By Grgoire Schaub and Diederik Lebbink

Spare Parts Planning

with SAP at a glance.
2
Table of contents
Introduction 3
SAP Spare Parts Planning (SPP) 3
Tactical Planning 4
Bill-of-Distribution (BOD): a New Planning Concept 4
A Starting Cycle 4
Balancing the Demand 5
Balanced History to Balanced Forecast 5
Economic Order Quantity (EOQ) and Safety Stock 6
Operational Planning 7
From Tactical Planning to Operational Planning 7
Through the BOD 7
Life Cycle Management 7
Conclusion 8
A Parts Planning Tool, But Not Only 8
Spare Parts Planning with SAP - A Ford Testimonial 9
Deloittes Service Effectiveness Dimensions 10
Contacts 12
Spare Parts Planning with SAP at a glance Introduction 3
Introduction
SAP Spare Parts Planning (SPP)
Spare Parts Planning (SPP) is the planning module of the
SAP SPM solution integrated within the Supply Chain
Management (SCM) Business Suite of SAP. It has been
specically designed to meet the requirements of the
spare parts business, among which the most signicant
ones are listed below. Many other industries can also
take advantage of the numerous SPP advanced planning
features. Deloitte clearly expects a growing interest for
this solution outside and inside the service industry in
the near future.
Industry-specic requirements:
Nowadays customers expect more and more a high
service level regarding the service parts.
Aftermarket companies are typically dealing with
a very high number of SKUs. Several hundreds of
thousands active product references are not unusual.
The distribution network, and as a consequence
the planning processes, are more complex than in a
normal supply chain. Dynamic distribution networks,
horizontal moves and remanufacturing processes,
among others, are standard attributes of service parts
supply chains (Cf. Figure 1: classic vs. service parts
supply chain)
Single customers can typically be supplied by multiple
distribution centers (Cf. Figure 1) depending on the
parts and their dynamic stocking policies.
High variablity of the parts portfolio in term of volume
and demand patterns, physical dimensions, price...
For a long time the service parts industry has realized that the planning tools available to them did not
have the necessary capabilities to effectively organize and plan their operations. In 2002 an alliance
was formed between The Ford Motor Company, Caterpillar Logistics and SAP in order to join forces
and build a new state of the art Service Parts Management (SPM) tool. This journey resulted in the
SAP SPM
1
suite providing an integrated solution for parts planning, parts procurement and extended
warehouse management.
In this Alliance, SAP was selected as the key technology solution enabler and Deloitte as the key
integrator for providing support, advise and implementation services towards both Ford and CAT.
Supplier Plant Distribution Center Customer
Finished Goods Supply Chain
Figure 1: classic vs. service parts supply chain
Service Parts Supply Chain
Supplier
Plant
Remanufacturer
Primary
Distribution Center
Distribution Center
Distribution Center
Regional
Distribution Center
Customer
Regional
Distribution Center
Regional
Distribution Center
Regional
Distribution Center
1
More information about
the SAP SPM suite at http://
www.sap.com/solutions/sam/
featuresfunctions/serviceparts-
management/index.epx
4
Bill-of-Distribution (BOD): a New Planning
Concept
One cannot talk about SAP Spare Parts Planning without
presenting what the BOD concept is. The well known
BOM (Bill-of-Materials) which species the list of
parts used to build a product has now its distribution
counterpart; the list containing the structure and the
locations used to distribute a product is saved as a
new master data element and called Bill-of-Distribution
(BOD). This concept is central in the Service Parts
Planning solution and all the planning functionalities,
without any exception, are linked to this main product
attribute. This feature acts as a decoupling point
between the planning processes and the physical
distribution network which, in the aftermarket,
typically requires regular modications. This BOD-based
architecture allows the planning supply chain model to
be dynamic and adaptive to the market conditions.
This exible feature actually assumes that each part
belongs temporarily to a pre-dened distribution
network, and that this network can be, transparently for
a user, replaced by another one without harming any
planning process nor without the need for any manual
cumbersome maintenance.
A Starting Cycle
There is no single starting point in the functional ow of
SPP, but if there were one, it would be somewhere on
the cycle represented on the following gure. On one
hand, the sales orders of the service parts business are
captured on the right location in SPP (Capture Demand
function) whereas on the other hand the Stocking/
Destocking feature determines which one is the right
location.
