional requirements were identified in a formal assessment process.
The team also decided on a two-phased development approach, which delivered early results to both Cat Logistics and Ford. Pilot operations got underway in late 2003, with user acceptance testing starting in October 2004.
The new product will become part of the standard SAP release for 2005 through 2007, and will be marketed as part of mySAP Supply Chain Management and mySAP Customer Relationship Management product suites.
Cat Logistics owns a license for the software, and is working with its clients and prospects for 2006 implementation. There are already SAP installations at MG Rover, Land Rover, and Ford of Mexico that will incorporate the new complementary capabilities. SAP's commitment to the project has been substantial, according to Mary Bell, Cat Logistics' chairman and president.
"Cat Logistics has always used technology to manage supply parts forecasting and replenishment," Bell said. "Our intellectual property is knowing how to do this better than anyone in the industry. This new solution will help us build on our strengths in the marketplace and provide our customers with industry leading capabilities."
Conclusion
In service parts logistics, the name of the game is inventory availability and efficiency: How do you deliver parts to the customer when and where they need them and do so cost effectively? The service parts management solution will help companies balance these difficult-to-achieve goals. Developers expect the solution to help businesses:
- Improve fill rates and manage inventory more effectively;
- Decrease inventory costs; o Increase customer service and improve revenue;
- Optimize warehouse functions, thereby helping to control labor expenses; and
- Reduce warehouse space requirements and improve utilization.
"Companies are just realizing that service parts logistics can produce a tremendous return, can in fact generate higher profit margins than initial product sales," said Bell. "As products become commoditized, it is increasingly important to build strong customer loyalty. Companies can do that through better service parts support.
"Thus, service parts operations are emerging as a strong engine for corporate growth and profitability. Better service parts logistics translates into direct bottom line improvements."
