spare parts Archives

UPS and Additive Manufacturing: Managing a Megatrend

Logistics Outsourcing | By Steve Banker • 11/21/2016

UPS Invests in a 3D Printing Firm to Learn

UPS actively monitors emerging technologies including 3D Printing. 3D Printing, also known as additive manufacturing, was not that interesting to UPS initially. But as industrial manufacturers began making components, not prototypes for R&D, but direct material components used in finished products, UPS began to become interested. In time, they realized that this could be a megatrend that could reshape the face of the logistics industry.

Alan Amling, a VP of Corporate Strategy at UPS, spoke about their journey to provide 3D Printing services at a SAP event for industry analysts in Atlanta on November 9th. UPS is a global leader in logistics, offering a broad range of solutions including transporting packages and freight; facilitating international trade, and various types of warehousing, consulting, and value added services. SAP, a leading provider of enterprise software, is an active partner with UPS in making this an economically viable service offering, in part by leveraging their Ariba sourcing network to make these types of suppliers easier for prospective customers to find and onboard.

The third party logistics (3PL) business is changing. There are a wider set of competitors than just other providers of logistics services. For example, IT companies like Uber have emerged; these are crowdsourcing companies that don’t actually own assets. When it comes to package delivery, density drives the parcel business. UPS looks at companies like Uber and wonders whether crowdsourcing could change the economics of their business.

UPS also sees a world in which cities are becoming increasingly dense. When ecommerce goes from 9 percent of retail to 30 percent, how feasible will it be to deliver all those packages? “If we want to be around another 100 years, Mr. Amling stated, “drones, crowdsourcing, and 3D printing are the megatrends we have to stay on top of.”

UPS is good at managing risks. But when it comes to these megatrends “it is not about managing risks, it is about managing uncertainties” according to Mr. Amling. Risk has known outcomes with attached probabilities. Uncertainties have unknown outcomes and thus there can be no knowledge of the probabilities associated with a particular outcome.

UPS’s strategic investment arm, the UPS Strategic Enterprise Fund, took a stake in a company called Fast Radius that provides 3D printing, CNC, and rapid injection molding services for industrial companies. “We did this,” Mr. Amling said, “just to learn about the potential of this technology.” Fast Radius is located in a facility owned by UPS in their Louisville air hub. A second Fast Radius production cell within a UPS facility will open in Singapore by the end of the year.

This sort of investment is not unusual for UPS. In order to learn about crowdsourcing, they made investments in the same day delivery startups Deliv and Shutl; and to learn about drones they invested in CyPhy Works.

This is a journey for UPS.

Additive manufacturing will certainly cut down on the warehousing space a company needs and frequently it will reduce their transportation spend as well. But UPS’s perspective is that this will happen, someone will bring this to market. “You don’t want to be the bug on the windshield,” Mr. Amling said, you want to be the windshield.” While this service line may reduce revenues in some areas, it adds and other solution to the set of logistics solutions they can provide.

Selling existing customers on an additive manufacturing service has been a challenge. Many of their customers expressed interest but did not want to be a pilot customer. Everyone UPS talked to was concerned about quality. As opposed to prototypes, where there is not an extensive certification process, the opposite is true for direct materials. One of SAP’s key contributions to this partnership is process knowledge around quality and supplier certification.

A printed component has different structural characteristics. A printed part might, in some cases, have a longer lifespan or superior performance, but it can never be considered an exact duplicate of a part produced by traditional manufacturing processes. Because of this, most of their initial eight beta customers are focused on less critical parts. An aerospace company, for example, is printing parts for the interior of the airplane.

These quality concerns mean that industrial manufacturers will never look to go with the 3D printing company that provides the lowest bid. “There will always be vigorous vetting,” Mr. Amling averred. And there will, for the foreseeable future, be limits on the production runs. “A company that needs a 1,000 parts” of some SKU “will not produce them with 3D printing.”

Because they are looking at smaller volume SKUs, this will in large part become part of their service parts logistics offering. For UPS’s customers this will allow them to print smaller quantities, more often, and closer to the point of use. Mr. Amling pointed out this will take “time, cost, and carbon” out of the customer’s supply chains. Customers that already use UPS to help manage their service network may find this service will reduce their costs. For UPS, it is another tool in their tool kit that they can use to provide value. “Today,” Mr. Amling said, there is not good solution for slow moving parts. There is now.”