Capture Demand records each order item on the best
facing location depending on dened rules and dynamic
decisions (e.g. Stocking/Destocking). The rules can
be static and very straightforward like a geographical
assignment based on the closest delivering plant,
or can be much more advanced and supported by
dynamic rules together with gATP, the Global Available-
To-Promise tool of SAP. The idea that an order can be
assigned to different locations is directly impacting the
operational ow; it also means that a single order can
potentially be delivered from diverse sources to the nal
customer. This is where the second half-cycle, Stocking/
Destocking, answers the question: Where should an
order supplied from to reach a certain customer?
This rule-based tool decides automatically for each
part where it needs to be stocked or not, and by
consequence where it needs to be delivered from. The
dynamic nature of an aftermarket supply chain requires
that kind of decision much more than for a traditional
supply chain for which a single plant is classically
Figure 2: examples of BOD's
Contract Packager Concept
In many service parts companies
activities like packaging and/or
repackaging within the network
are outsourced. SAP SPP enables
an easy activation or change
between several contract
packagers at location product
level. The BOD is then extended
to the packager which can be
dened on product location
level. This additional network
function is transparently
integrated within the planning
calculations (e.g. lead times,
deployment)
Capture
Demand
Stocking/
Destocking
Tactical Planning
Spare Parts Planning with SAP at a glance Tactical Planning 5
delivering all the customers in a given geographical
zone around it. In order to optimize the distribution of
the numerous SKUs of an aftermarket organization,
this automated relocation is a must. Although very
exible, the rules at the origin of the stocking decisions
are mainly based on the combination of volume and
cost. Of course additional rules critical to the industry
are foreseen like for instance the exclusion of items
based on regulations or hazardous conditions. The
usual heavy, expensive and slow moving parts of the
automotive industry like the body shells or the engines
are not forgotten by this process: a Procure-to-Order
scenario can also be automatically assigned (no stocked
location in the BOD) when the service level becomes less
critical compared to the inventory carrying cost or the
obsolescence risks.
Balancing the Demand
When Stocking/Destocking stops the planning
(destocking decision) of a product location, the
associated demand history is transferred to another
facing location of the BOD in order to still generate
the right level of forecast for the customer base even
though no longer from the same location. The demand
history, and consequently the service, is simply switched
from a warehouse to another in order to optimally
deliver the parts. This mechanism, called demand
realignment, is following the same principle as the one
used during capture demand and ensures that each
sales order is always optimally assigned within the
supply chain.
Next to the Stocking/Destocking decisions, other
planning processes can trigger the realignment of
the demand history like a modication of the BOD
assignment, a promotion or a supersession chain.
Balanced History to Balanced Forecast
The sections above explain why, how and when the
demand history is captured and realigned depending
on the planning decisions. But this process would be
meaningless without an ultimate goal which is the
generation of the forecast. The guarantee that the
demand is at any given moment in time recorded on
the right location signies that the forecast is generated
always in the locations where the goods will be
physically delivered from.
The SPP suite contains nine predened forecasting
models (based on the realigned demand history), which
are capable of accurately forecasting (if possible) the
future demand of parts according to different types
Germany Parent
Germany France Spain Poland
Sales Order Sales Order
Figure 4: Destocking decision leading
to a demand realignment
Supersession in a nutshell
Supersession planning handles the replacements (complex or simple) and
discontinations of parts during their lifecycle. Typically the supersession chains create
a lot of confusion within the aftermarket industry as well as others mainly due to
the fact that the chains can contain a huge number replacements and that they have
an impact on all the departments, from the warehouse to the senior management.
SPP gives the visibility regarding the supersession chains and handles them efciently
in each planning process, thanks for instance to the demand realignment. More
information on Supersession can be found in the article: Managing Supersession by
Euan Macleod April 2009 Deloitte.
