The Uptime blog

We all know that there is a massive wealth of knowledge that is accumulated by the shop floor engineers and mechanics—the ones who are getting their hands dirty performing the maintenance tasks day in and day out. But capturing that information has always been somewhat elusive. Whether you call it “knowledge capture,” “‘best practices” or “knowledge management,” the goal is the same: find a way to let your entire organization benefit from the know-how that exists in small pockets within your company.

Due to the difficulty we have all experienced in capturing best-practices, it is a common assumption that it must be very difficult to achieve. A holy grail that is pursued but never quite found. But in some cases, achieving this goal can be surprisingly easy.

We’ve seen a few interesting examples of equipment operators saving big, simply by offering their shop floor mechanics a chance to recommend changes to parts catalogs. The idea is quite straightforward: next to each item in an electronic parts catalog (EPC), or each task in a maintenance manual, there is a link that the user can click to initiate a change request. Each time that a mechanic sees a part listing that s/he feels should be updated with alternative parts or processes, s/he simply makes note in the change request form. Those responsible for the maintenace information review the request for technical soundness, then publish it using a one-click approval process that shares this update with all other users of the system. (Dealers can even submit change requests to the OEM so that valuable information can ripple through the entire supply chain.) These maintenance notes are always available even when an updated EPC is received from the manufacturer.  

In some ways, this is nothing new: mechanics could always request engineering changes. But the hassle involved with initiating a request usually led to the process ending before it even got started. And in the few cases when mechanics took initiative, the effort of incorporating these changes and maintaining them over time further dampened the spirit. It was almost as if someone who offered best-practices knowledge was considered a ‘troublemaker,’ which further discouraged participation.

Now, with the change requests appearing in-line within the catalogs, these troublemakers are heroes. Their know-how brings savings to the equipment operator, and makes the documentation management process even easier. Of course, the positive feedback that mechanics receive for making the effort is spurring on more participation—the knowledge just continues to flow.  And wasn’t this our goal in the first place? Letting the knowledge flow in two directions generates procedural cost savings, almost immediately.

This feature can also be taken to the next level to help with business processes such as warranty management, early warning and inventory planning. I’ll explore this further in a future uptime blog post.

Listening to the financial news these days can be very depressing.   Worldwide GDP is in decline along with worker productivity and factory orders.   With that many companies have (and rightly so) ratcheted down their corporate spending on everything from travel and personnel hiring to IT infrastructure.  However, there are signs that the economy is slowly starting to make a turn for the better; according to a recently published CNBC article, by 2010 economic activity will start to grow again. If you believe in this economic recovery theory as I do, then I would suggest that now is the time for companies to begin investing in areas that will provide them with a competitive advantage when the economy turns.

I would offer that the area with the greatest growth potential coming out of a recession is the aftermarket.  Why the aftermarket?  During the last 8 to 9 months I have had multiple conversations with companies discussing the state of their business and the economy and what many senior executives have told me is not surprising: “Not only are we not selling new equipment, but companies are not using their existing equipment” With that statement I would argue that once economic activity picks up it will be on the back of existing equipment which has set idle for many months and not new equipment purchases.  In thinking about what is generally involved in getting idled equipment ready for operations (service checks and maintenance, replacing old parts, installing updated parts and modifications, etc) I believe the aftermarket over the next 12 months can be a real growth engine for organizations that are prepared to execute.

Why are execution and an early focus in the aftermarket so critical?  For two main reasons:

1. The aftermarket will be highly competitive coming out of a recession, with companies looking for anyway to generate additional revenues.   Companies that are organized, easy to do business with and have a well thought out strategy will win.
2. Companies that start to get their “aftermarket house” in order now will get a jump on the completion, those that chose to wait will in my opinion miss the boat.

To put a highly efficient aftermarket infrastructure in place will take every bit of 6 months to a year, if organizations start investing now they will be prepared for the aftermarket wave as the economy starts to grow in 2010, those that chose a wait and see approach will be playing catch up and trying to deploy an aftermarket strategy in the middle of the aftermarket boom.