Once an industrial manufacturer decides to do a pilot with UPS and Fast Radius, they send over a CAD file of the product. After that, an additional 2 to 3 hours of further engineering work are required to produce a more detailed CAD capable of driving a 3D Printer. The warehouse then needs to store the right materials to print the component.

UPS today is a key service parts logistics supplier to many customers. Mr. Amling pointed out that the new offering is “allowing us to have broader supply chain conversations” with customers and prospects and “to learn by doing.”

The Internet of Things Changes Logistics in the OEM Spare Parts Supply Chain

Logistics Service Providers | By Ralph Rio • 10/22/2015

Overview
Suppose you’re in logistics for an equipment manufacturer or a maintenance manager in an operating plant, and a geek in your office keeps talking about the Internet of Things (IoT). Here is why you should listen:

The underlying technologies are available with no needed breakthroughs
Major companies such as IBM, Cisco, GE have IoT programs with product development and marketing campaigns
The potential business benefits for OEMs and end users are strong. The technology could help end users improve equipment reliability and reduce spare parts inventories, and help OEMs sell more services at higher margin

By offering IoT-enabled condition monitoring, spare parts, and equipment repair services, equipment OEMs can remotely monitor asset health in their customers’ plants, anticipate failures, order the parts, and often execute repairs before the failure occurs. This provides an ongoing, services-based revenue stream for OEMs, while enhancing customer uptime and overall satisfaction.

Fewer unplanned equipment failures mean the OEM doesn’t have to keep as much spare parts inventory on hand for quick response to emergency repairs. Also, fewer emergency calls mean more spare parts inventory can be in a centrally located warehouse, rather than in regional or local depots.

Reduced Unplanned Downtime
Machine downtime, particularly unplanned downtime, is a key impediment to production performance. Sixty-seven percent of respondents in an ARC survey on Enterprise Asset Management (EAM) cited improved machine uptime as a primary business driver behind purchasing EAM software.

Unplanned downtime causes losses in several areas including:

Higher costs with work-in-process (WIP) material waste and scrap
Labor losses with idle time, rework, and clean-up
Missed production schedules with delayed shipments, customer satisfaction issues, lost orders, and lower revenue
Higher business risks with potential safety and environmental incidents

The impact of downtime to revenue and profitability gets C-suite attention. Preventing the associated production and financial losses drives maintenance programs, including spare parts inventory and logistics.

IoT and Asset Health Monitoring to Predict Failure
The potential to significantly improve the uptime metric and prevent unplanned downtime through remote asset monitoring provides a significant business value proposition to help justify investments in the IoT and connected devices for both in-plant asset management and field service.

IoT-connected devices enable end users and/or OEMs to remotely monitor sensor data (like vibration, temperature, pressure, etc.). In this manner, the IoT improves product and equipment uptime through remote diagnostics, troubleshooting, and predictive maintenance.

Asset health involves the monitoring of the condition of an asset and detection of an issue before failure occurs. An alert from a health monitoring application notifies a maintenance planner to have someone inspect the equipment and schedule the repair prior to a failure. This has significant impact on the maintenance function:

Lower repair costs – A failure of a component cascades into a much larger issue. For example if your car engine runs out of oil, the bearings will seize and the engine will have to be replaced. In this case, $25 dollars worth of oil cascades into a $5,000 repair.
Less inventory – Much of the spare parts inventory exists “just in case,” so equipment can be repaired quickly to re-start production. With predictability, time becomes available to order and obtain the parts.

New Revenue for Equipment Manufacturers
IoT emphasizes remote access to connected machines to enable transformative business improvements – one of which is field service by original equipment manufacturers (OEM). With IoT, the value of an OEM’s service plan greatly improves – more uptime and less unplanned downtime for the user of the equipment.

Remote device connectivity coupled with device-level service apps help manufacturers more rapidly diagnose and troubleshoot issues in the field, address them in a more timely fashion, and market new subscription-based products and services. This is the strategy behind GE’s “Industrial Internet.”

