Share this article
Follow us on Linkedin
How do you balance variables to make the critical and complex decision to repair or buy a new aftermarket sales part?
In the world of supply chain management for after-market sales parts, repair refers to refurbishing unserviceable parts, while buy means procuring new or refurbished parts. Examples of after-market sales parts include:
- Complex, high-value components like generators, starters, or engines.
- Parts with long lead times and high replacement costs.
Businesses often prefer the repair option for its cost-effectiveness and better margins, or meeting customer demands, particularly in industries where repair parts meet functional requirements at a lower cost and business sustainability. However, the business and supply chain impact of variables such as forecast, cost, lead time, and part availability could lead to a buy decision option.
So how do we handle such a decision?
The good news is that we have an available solution SAP Extended Service Parts Planning (SAP eSPP) where we can model repair or buy scenarios.
But, before we get there, let’s outline some fundamental definitions of types of parts involved in a repair or buy decision:
- Unserviceable Parts: A component of equipment no longer fit for use due to wear, damage, or failure; typically removed from equipment during maintenance and may either be discarded or sent for repair.
- Repaired Parts: An unserviceable part restored to a functional state. Restoration can be performed by an internal process or externally through a subcontractor.
- New Part: A new part, also referred to as a Seed part in planning terminology, is a brand-new functional component procured from an original manufacturer or supplier.
SAP eSPP offers robust standard planning functionalities to support repair or buy scenario decisions, including demand fulfilled through repair, new procurement, or a combination of both. SAP eSPP supports several scenario variants of a repair or buy model:
1. Repair Only: If there is a net demand at a location, the system will fulfill it only through repair, assuming all required elements are available.
2. Repair or Buy – Unconstrained: Repair is the preferred method and can be carried out either in-house or externally through a subcontractor, with unconstrained production capacity.
3. Repair or Buy – Constrained: Repair is prioritized considering constrained repair timeline and constrained subcontractor’s capacity. If the SAP eSPP solution detects shortages given these constraints, the solution switches to procuring new parts.
Let us explore these scenario variants using two representative parts:
- ESPPDEMOREPAIR – Repaired Part.
- ESPPDEMOBUY – New Part.
Scenario:
- Demand shortage of 100 units for ESPPDEMOREPAIR, which can be fulfilled either through repair or buy.
- In case of buy, a Subcontractor can supply 60 units a month with a corresponding new part ESPPDEMOBUY.
Step 1 Assess Unserviceable Stock:
SAP eSPP calculates projected stock forecasts of unserviceable parts based on forecast, returns, and yield rates, resulting in 15 units of projected stock on the day on which demand falls.
SAP eSPP generates a Planned Order for 15 repaired units (Se Figure 1 below), which in this case are for part ESPPDEMOREPAIR.
Figure 1
We still have a shortage of 85 units.
Step 2: Check Subcontractor Constraints:
Now, SAP eSPP evaluates if a Subcontractor can repair the remainder 85 units with a repair capacity constraint of 60 units.
As a result, SAP eSPP proposes a Purchase Requisition for 60 more units (see Figure 2 below), which in this case is for part ESPPDEMOREPAIR.
Figure 2
A shortage of 25 units remains.
Step 3 Procure New Parts:
With a remaining shortage of 25 units, and repair option exhausted, SAP eSPP triggers procurement of new parts ESPPDEMOBUY.
To meet the remaining demand of 25 units, SAP eSPP creates a purchase requisition for 27 units to buy ESPPDEMOBUY (see Figure 3 below). Why 27 units a not 25 units? The part ESPPDEMOBUY has a minimum purchase of 9 units in multiples of 3 units.
Figure 3
Why this matters.
Since repair or buy decisions can involve multiple variables and dependencies, as shown, SAP eSPP provides a flexible and intelligent planning framework that enables businesses to adapt to various operational constraints, leading to managing a repair or buy process with cost-effective and responsive service parts logistics.
With SAP eSPP, Westernacher can empower businesses with an adaptive and powerful solution that automates complex planning decisions while honoring operational constraints and maximizing performance and profitability in your after-market supply chain.
At Westernacher, we have been pioneers in the Service Parts Planning domain since the introduction of services parts planning at SAP (2007) and we continue our journey of innovation with partner customers and co-innovation initiatives globally.