A March, 2009 press release from Lang Marketing highlights a risk facing OEMs as they downsize their dealer networks. According to Lang, “most of the more than $7 billion in 2009 parts and service sales abandoned by closing dealers (at user-price) will be captured by independent (non-dealer) service outlets and auto parts stores, as well as independent (non-OE) auto parts distributors.”

The prospect of OEMs losing $7B in revenue is a dire prediction. It implies that the remaining dealer network will fail to capture business from any former dealers—and customers will now go to PepBoys for parts and service. For OEMs, a bigger risk than PepBoys may come from former dealers that remain in operation, selling used cars and focusing on the service and parts business. These newly formed independent repair facilities (IRF) will probably avoid ordering parts from OEMs, so whether customers turn to PepBoys or former dealers, manufacturers face significant competition for parts revenue. While aftermarket carnage is possible, smart OEMs can avoid that outcome.

In this new world of automotive service, where fewer dealers support more customers, franchise holders expect OEMs to help them compete against aggressive and knowledgeable IRFs.  Former dealers will do everything possible to retain existing customers; however, being dropped by an OEM probably doesn’t help their business.  These newly formed independent repair facilities will lose some of the specialized knowledge they had when they were franchise dealers, especially for the newest models of cars.  The remaining dealers may be able to gain an advantage through access to OEM service and parts information and supply chains.  With OEM assistance, in the form of more accurate and timely information and more streamlined parts processes, franchise dealerships can capture a greater share of the parts and service market.

Beyond acquiring individual car owners, franchise dealers can benefit by developing business relationships with smaller, local service shops that had been served by former dealers—supplying them with OEM-branded parts like a warehouse.  Capturing “orphaned” service shops will be extremely profitable for dealers because some components are only available through an OEM franchise.  Since delivering the right parts quickly is a major advantage with IRFs, those OEMs that simplify and accelerate their dealer’s parts procurement will go a long way toward ensuring success in the aftermarket.

In previous blog posts I have discussed ways for OEMs to capture more aftermarket business by making life easier for customers and dealers.  OEMs that help dealers improve customer service and support will be the ones best positioned to mitigate a $7B risk.

Other Enigma posts on improving aftermarket business:

• How Fewer Dealers Can Sell More Parts
• Simplifying Parts Sales: Make It Easy For the Customer
• Seven Steps to a Highly Effective Aftermarket
• OEMs and Aftermarket Parts: A Bigger Piece or A Bigger Pie?
• Improving Aftermarket Share

Manufacturing companies trying to expand their aftermarket parts and service business must grapple with a problem that is unknown to most of their executives—the issue of old (or poor quality) product information. (i.e. maintenance manuals, service bulletins, technical specs, parts catalogs, etc.) Any customer with machines more than five years old is, in all likelihood, making maintenance decisions based on outdated paper documentation—or the electronic equivalent, scanned PDF.  Customers running old equipment will eventually rely on old information.

There are billions of machines in use throughout the world that fit that description, and service and parts decisions are being made for them based on old information. Modern authoring tools with robust data formats, like XML, may help future generations of technicians, but OEMs that want to improve aftermarket revenues must find a way to use yesterday’s service information to help today’s mechanics and parts managers. That means getting parts and service information that’s in an old format on-line, tying it into parts ordering systems and then updating and maintaining this information for the future.

Before they begin, OEMs must clearly define their aftermarket business objectives because decisions about cleansing, converting or re-using old data can have significant implications. In fact, for anyone trying to improve aftermarket profits, the cost of making their old data usable is probably the biggest unknown expense they will face. Poor data decisions can easily double the time and money needed to implement a new aftermarket initiative.

