Contingency Planning: Ten Good Ways to Keep a Supply Chain from Going Bad
Recent articles on supply chain contingency planning have focused on the financial impact of parts shortages on supply chains in general and on OEM manufacturing processes in particular. The tsunami that hit Japan last year and drenched the global auto manufacturing industry is a good example.
Not much has been said about supply chain contingency planning for maintenance parts, however, and it can have as much of a financial impact on end-users. There are an estimated twelve units of material handling equipment at an end-user’s site for every piece of equipment manufactured. As a result, the shortage of one part used in a maintenance process could have a significant effect on a large population of end-users. The major consequences include excessive equipment downtime and poor operational performance. This can increase a company’s Total Ownership Cost [TOC] and decrease its ability to deliver products or services to its customers.
An OEM’s market success is driven by the price and quality of its product, as well as the support it provides customers to ensure product value. An OEM is ultimately accountable for any maintenance parts shortages, regardless if it delivers parts directly to end-users, employs a dealer network to supply those parts or uses its suppliers to deliver parts through their distribution channels.
Also remember that even products that haven’t been made for 10 or 15 years also require OEM support.
Maintenance parts can be segmented into five primary categories:
Repairable Line Replacement Unit [LRU]
These are parts that have been designed to be removed, repaired and returned by a maintainer at the location of the equipment operational site (i.e., lift controller removed and replaced on warehouse floor).
Repairable non-LRU
These are parts that have been designed to be removed, repaired and returned by a maintainer at a location other than the operational site (i.e., equipment moved to depot for engine removal and replacement).
Non-repairable LRU
These are parts that have been designed to be removed, discarded and replaced by a maintainer at the location of the equipment operational site (i.e., metal tubing removed and replaced in storage yard).
Consumables
These are parts that are replaced based on use/condition
(i.e., tires).
Piece parts employed in repair shops/depots
These are parts used in the repair of a repairable component (i.e., the removal and replacement of an engine’s piston).
With all that said, these are my 10 top ways to deal with the scary events that can disrupt a maintenance parts supply chain:
1. Increase “safety stock”
This has always been the OEM’s favorite form of disruption risk mitigation. The solution is very simple; get “burnt” once with a shortage, buy a bit extra; get “burnt” a second time, buy lots more. This often works, but it is expensive and can lead to future obsolescence and write-offs. This strategy can not only be implemented for finished parts, but also for long-lead-time raw materials.
2. Near-sourcing
Deal with suppliers that are physically close to the OEM’s parts distribution. This initiative reduces delivery lead times and thus reduces the amount of time to prime the supply chain once a disruption is resolved. Also, near-sourcing allows the OEM to physically visit the sites of their suppliers and see what is happening in their facility.
3. Supplier auditing
Perform a full risk assessment of suppliers including their business continuity plans, geopolitical exposures and their processes. An example is to recognize that a supplier “has its act together” when it employs the Supply Council Operations Reference model, or SCOR, which uses standardized language, metrics and business practices to manage the supply chain. Audits do not have to be performed for all suppliers, but at least for those suppliers that provide mission critical parts for the end-users.
4. Develop repair schemas for non-repairable classified parts
Many items that were originally classified as non-repairable in a maintenance manual can be physically repaired, but the economics may not justify it. If disruptions occur, the non-repairable component may not be available, but the piece parts to make a repair may be available. An OEM must be proactive for this to work.
5. Develop reverse design engineering capabilities
Due to a liability or intellectual property issue it is often only the OEM that can make such a decision. Reverse engineering must be done rapidly to alleviate the disruption; this may not always be practical due to testing and/or regulatory approval requirements.
6. “Cannibalize” equipment for parts
Some OEMs are fortunate in having access to equipment in order to “cannibalize” working parts that have been removed from equipment; they either have remanufacturing facilities or leasing pools. Others are not as fortunate and must develop a bartering system with maintenance organizations to “borrow” parts. During longer disruptions, the management of this effort can becoming quite challenging for the OEM.
7. Use of 3D printing for one-off pieces
This is a new way to mitigate disruption risks. 3D printing, using technology similar to ink-jet printers, uses materials such as metals and ceramics to build a part from a CAD drawing. Originally developed for prototypes, many industries have embraced the technology for making one-off parts. It’s commonly used to support the maintenance parts demand for out-of-production models.
8. Part pedigree tracking
The primary objective of this initiative is to keep illegitimate parts from entering the supply chain. These parts can be outright fakes which have none of the attributes of the “real’ part, or they could be the “real” part, but do not have the proper regulatory approvals for their use. In either case, shipments could be stopped until all parts have had their pedigree confirmed.
9. Reverse supply chain management
Developing efficient and effective processes to manage a reverse supply chain can be a daunting task, from getting customers to return parts in a timely manner, to proper packaging, to accurate condition/configuration classifications. Recalls are the primary drivers for the reverse flow of parts. In the worst situation the distribution of parts from the OEM is halted until all the parts installed on delivered equipment and at end-user stocking points have been returned; the slower the return process, the longer the disruption.
10. Ownership of manufacturing tooling at supplier sites
This strategy allows for mitigating disruptions driven by business decisions such as the abrupt termination of a part by a key supplier. The OEM can “easily” move the tooling to another supplier and resume production of the part.
All the preceding is “stuff that happens” and must be dealt with on a continuous basis. Having been on both sides of the OEM fence, manufacturing and product support, I can tell you that maintenance parts disruptions are several times more challenging than manufacturing disruptions.
“Hell hath no fury” like that of a fleet operator who has a significant segment of his equipment unavailable due to the disruption of maintenance parts supply.
Top 10 reasons for maintenance parts supply chain disruptions:
1. Natural disasters such as earthquakes, tsunamis, tornados,
volcanic eruptions, floods and hurricanes;
2. Manmade disasters such as terrorist attacks, explosions, war,
and others;
3. Business decisions such as bankruptcy, part discontinuance due
to either “non-profitability” or non-strategic importance;
4. Governmental issues such as safety/environmental
non-conformance, import/export restrictions, regulatory recalls;
5. Severe quality issues stopping manufacturing;
6. Fake parts entering the supply chain leading to a recall;
7. Raw material shortages;
8. Product reliability issues which cause a rapid imbalance
between supply and demand;
9. Intellectual property [IP] infringement resulting in a court
making the supplier stop shipments until legal issues are
addressed; and
10. Labor strikes at a supplier or at a provider of services of the
supplier, such as a trucker labor dispute.
Ron Giuntini is principal of Giuntini & Company, Inc. (www.giuntinicompany.com) and a member of MH&L’s Editorial Advisory Board. He has 36 years in B2B supply chain management for both supplier-forward and customer-return operations. Reach him at [email protected].