With the credible and clear improved uptime benefits, OEMs have the opportunity to raise prices and sell more services. The improved margin and new revenue opportunities provide the financial incentives that will drive many OEMs to adopt IoT solutions. A post on new revenue with IoT for OEMs is here.

Impact on Logistics and the Spare Parts Supply Chain
Currently, many spare parts supply chains are constructed in such a manner that inventory is held centrally, perhaps in a manufacturing plant or a centrally located warehouse in a particular region. This central stocking location sends inventory to a network of depots that can provide a quick response to customers’ needs. Often, warehousing and shipping services are outsourced to a third-party logistics (3PL) service provider, particularly the large 3PLs that have specialized in parcel deliveries (FedEx, DHL, TNT, UPS,) and have an infrastructure in place to respond quickly.

Some types of spare parts are not critical in the sense the customer will not lose substantial amounts of money for downtime if the delivery is delayed a few days. An example would be automotive parts or large household appliances parts. However, the ability to deliver quickly to local dealers is a competitive advantage for the manufacturer.

For critical spare parts (such as expensive parts used in production machinery), the customer may have a service contract that requires delivery within a set time period after a service failure occurs. Customers pay more if they require very quick service within a few hours of a part failure. The customer may also pay to install the spare part. If installation services are required, the local depot serving that customer is more likely to be run by the manufacturer, rather than a 3PL.

Clearly if the customer is using a “run to failure” maintenance strategy, which is often the case, the pressure for a satellite depot to respond quickly after a part failure is greatly increased. Critical parts absolutely need to be in inventory in the local depot for the OEM to be able to respond within a few hours.

For less critical parts, it is often impossible for OEMs to store all inventory locally. In automotive, for example, customers may have cars that are decades old, involving potentially hundreds of thousands of different parts. To support dealers, OEMs would have to use expensive overnight shipments from the central warehouse directly to the dealer or to the depots that support the dealer network.

In the future, as parts become intelligent and connected — enabling failures to be predicted days or even weeks in advance — OEMs will be able to reduce the amount of spare parts inventory they need to hold both centrally and in local depots, since the central site will be responding to planned maintenance, not crises. OEMs will have more opportunities to consolidate shipments to depots and switch to slower and less expensive transportation modes. In short, remote condition monitoring of connected devices and equipment through IoT will allow OEMs to improve customer service while reducing their own costs.

Recommendations
Listen to your “inner geek,” and consider the potential impact of the Internet of Things on your business

For OEMs, consider the broader benefits of IoT beyond revenue enhancement for services, and examine the optimization of inventory and depots for additional business improvements
For end-users, include IoT, remote monitoring, and predictive maintenance in the selection criteria for new equipment to reduce total lifecycle cost

A Revolution is Coming to the Spare Parts Warehouse

Warehousing | By Steve Banker • 07/23/2012

Inventory management is very difficult in a spare parts warehouse. For example, if you are a car or truck manufacturer, your warehouse network needs to carry spare parts for a vehicle you might have stopped making decades ago. Further, your network of dealers and repair shops don’t want to wait for spare parts; industry standard is to provide them with next day delivery of requested parts.

What this means is that a spare parts warehouse might have to carry a number of slow-moving C items and incur their associated inventory carrying costs.

A spare parts warehouse can also end up storing tens, or even hundreds, of thousands of stock keeping units (SKUs). That means a large warehouse and high capital expenditures. A large warehouse means longer picking paths, which means higher labor costs. Finally, it is not unusual to distribute slow-moving parts in two steps: a national distribution center air freights the part to a regional warehouse that then ships it out to the dealer. This means high transportation costs.

But the spare parts warehouse is on the cusp of a revolution when it comes to managing slow-moving inventory. These DC’s are going to become manufacturers of C items.

ARC Advisory Group recently published a report by Dick Slansky titled, “3D Printing: Creating Physical Parts and Products from Virtual Models” (available to ARC clients only). Here are a few excerpts from the report:

While a bit misleading, the term “3D printing” refers to a manufacturing process in which three-dimensional computer-aided design (CAD) files are downloaded to a machine that creates multiple layers of material (paper, plastic, metal, etc.) that are then fused together to form a three-dimensional object representing an exact replica of the 3D virtual model.

