A Powerful Solution for Service Parts LogisticsLisa H. Harrington

IntroductionA few years ago, Cat Logistics and Ford Motor Co.faced similar supply chain issues. Both were operatingwith aging logistics IT systems that were becoming dif-ficult to maintain. Together, they launched an ambi-tious project to design a next-generation softwaresolution to manage their complex global service partssupply chain.

Throughout the 1990s, each company individuallyspent considerable resources upgrading these systems.While both companies were keeping up with the fast-paced technology curve, it became apparent that inorder to continue to provide best-in-class processes intothe future, a new solution had to be designed and imple-mented. Upgrades to legacy systems can only go so farand, as a result, the ability to stay ahead of the curve wasbecoming increasingly difficult.

The ChallengeWith the aim of better-supporting its dealers and vehicleowners, Ford considered developing its own logistics ITsolution to replace its global parts management systems.The automaker needed specific software to enhancewarehouse management (inbound/outbound processingof service parts) and materials management. It also need-ed the ability to forecast slower-moving parts.

While Cat Logistics had systems capabilities, the com-pany wanted to get out of the software developmentbusiness. It wanted to focus its highly skilled resources onenhancing service parts management capabilities for itselfand its clients. In essence, Cat Logistics’ managementdecided the company should focus on what it does best –managing world-class service parts support networks andprocesses for its customers.

Ford and Cat Logistics conducted an extensive analy-sis of their service parts logistics activities. The companiesrecognized that they had a lot in common regarding pre-ferred service parts logistics practices, from materialsmanagement and forecasting to warehouse operations.A detailed analysis showed 80 to 90 percent commonal-ity in their logistics processes. Each is considered best-in-class in various parts of its operations.

After much deliberation, Ford and Cat Logisticsreached the same conclusion: Why not put their talentsand resources together to map an IT solution that wouldfulfill the long-term service parts logistics needs of bothcompanies? They decided to seek a world-class technol-ogy provider with the kind of software development andmarketing expertise required to launch and support asolution of this kind.

In November 2001, Ford and Cat Logistics signed anagreement to formalize their decision. From the start,

Lisa H. Harrington is president of Harrington Associates, a Washington, D.C.-area communications and editorial services firm spe-cializing in the SCM field. She has been involved in the logistics and supply chain management sector for more than 20 years. Ms.Harrington is a contributing editor to a number of business publications, including Inbound Logistics, Logistics Today, and ChiefLogistics Officer. Her work has appeared in a number of other business publications, including Fortune, Industry Week, and CIO.

Caterpillar Logistics, Ford Motor Co., and SAP team up to provide abest-in-class service parts supply chain solution.

Cas

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Why not put their talents and resources together

to map an IT solution that would fulfill the long-term service

parts logistics needs of both companies?

Case Study

Cat Logistics and Ford recognized that sustained top-level commitment would be critical to the project’ssuccess. They agreed to assign the talent and resourcesneeded to support this long-term, highly sophisticat-ed endeavor.

With a collaboration agreement in hand, the CatLogistics-Ford team set out to find a technology provider.Team members identified a pool of potential vendors andsubjected them to rigorous evaluation. True, the vendorsall had supply chain product offerings. But none was tai-lored specifically to the service parts field.

As part of the evaluation process, the project teamexplained their service and capabilities requirements indetail, and ascertained that vendors under considerationwere willing to make the investment required to devel-op a new service parts logistics solution. In terms of func-tionality, the team focused on three main areas relatedto service parts logistics:• Commercial – Order processing and management,

customer management, claims, returns, and relatedareas;

• Materials management – Forecasting, inventoryplanning, distribution requirements planning,replenishment, etc.; and

• Warehouse management – Picking, packing, ship-ping, wave management, cross-docking, etc.

Overall, Cat Logistics and Ford wanted Web-enabled soft-ware that would provide real-time transactional data andend-to-end supply chain visibility. This meant users wouldbe able to log on from anywhere in the world and moni-tor and manage their service parts logistics.

The SolutionAfter much deliberation, the project team chose appli-cations software developer SAP, believing that SAP’s sup-ply chain and customer relationship managementsolution was best suited for the job. The fact that SAP’senterprise resource planning (ERP) solution is so perva-sive was an important deciding point as well. SAP haslicensed more than 50,000 e-business software applica-tions to 18,000 companies in 120 countries. It madesense to be able to link the new system to an enterprisebackbone that is so widely accepted.

With SAP on board, the new team jointly devel-oped logistics parameters for the software, includingcustomer satisfaction metrics. Functional requirementswere identified in a formal assessment process.

The team also decided on a two-phased developmentapproach, which delivered early results to both Cat Logisticsand Ford. Pilot operations got underway in late 2003, withuser acceptance testing starting in October 2004.

The new product will become part of the standardSAP release for 2005 through 2007, and will be marketedas part of mySAP Supply Chain Management and mySAPCustomer Relationship Management product suites.

Cat Logistics owns a license for the software, and isworking with its clients and prospects for 2006 imple-mentation. There are already SAP installations at MG

Rover, Land Rover, and Ford of Mexico that will incorpo-rate the new complementary capabilities. SAP’s com-mitment to the project has been substantial, accordingto Mary Bell, Cat Logistics’ chairman and president.

“Cat Logistics has always used technology to managesupply parts forecasting and replenishment,” Bell said.“Our intellectual property is knowing how to do this bet-ter than anyone in the industry. This new solution will helpus build on our strengths in the marketplace and provideour customers with industry leading capabilities.”

ConclusionIn service parts logistics, the name of the game is inventoryavailability and efficiency: How do you deliver parts to thecustomer when and where they need them and do so costeffectively? The service parts management solution willhelp companies balance these difficult-to-achieve goals.Developers expect the solution to help businesses:• Improve fill rates and manage inventory more

effectively;• Decrease inventory costs;• Increase customer service and improve revenue;• Optimize warehouse functions, thereby helping to

control labor expenses; and• Reduce warehouse space requirements and improve

utilization.

“Companies are just realizing that service parts logistics canproduce a tremendous return, can in fact generate higherprofit margins than initial product sales,” said Bell. “Asproducts become commoditized, it is increasingly impor-tant to build strong customer loyalty. Companies can dothat through better service parts support.

“Thus, service parts operations are emerging as astrong engine for corporate growth and profitability.Better service parts logistics translates into direct bottomline improvements.” ■

The service parts management solution will

help companies balance these difficult-to-achieve goals.

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