For instance, if service information is in paper format there is really no other option than to scan it into an electronic format. But what then? Should the company take the next step and use optical character recognition (OCR) to convert the scanned document into a true, text-based format? If so, what level of conversion accuracy is required? (Accuracy requirements will vary by industry and be driven by the risk of potential errors—in terms of money and safety.) If OCR is deemed too expensive, perhaps metadata or searchable keywords can be added into the file header or the properties of the new electronic document. (This may be a manual process or it may involve OCR, but on a more limited scale and therefore with far greater accuracy.) But what types of metadata/keywords are most useful to aftermarket business activities? What about non-textual information like graphics, schematics and illustrations; or parts lists, calibration and inspection tables? The answers to these questions, and more, will have a significant influence on the time and cost of getting the aftermarket solution up-and-running.

Of course, if the OEM has source documents in an electronic format, so much the better. In fact, it is reasonable to assume that any document printed in the last 20 years was created on some type of electronic authoring tool. Since electronic data will provide much better quality than scanning and OCR the question then becomes how to obtain the original files? And what about any revisions  and ongoing updates/modifications?

When trying to improve aftermarket revenues, there are a large number of data issues that deserve thoughtful consideration. Because of Enigma’s vast experience serving the aviation, automotive, oil & gas, rail, defense, utilities and high-tech industries, we are well positioned to provide you with insight and solutions to even the most difficult data problems. The key to success in the aftermarket is cleansing old data to drive new business.

In a recent survey of manufacturing executives, 54% of companies say that maintenance retirements will cost them more than $10MM over the next five years. And 31% estimated the cost at more than $50MM. According to Stephanie Neal’s article in Managing Automation magazine, OEMs can’t afford to make new capital investments, yet “businesses need to run at peak performance levels…Meanwhile, baby boomers are retiring, leaving a gap in the number of skilled professionals who understand MRO operations.”

These numbers are a major concern for OEMs because equipment downtime has a negative impact on business. And we’re hearing a similar message from other capital equipment operators like airlines, rail & transit, and oil & gas. Maintenance capability is critical to keeping equipment in-service, generating revenue and profits.

In the same issue of Managing Automation, David Brousell’s article identifies the top 3 business goals for 2009 as:

1. Reduce Inventory
2. Improve Customer Service
3. Reduce Downtime. 

While it may not be obvious at first, these three objectives and the retirement problem share a common characteristic: success relies on improving access to parts and service information. Current maintenance improvement strategies that focus on enterprise asset management or supply chain management (EAM/ALM/CMMS and SCM/SPP) fall short because they lack the detailed aftermarket information necessary to fully address these opportunities and problems. (See a previous blog post on this topic.) Traditional systems can track performance, schedule maintenance and balance inventory but they don’t address the problem of improving service—both scheduled and unscheduled maintenance activities.

With the number of experienced mechanics decreasing and the demands for productivity increasing, how will companies keep equipment running? Some are simply outsourcing maintenance to a 3^rd party, essentially buying a “best-in-class” maintenance organization. The problem with this approach is that recurring costs are bound to increase as the company’s first-hand knowledge regarding equipment maintenance decreases.

Another approach is to enhance in-house maintenance by implementing a one-stop-shop for all parts and service information—including the collective experience of the maintenance department—for your equipment. This allows existing service departments to become more efficient and more consistent in delivering maintenance and support, and helps new technicians perform like old-timers. This approach also helps companies to contain escalating maintenance costs, ensuring they retain control over uptime and output.

Implementing a one-stop-shop approach does more for companies than just improve maintenance training, reduce equipment downtime and improve customer service. (Although that may well be enough.) It also helps reduce inventory by ensuring correct parts orders and by providing real-time demand information from the point-of-service to the supply chain management system, allowing more accurate parts forecasts.

Companies that operate capital equipment face a dilemma. They need to get more production out of existing equipment with limited resources—both human and financial. Solving this problem is a big decision. On the one hand companies can outsource maintenance, but once that decision is put in motion it becomes difficult to reverse. On the other hand they can use available technology to improve the in-house maintenance and thereby keep their options open. To my way of thinking, in an uncertain world flexibility is a commodity that is hard to replace and one that I am reluctant to lose.