6
of demand patterns such as constant, trend, seasonal,
intermittent and exponentially declining. Some models
are part of the eminent algorithms known by all within
the supply chain planning world while others have been
specically designed by aftermarket industry insiders
or adapted from existing models. The forecast process
is by far the most comprehensive (not to say complex)
of the solution and encompasses, among others,
advanced tools like an automatic model selection,
composite forecasting run, rough and ne tuning of
model parameters, outlier corrections, trend limitations,
parameters inheritance, tripping, triggs tracking,
adaptive initialization of models, disaggregation
throughtout the BOD, manual and automated approval,
recalculation in the past for optimized forecast error
calculation All these topics are out of the scope of
this article, but it is most important to remember that
the exibility and the best-of-breed algorithms provided
make SPP a very powerful tool to forecast.
Economic Order Quantity (EOQ) and Safety Stock
As briey noted in the previous section, SPP provides a
recalculation of the forecast in the past methodology
which gives as an advantage to always have an accurate
forecast error evaluation (standard deviation) regardless
of the forecast model change, realignment of demand
history or other modications of network lead times.
This standard deviation is directly used by the EOQ and
safety stock module which generates these two values
in a time-phased manner, and most important, in an
interdependent way. The algorithm is based on the
optimization of the total stockholding and procurement
cost depending on the forecast, forecast error, target
service level, lead times and probability distributions.
An automated segmentation of the parts portfolio
is executed regarding both the target service levels
and the statistical distributions used. The rst one is
dened based on exible rules in order to meet the
service policies of the company while the second one is
optimally assigned depending on the demand pattern
of the part location. Additionally the service level is also
dependant on the lifecycle of the parts which allows
using a higher service level during the demand peaks, as
shown on the Figure 5: adaptive target service level.

SPP inventory planning is based on the normal
probability distribution as well as the Poisson distribution
which is particularly important to deal accurately with
the abundant slow movers/lumpy demand items.
Figure 5: adaptive target service level
Time
D
e
m
a
n
d
High
service level
Medium
service level
Trigger-Based Planning
The high number of parts and locations creates IT risks in term of system stability and
runtimes. For instance the processing of all the very advanced features of forecasting
can be time-consuming. An interesting point of the SPP architecture is the event-
based framework thanks to which the planning activities are only performed for the
items which were affected by a particular event; a daily planning calculation refresh
even for a portfolio of hundreds of thousands of parts is no longer a problem.
Spare Parts Planning with SAP at a glance Operational Planning 7
From Tactical Planning to Operational Planning
So far the main tactical planning functions of SPP have
been described. The outcome of these activities are used
by the operational planning tasks in order to, on one
hand, generate the appropriate procurement proposal,
and on the other hand to manage the movements of
parts inside the distribution network from the suppliers
to the customers. The rst action is performed by the
module Distribution Requirements Planning (DRP)
which uses the BOD as the main structure to roll up
the demand from facing locations to entry points in
the network. Its calculations are based on the forecast,
external demands, EOQ and safety stock values as
well as on data coming from the operational system
(ERP) such as the stock gures. DRP provides also the
following interesting features:
Various planning Horizons and stability options which
ensures the alignment of the planning ow and the
supplier contracts
Anticipated demand coverage (DRP provides the possi-
bility to smooth seasonal demand patterns by pulling
ahead peak season demand into lower seasons)
Pre-season safety stock planning
Product group procurement optimization
Supplier shutdown handling
Virtual orders consolidation (for slow movers)
Planning of remanufactured products
Multi-sourcing
Advanced approval rules
Through the BOD
The creation of the Stock Transfer Orders (STO) are
generated by two processes: the rst one considers
the vertical top down movements throughout the
BOD (deployment) while the other one takes care of
the horizontal requirements coming from potential
unbalances inside the network.
Deployment differs in some ways from the classical
APO deployment. Among others the fact that the
deployment is done day by day without any creation of
orders in the future, or the use of priority tiers for the
demand in case of shortage to guarantee an optimized
use of the available supply. Next to that, the deployment
can also generate expedite shipments when the
business conditions require it.
As every planner knows, planning is mainly dealing
with uncertainties. When these uncertainties
unbalance inventories, the inventory balancing tool
of SPP provides an automated way to overcome
these situations by generating horizontal movements
within a BOD. Although this ow results into more
expensive operations, it can be very useful when the
cost of a stockout is higher than an additional STO. Of
course inventory balancing provides the possibilty to
dene the balancing areas based on the regulations or
geographical zones for instance, and can be easily used
as an analysis tool thanks to its embedded approval
functions.
