How to digitalize spare part business As the world is moving more and more towards digitalization around us, the common question which raises in Business as well is: how can we also turn our processes to digitalized ones? One interesting area is digitalization of spare parts business. This article is concentrating on spare part business in the perspective of Small and Medium size Enterprise (SME) and to be even more precise, complex parts made from metal.
Authors: Janne Kousa and Brett Fifield
Problem space explained
Imagine that your company is in process industry manufacturing with regularly spare parts sales to end customers. These parts have low volume, and relatively low turnover but long lead time.
Because of this, one must decide on keeping several items in stock or produce the parts in made to order basis. For a small company large inventory is not cost-effective solution and on the other hand, delivery time for single made to order part may be several weeks.
The interesting aspect is part is criticality, it may even stop the production and create huge costs when the process is not running. In this case, the price for single spare part may become neglectable instead of delivery time that can be promised to the customer.
So the key questions are:
– How to offer good spare part delivery times for several products while maintaining cost-effectivity?
– How to provide spare parts in an emergency situation?
– How to handle inventories in long term
Solution proposal by 3D printing
Let’s assume the following happens:
1. Customer sends request for emergency spare part and states that their production has stopped causing 10 000€ /day direct loss until they get the needed spare part
2. Your company finds the correct spare part item and sends an emergency order to selected 3D printing supplier near the customer
3. 3D printing provider receives 3D file of the part with necessary instructions and is able to start the manufacturing process within 2 hours time
4. Spare part is 3D printed overnight, packed and shipped with expedited method to end customer who receives it in 24 hours and loses only one day’s production instead of having to wait for one-week express manufacturing and delivery by traditional methods
Naturally this emergency process generates more costs than traditional manufacturing, but if the part is critical due to the end customer’s process, doubling or tripling the part cost may be neglectable compared to costs when processes are stopped. (Kousa 2019)
According to Kousa (2019), the digitalization of spare parts business can reduce money tied up to spare part inventory drastically. If the manufacturing is done either near OEM or near the customer by on- demand basis, the delivery times can be reached to good level without keeping any parts in stock.
Figure 1. Delivery time reduction explained by distributed 3D printing process (Kousa 2019)
Digital spare parts process requires that all the necessary data is in 3D- file format, as first requirement. The next requirement is to create the manufacturing process for 3D printing. Easiest way to get started is to find a suitable partner who has enough knowledge about printing possibilities and cost structure to see which are parts are suitable for printing in general. (Kousa 2019)
Part screening process (finding printable parts) is usually the first step which the company faces when thinking about 3D printing. Not all parts are directly suitable for 3D printing and there may very well be some obstacles ahead when finding spare parts that are both mechanically and businesswise suitable. (Kousa 2019)
At first it may seem that there is very limited amount of printable parts, but it is clear that 3D printing technology is evolving all the time, costs are coming down and new methods are introduced so what might not work today, does not mean that could not work in the future. (Kousa 2019)
The important message is that without trying 3D printing as new alternative manufacturing process, it is impossible see the possibilities that this technology may provide now and in the future.
Possibilities for new business concepts
Previously mentioned partnering option for digital manufacturing chain offers a possibility for companies to enter 3D printing business as operators. This kind of operation can be at first local small-scale business but is scalable to global operating model as well. The distributed model can be seen as combined local and global concept.
Solution could be that a partner starts to offer first local service to printing only, then begin handling also the file processing, and in the end moving to fully digital manufacturing chain so that the OEM only forwards the order to an operator who delivers the part to the end user. This model could be even expanded into franchising model where service owner offers client base and local entrepreneurs handle the business branches by their own private companies.
Most extreme step is the OEM only selling user rights to data, practically allowing access to online spare part repository that the end user (or partner) utilizes to print their spare parts. By this, the whole transaction can happen in seconds creating revenue in a fraction of time compared to traditional order-delivery process.
If OEM would one day move to offering production capacity as service, on time spare parts would be in key role to keep uptimes high. In this case 3D printing could be used as a tool for critical part manufacturing.
Upon the findings of this article the most interesting research question businesswise would be:
– Data integrity when moving to completely digital spare parts process, including possibilities of Blockchain for example to protect IPR
– Outsourcing whole spare parts concept to 3rd party – digitalizing the whole sales to order- workflow so that the OEM only sells rights to use the digital spare parts data
– Spare part repository concept in general, OEM’s centralized database for spare part data or distributed accessible data which is then protected by user rights (such as Spotify or Netflix) and charged by royalty fees
– Spare part concepts and their feasibility businesswise, comparing partnering in part manufacturing, complete equipment leasing with service functions and turn-key offering of production capacity including labor
For small companies the above questions may be still quite far ahead, but for larger companies they may offer new possibilities to enhance the spare parts business towards completely digital one and by that to streamline processes, reduce single transaction costs and offer new kind of customer experience for ordering spare parts.
Kousa J. 2019. How to digitalize spare parts business. Master’s Thesis. Lahti University of Applied Sciences, Masters Degree Program in International Business Management. Lahti. [Cited 15 May 2019]. Available at: http://www.urn.fi/URN:NBN:fi:amk-2019051510050
Janne Kousa has completed a master’s in International Business Management Degree program in 2019.
Mr. Fifield has been actively involved in developing Business Schools for the Finnish Universities of Applied Sciences since 1994. Most recently he has been responsible courses in Futures and Strategies, Innovation and Creativity, Digital Services and Leadership and Management of Projects in Distributed Organizations.
Illustration: https://pxhere.com/fi/photo/1323787 (CC0)
Reference to this publication
Kousa, J. & Fifield, B. 2019. How to digitalize spare part business. LAMK Pro.
LAMK Pro. [Cited and date of citation]. Available at: http://www.lamkpub.fi/2019/09/02/how-to-digitalize-spare-part-business/