Recently I’ve been reading a blog called SPPLAN – Service Parts Planning.  Shaun Snapp, the author, wrote a few pieces on his personal experience trying to order a part for his 1997 Honda Accord. In these blogs he touched on the opportunities available for OEMs to develop, what I call, a Dealer Parts Hub (DPH) (see previous post). While Snapp didn’t call it DPH, it is nonetheless what he was describing.

Snapp is looking at the aftermarket problem from a slightly different angle than I am. However, we both see tremendous opportunities to reduce the cost and complexity of buying service parts. Following our advice would allow OEMs to optimize inventory and improve customer support. So where Snapp is focused on accelerating the order-to-delivery process, Enigma focuses on accelerating the parts identification and ordering process. Interestingly, Snapp’s story reveals the impact of both issues because at first he couldn’t figure out the right part number to order and then he discovered the part was only available through a dealer. (I asked Snapp about his experience and he told me that he still hasn’t bought the part.)

The fact is these problems are two sides of the same coin—service parts procurement. Traditional part sites seem to miss the fact that buying a service part is different from buying a t-shirt or book. For a car, truck or bulldozer there are many interrelationships between components, which means that determining the right service parts to order requires an understanding of the equipment make, model, trim package (optional components) and model year. Often this requires a detailed understanding of how to decode the VIN (vehicle identification number) or serial number of the product. (Not an easy task given there are over 250M vehicles on the road in the US and they may date back to the 1980s.) Furthermore, service information like maintenance manuals and service bulletins must often be consulted to understand the latest service and parts recommendations (and these often apply only to a sub-set of all equipment). As a result, I’m not surprised that Snapp couldn’t find what he wanted on eBay and I understand his frustration with the parts sites. They should be up to the job, especially the OEM sites, but most of them are not. As a result, the entire part buying process can be painful.

One of our customers told us that, prior to implementing Enigma, parts orders could take as much as 45 minutes to complete. As a further example, here is Snapp’s first-hand account from his blog:

“When looking through the websites of dealers, it was absolutely maddening to try to navigate them. Most the sites are caught in a time warp and exhibit the worst of web navigation and design. Some of them ask for contact information so they can treat the desire to purchase parts as a ‘lead’… Why does Honda allow dealers, who lack the interest or size to develop competent transactional websites to sell auto-parts on-line? Why are Honda, and other major manufacturers, not managing this with a single website and a national network…And especially when a customer wants to order a part, there is absolutely no reason they should have to [use] a dealer to do so.”

This brings me back to the Dealer Parts Hub. Enigma is just one piece of the overall DPH footprint. But if the experience of Snapp is any guide, Enigma is the critical piece for improving customer satisfaction and brand loyalty. The key to improving aftermarket parts sales is simplifying the parts identification and ordering process.  The time is right for ideas like DPH to be implemented and bear fruit.

There’s an interesting article by Michael Lam in Overhaul & Maintenance Magazine titled, “The Curious Case of the Irreproducible Result: Demystifying No Fault Found.” (A No Fault Found is an equipment problem reported during ordinary operations that can’t be traced to a specific cause and can’t be reproduced in a controlled environment.) Although written for an aviation audience, this article offers a good overview for any industry trying to reduce the number of No Fault Found (NFF) events.

NFFs are particularly disturbing because they result in so much waste. When a component is replaced unnecessarily, someone must pay for the new part, for the actual service, for scrapping or repairing the old component (and any associated shipping charges), for replenishing inventory, and for the subsequent repair and downtime when the equipment must be fixed a second (or third, or fourth) time. When a component is mis-diagnosed on a plane, train or automobile (or any other piece of complex equipment), it sets off a series of events that impact customer satisfaction, maintenance productivity, and inventory control, all of which harm revenue and profits.

In the aviation industry, 30% of reported faults can’t be reproduced; and, if you focus on avionics—which represent 75% of all aviation NFFs—the number of problems that can’t be reproduced jumps to 50%. The reason, according to Lam, is “the collision of an irresistible force—the ever-increasing sophistication and complexity of aircraft technology (the dense workings of the components themselves, the size and intricacy of the software programs that govern them, and the proliferating interrelationships among various systems and sub-systems)—with an immovable object: the commercial pressures that cap the time available to line maintenance technicians for troubleshooting.” Do dump trucks, locomotives, and control valves experience similar NFF problems? Given the complexity of this equipment, the advanced electronics and automation that is being added, and the harsh environments in which they operate, it would be logical to say “yes”.