Life Cycle Management
Given the huge number of SKUs, the warranty
agreements and the demand patterns of typical
aftermarket parts, surplus and obsolescence issues are
common. In addition to the supersession planning (cf.
frame above), SPP provides a Surplus and Obsolesence
tool which handles the life cycle of the parts (end of
life). Old parts produced in the eighties are no longer
stored forever thanks to an automated determination
of the surplus stock based on the long-term forecast
and the retention policies of the companies. Moreover
SPP determines when is the best time to remove a part
from stock depending, among others, on the market
responsiveness. Since the obsolete stock is an important
source of cash loss within the parts business, the
potential return of using such a tool is very high.
Operational Planning
8
A Parts Planning Tool, But Not Only
Following the development phase of the SAP Service
Parts Management suite, Ford has decided to start
the implementation in Europe with the planning
functionality (SPP) closely followed by Extended
Warehouse Management (EWM). This exciting journey
supported by Deloitte turned out to be a great success
story; the Ford Customer Service Division (FCSD) in
Europe is now planning its whole portfolio of spare parts
thanks to SAP SPP which has brought along numerous
benets. Some of them are listed below:
Deployment of global processes and best practices
across multiple departments
Achieved highest levels of customer satisfaction in
terms of ll rates and back orders by developing and
implementing new business processes
Reduced cost by maximizing the ll rates while
reducing the network wide inventory levels
Improved customer satisfaction and service levels by
a more accurate, fully integrated and fast responding
service parts planning solution
Reducing IT spending by reducing the investment in
Legacy systems proportional to the launch timeline
The business expectations were more than achieved
and provided a very positive return on investment
for Ford. Being part of the SAP SPM project from the
very beginning, Deloitte has developed an unmatched
inhouse expertise in the implementation of the SAP
Service Parts Management (SPM) suite, both on an
operational and a technical level. Based on its expertise,
Deloitte has clearly identied SPP as a very promising
planning tool based on functionalities applicable to
many companies far beyond the sole aftermarket
industry. We believe that many planning concepts
developped by the alliance together with our market
knowledge have a huge potential to help our clients
achieve a differentiating competitive advantage.
Currently new projects are being rolled out, within as
well as outside the service industry, as more and more
companies perceive the benets of the solution.
Dont wait, and contact us to see how we can help you
improve your business!

Conclusion
Spare Parts Planning with SAP at a glance A Ford Testimonial 9
What were your main objectives at the beginning
of this ambitious project?
The main ambition was to replace the fragmented and
outdated legacy environments by an integrated/real-time
landscape able to perform efcient planning tasks for
the whole service parts supply chain. As part of the
global SPM implementation enablement of a global
Parts Supply & Logistics platform we targeted as well
an improved warehouse efciency, inventory reduction
and accuracy as well as higher customer service levels.
What are the main benets provided by the new
forecasting and inventory planning algorithms of
SPP?
The improved planning of seasonal, slow-moving and
sporadic parts together with an enhanced phase-in and
phase-out approach are some of the numerous benets
provided by the new forecasting ow; those positive
points have been rapidly and impressively translated to
an increase of the forecast accuracy by 20%.
Next to that, the powerful combined planning of
EOQ and Safety Stock, the smart management of
stocking rules and the PLM features (Product Life-cycle
Management) have led to a drastic reduction of the
inventory levels and a global increase of the service lls.
This has been achieved thanks to the combination of those
tactical planning features and the operational planning
tools such as DRP, Deployment and Inventory Balancing.
How have the service lls and the inventory levels
been impacted following the go-live? What were
the short vs. longer term impacts?
The following results have been reached directly thanks
to the SPP implementation:
- Service Parts Inventories -15%,
- Obsolescence -10%,
- Referral Costs -10%,
- Local Fill Rates +0,5%,
- Forecast Accuracy +20%.
From a long term perspective we expect further
improvements from the implementation of Push
Deployment (NB: available in SPP standard but not
activated yet at Ford) and the European roll-out of the
Extended Warehouse Management (EWM).
Supersession is a particularly hot topic within the
service parts industry. What benets does SPP
bring related to this matter?