From a technological perspective, 3D printing is an outgrowth of traditional 2D printing in which a layer of material (usually some form of ink) is applied. The layer is so thin there is no noticeable height. What 3D printing does is to greatly extend that height by applying multiple layers of materials, adding the third dimension and actually building the object. Software that takes a series of digital slices through a CAD model defines the layers. These digital slices can be put together using different techniques that involve a variety of technologies.

To produce auto parts, for example, “metallic powder can be spread onto a tray and then solidified by using a liquid binder or by sintering it with a laser or an electron beam.” A tailpipe, for example, can be made by adding layer after layer of stainless steel powder and then cooking it with an electron beam laser. The SKU would need to be lightly finished at the end of the manufacturing process.

“Today, 3D printers are mainly used by design engineers to build part prototypes,” Slansky writes in the report. “However, this is changing rather quickly as manufacturers look to use 3D printing to build production parts that will be used in larger assemblies, as well as direct products for the consumer.” Further, “as 3D printers have become more sophisticated, reliable, and capable of working with a broader range of materials and processes, the machines are increasingly being used to make actual production parts. Today, more than 20 percent of the output of 3D printers is for production parts rather than prototypes.”

From a spare parts perspective, one advantage of this process is that there is no long tooling set-up process, which would make it uneconomical to produce small lots and would require warehouses to store more parts than they really need. Also, when spare parts are made of expensive raw materials, such as titanium for an aerospace spare part, this form of manufacturing has the advantage of being “additive” — i.e., you don’t have to bore out and waste an expensive raw material.

Additive manufacturing represents a disruptive technology that will support a significant change in the way companies manage a network of spare parts warehouses. Eventually, it is a technology that might, as Slansky put it, “help usher in a new economic model for manufacturing in which mass customization and manufacture-to-order will prevail.” But in the nearer term, as the cost and reliability of additive manufacturing continues to improve, it is apt to transform warehousing first.

O’Reilly Auto Parts Uses Distribution Excellence to Differentiate Itself

Inventory Management | By Steve Banker • 12/05/2011

On August 30th, O’Reilly Auto Parts gave a presentation to financial analysts from one of its distribution centers (DCs) in Kansas City, Missouri. This signaled that the company considers distribution excellence to be a core differentiator, a message that comes out loud and clear when you look through the presentation the company gave.

O’Reilly Auto Parts is an auto parts retailer with $5.6 billion in sales over the past 12 months. The company has more than 3,600 stores in 30 states and over 49,000 employees. O’Reilly serves two markets: Do-It-Yourself shoppers, folks who like to fix their own cars; and Do-It-For-Me, auto repair shops and service centers that fix cars for customers.

The Do-It-Yourself market has lower service levels. If it takes several days to get a part in, that is good enough. The Do-It-For-Me segment, however, is less forgiving. Ideally, an auto parts store will have the part right available when a customer comes in for service. But there are so many old cars on the road (new car sales have fallen from 17.5 million cars in 2005 to 11.5 million in 2010) and so many models (imports have increased greatly over the years), that having every stock keeping unit (SKU) in available at the retail outlet level is impossible. So part of O’Reilly’s competitive differentiation is enabling next-day delivery from its DCs to its stores.

To support this distribution model, O’Reilly needs a lot of DCs – the company has twenty three. O’Reilly considers these DCs as “state-of-the-art facilities” with “advanced material handling equipment, progressive slotting and picking technology.” Its current warehouse network is capable of supporting 550 more stores before the company has to invest in new facilities.

To complement the advanced warehousing, O’Reilly has robust delivery capabilities. As of the date of the presentation, the company has a private fleet of 483 tractors and 540 trailers that it uses for five-night-a-week delivery to all stores in the continental US. In addition, O’Reilly’s DCs are located in metro areas. For stores located in a metro area that includes one of its DCs, the company offers multiple deliveries per day.