Even the incorporation of advanced (and integrated) diagnostics has not solved the NFF problem. Lam says, “Technicians cannot rely on automated test equipment to do their thinking for them. As the NFF rate shows, they’re not sufficiently reliable. The best corrective is a better understanding of the underlying mechanisms and their interconnections.” In other words, the answer to reducing No Fault Found events is not more automation but rather better information. The article advocates that companies adopt a holistic approach to diagnostics, fault isolation and resolution—all of which is predicated on a more complete understanding of the equipment and the operating environment.

I agree with Lam’s assessment and Enigma has always stressed the importance of providing complete and relevant information to maintenance planners, engineers and parts managers. Whether it’s parts catalogs, service manuals or proprietary maintenance techniques, Enigma supplies all the information necessary to accelerate troubleshooting, streamline repairs and improve maintenance quality.  For further reading on aviation NFFs, please see ARINC Report 431: No Fault Found - A Case Study and ARINC Report 672: Guidelines for the Reduction of No Fault Found. No Fault Found is a critically important topic for any company with aftermarket operations; therefore I will post more information as I find it.

Chrysler wants to close 25% of its dealerships (almost 800) taking the total number down to about 2400. GM wants to close 40% of its dealerships to get down to about 3,600. These decisions reflect the fact that car sales are dropping from about 10M annually to about 7M and are forcing the manufacturers to re-think many aspects of their business model: revenue, costs, volume and profits.

After removing almost 3,200 dealers, how can manufacturers increase revenue, decrease costs and increase volume and profits? This question must weigh heavily on the minds of OEM executive teams. (I don’t mean to be insensitive because certainly the OEMs are concerned for the welfare of those dealers and staff that have been eliminated, but they must also focus on rescuing the larger business and limiting the financial damage to themselves and the remaining dealers.) With people buying fewer cars, one area that is ripe for OEM growth is aftermarket parts, which is one of the most profitable pieces of the business.

Aftermarket parts—often called service parts—are the parts sold to support the roughly 250M registered vehicles currently on the road in America (136M of those vehicles are passenger cars.) What is interesting is that the OEMs only have about 10% share of the aftermarket. (See previous blog post: OEMs and aftermarket parts—a bigger piece or a bigger pie.) Two of the questions that probably come up for a VP of Parts are, “After losing 3,200 parts desks, what is the best way to sell parts to the car owners who relied on that dealership? And, “Is it possible to increase service parts volume with fewer dealers?”  I believe there are encouraging answers for both questions. It may be time for OEMs to consider a new parts strategy that I call the Dealer Parts Hub (DPH).

DPH is a fairly straightforward concept. Allow customers (dealers, independent repair facilities (IRF), do-it-yourself mechanics) to easily identify and order required parts and service documents directly from the OEM’s website. Then, send the customer to the appropriate dealership to pick up their parts (or add it to the dealership’s regularly scheduled parts delivery).

Certainly there are complications for the OEMs and the dealers that must be addressed; however, none of them are insurmountable. For instance, it is important to find a way compensate the OEM for sharing their intellectual property—parts and service information. Also, the DPH solution must steer customers to the appropriate dealer, especially when an agreement exists between dealers and IRFs to supply OEM parts. Finally, the DPH solution will need visibility into available inventory at each dealer to ensure that service parts are waiting when the customer arrives. There are other issues as well but we know the technology exists to make the Dealer Parts Hub a reality.

Automotive OEMs and dealers are trying hard to return to profitability. Enigma believes we have part of the solution. Future posts will explore in greater detail the requirements, opportunities and benefits of the Dealer Parts Hub strategy.

I recently returned from MRO Americas, where I spent some time walking the exhibit hall, listening to various presentations and serving on a speaking panel, “Regulatory Compliance in the Digital Age.”  Here are a few observations from my time in Dallas: the show was busier than I expected, despite the economy; airline concerns regarding the aging MRO workforce are increasing; although my speaking panel was the last one of the entire show it was very well attended. From this I reached the following conclusions:

1. MRO remains a critical priority for airlines (no surprise there)
2. Airlines don’t know who will be fixing their airplanes in the future (or how they will be trained)
3. Airlines want the FAA to give clear guidance and help resolve the significant issues that arise when implementing digital systems

Since this panel was the last topic before attendees left to go home, the Q&A session was informal. Nevertheless, we were surrounded by people asking questions about how to achieve a truly efficient, and compliant, digital MRO environment. The airlines made it clear that they need the FAA to synchronize maintenance regulations with current IT capabilities. Furthermore, they expect the FAA to focus on more than just the airframe and engine OEMs, looking also to the airlines, MRO shops and technology suppliers for input. Airlines want FAA regulations that synchronize safety, maintenance and data standards so that they can be protected from being forced into rigid single-provider systems. (The issue of data standards is very important to airlines as they try to avoid OEM-only systems that may limit their flexibility for procuring parts and service.)

Despite years of IT investment, today’s reality is that airplanes are still being fixed with paper documentation. The result is that after one or two years it is nearly impossible for a maintenance planner to understand an airplane’s service history. It is no wonder that planning organizations take months to properly schedule fleet maintenance and must still repeatedly revise the plan throughout the year.

Paperwork is the bane of our industry, not regulation but literally paperwork. Anyone that has ever been forced to sit on a plane, on the tarmac, waiting for the paperwork to be completed knows exactly what I mean.

The Obama administration is a huge advocate of e-government, green initiatives and consumer safety. These are all issues that the MRO industry embraces. With help from the FAA digital MRO can become a reality, which will improve maintenance operations, simplify safety compliance and accelerate AD (Airworthiness Directive) adoption.

In future blog posts I will speak more on this subject and address some of the preconceived notions that exist around aircraft MRO and the technology that supports it.

The April 20, 2009 issue of BusinessWeek includes innovation survey data compiled by Boston Consulting Group. The survey data makes it clear that companies across the board are reducing innovation related to new products and services. The BW/BCG poll indicates that companies have become very conservative when it comes to innovation. (Does this surprise anyone?)  However, the data also indicates that companies are increasing incremental innovations for existing products and services—this includes minor changes and cost reductions.

In fact the print version of the magazine says, “More companies also are emphasizing minor changes to existing products and cutting production costs than in the previous two years. The upside: Corporations are more satisfied than in the past with the financial return on their innovation investments, suggesting they’ve scaled back to funding prospects with a shorter-term payoff.”

The survey results reinforce a previous blog post on innovation, where we suggested that improvements to existing products and services are very attractive in recessionary markets. This type of incremental innovation doesn’t have to be explained to customers because they already understand the product or service, therefore promoting new features is reduced to simply answering the question of whether the new feature does a job better, faster and/or cheaper.  In the aftermarket, OEMs, customers, distributors and field technicians all recognize the value of accelerating equipment repairs and streamlining parts orders.

This leads me to ask a simple question, “Which of your products and services can most benefit from incremental innovations that deliver higher revenues and/or lower costs?” For OEMs, each company may have a different list of possible projects, but improving aftermarket sales and service should show up somewhere for all of them.

Why invest resources now towards improving aftermarket processes? Two reasons:

1. In good economic times or bad, the aftermarket is one of the most profitable parts of any OEM business model.
2. In a recession, like today, companies aren’t buying new equipment; rather they are trying to get the most out of what they already own.

The common perception of the aftermarket involves high costs and serious competition. While the competition is extreme, the cost doesn’t have to be. (Some of these issues are addressed in a recent webinar by Enigma and Oracle.)  For short-term payoff, it makes sense for OEMs to invest in an aftermarket parts and service application that will not only reduce the cost of their aftermarket operations, but also increase their aftermarket sales and improve their customer satisfaction.