O’Reilly also competes based on having broad inventory coverage. The company stocks an average of 118,000 SKUs with a total of 156,000 unique SKUs in stock. This is a multi-echelon model; most DCs are linked to multiple master inventory DCs. O’Reilly also has 314 strategically placed master inventory “hub” stores that carry an average of 17,000 additional SKUs. These hub stores can provide surrounding stores with same-day access to expanded inventory.

Ideally, service performance should not come at the expense of bloated inventory levels. O’Reilly has taken steps to make sure that doesn’t happen. The retailer uses Manhattan Associates’ Inventory Optimization solution (Manhattan Associates is an ARC client). In its second quarter financial call, O’Reilly’s CFO said the following:

“Year-to-date, we’ve opened 87 new stores with an increase of inventory of only $12 million. On a per-store basis, inventory at the end of the quarter was $557,000 versus $567,000 per store at the end of 2010. We expect to see continued reduction in our per-store inventory within the next few years. For this year, we continue to believe we can add 170 new stores with only a small increase in gross inventory.”

It is worth mentioning that spare parts inventory creates a particularly difficult inventory optimization problem. It is much easier to forecast an SKU’s demand if it comes in large numbers. Spare parts have what Operations Research folks call “an intermittent demand profile.” Special math is needed to forecast intermittent demand.

In short, distribution excellence is part of O’Reilly’s core differentiation. Because the company services the Do-It-For-Me market, the Do-It-Yourself-ers benefit with higher service levels. Further, O’Reilly’s extensive distribution network provides significant barriers to entry to competitors hoping to compete in the Do-It-For-Me segment. Warehouse automation and inventory optimization helps to ensure that high service levels don’t come at a high cost to the consumer.

It’s very cool that the company chose a distribution center to give its financial presentation. I love visiting DCs; I’m not sure how the financial analysts felt about it.

Highly-Automated DCs Need an Asset Performance Management Program

Material Handling | By Steve Banker • 07/19/2010

ARC recently published a strategic report called Asset Performance Management: An IT Perspective (available to ARC clients only). As I read through the report, I started thinking about a distribution center (DC) I recently visited. This 750,000 sq. ft. warehouse, which cost $250 million to build, made extensive use of conveyors and sorters directing jobs to people at computerized workstations or pick-to-light stations. The conveyors moved packages through box cutting machines and totes over weigh stations. There were two massive automatic storage and retrieval systems, and the DC also employed automatic guided vehicles, forklifts, and, of course, barcode scanners.

Most warehouse managers understand that asset maintenance has a role to play in their operations. But in manual warehouses, maintenance is often approached in ad-hoc fashion. When forklifts are purchased, a maintenance plan is often purchased too; the same is true with barcode scanners and other technologies. If a warehouse’s maintenance programs are less than optimal, no big deal. The warehouse ends up with one or two more forklifts than they really need (in case some break down) and extra barcode scanners.

But in a highly-automated warehouse, an ad-hoc approach to maintenance is not good enough. In these instances, a warehouse manager not only needs to understand operations, but also the factors associated with Return on Assets (ROA) and Overall Equipment Effectiveness (OEE = Availability x Performance x Quality).

These managers should have maintenance folks reporting to them that perform tasks critical to keeping the DC operating effectively. Maintenance planning and scheduling must be done in a way that optimizes the use of the maintenance staff with minimal disruptions to operations. If some of the equipment is serviced by outside personnel, a process to effectively manage external contractors must exist. And having programs in place to ensure that the optimal quantity of service parts inventory is on hand is also important.

Managers need to know the difference between preventive maintenance (the most common type of maintenance, where service is performed on a prescribed schedule), condition-based monitoring, predictive maintenance (where machine sensors are monitored to predict when a machine is on the verge of failure), and reliability-centered maintenance (initiatives focused on asset reliability from a systems perspective rather than machine by machine).

Although managers don’t need to be super users, it is particularly important for them to understand the high-level features of an Enterprise Asset Management system (e.g., spare parts inventory management, work order management, repair instructions, etc.). An EAM solution that is not kept up-to-date or used effectively will result in less than optimal maintenance performance.

In short, in a highly-automated warehouse, the manager’s job description comes to resemble that of a factory manager.

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