Supersession has always been very hard to manage in
our legacy systems, mainly due to the high complexity
of the Supersession processes and their interactions with
almost all other activities in our business. The SAP SPP
implementation has solved many of the issues we faced
in the past.
For the preceding products, one of the key
improvements has been the reduction of obsolete stock
which has resulted in a 50% reduction of the value of
scrapped products. On the succeeding side, the main
enhancement is related to the service levels. Moreover,
SAP SPP has extended the visibility of the Supersession
information throughout the Supply Chain, internally but
also externally towards our suppliers thanks the SAP
Inventory Collaboration Hub (ICH) platform.
Now that the SPP solution has been implemented
what would you say are the main benets?
The tangible benets have already been mentioned
above. Additionally the following intangible benets
have been achieved:
- global roll-out of processes and best practices,
- reduced IT spending,
- fully synchronized and integrated planning,
- real-time visibility of the whole supply chain,
- reduced risk of stockouts,
- maturity and readiness for further improvements in
service parts planning and execution processes.
How did you perceive the corporation between
Ford and Deloitte?
Having the right partner for your project is always one
of the key elements of a successful implementation.
The efforts, expertise and support provided by the
Deloitte teams were outstanding and clearly made the
difference in reaching the targets we had set for this
implementation.
Guenther Baermann Supply Chain Manager
Ford Customer Service Division (FCSD)
Spare Parts Planning with SAP -
A Ford Testimonial
10
Deloittes Service
Effectiveness Dimensions
The right product at the right place at the right time at the right price. Deloitte works with the worlds leading aftermarket organizations and
solution providers to help our clients get these three factors in sync. We provide a fully integrated service offering including conceptualizing and
strategizing, enterprise applications, processes and people
Service
Effectiveness
People
Technology
Strategie
Process
People
We have a wide range of experienced prac-
titioners in various domains and possess the
required functional / technical expertise related
to aftermarket / service operations
We are truly a global organization that has
the capabilities to reach out to each other to
ensure that obstacles can get resolved with
the right people
We have a vast majority of people that are skilled
in the various solution providers required to
become the service organization of excellence
Strategy
Our executive relationships with best in class after-
market organizations to identify what is coming
up and focus upon solutions to address them
We are singularly positioned with the scale,
scope, and multi-disciplinary capabilities
necessary to address the most complex business
challenges.
As an integrated professional services rm, we
can draw upon a broad range of nancial, tax,
IT, and business process consulting capabilities to
address client needs.
Technology
We have a unique portfolio of technology
expertise ranging in the various domains relevant
for aftermarket organizations. This build on top
of a strong Enterprise Application / Technology
Integration Practice
We have been nominated as integration partner
of choice for multiple vendors
Process
Based on the experiences of work performed at
best in class aftermarket companies, we estab-
lished best in class process models including a
translation towards technology solutions
We apply globally a structured methodology and
process, along with specic tools to ensure that
our work creates solid and measurable value for
our clients.
Deloitte provides audit, tax, consulting, and nancial advisory services to public and private clients spanning multiple industries. With a globally
connected network of member rms in more than 140 countries, Deloitte brings world-class capabilities and deep local expertise to help
clients succeed wherever they operate. Deloitte's approximately 169,000 professionals are committed to becoming the standard of excellence.

Deloittes professionals are unied by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to
each other, and strength from cultural diversity. They enjoy an environment of continuous learning, challenging experiences, and enriching
career opportunities. Deloittes professionals are dedicated to strengthening corporate responsibility, building public trust, and making a
positive impact in their communities.
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May 2010 - Deloitte Consulting. Member of Deloitte Touche Tohmatsu
Designed and produced by the Creative Studio at Deloitte, Belgium
For more information, please contact us.
Eric Desomer
Partner
Manufacturing Lead EMEA
+ 32 497 59 63 91
edesomer@deloitte.com
Steven Moors
Director
Ford Account Manager
Service Effectiveness Lead
EMEA
Mobile: + 32 497 59 63 98
stmoors@deloitte.com
Constantin Hellweg
Manager
+ 49 177 2494434
chellweg@deloitte.de
Grgoire Schaub
Senior Consultant
Mobile: + 32 486 515 523
gschaub@deloitte.com
Diederik Lebbink
Consultant
Mobile : + 32 477 68 58 29
dlebbink@deloitte.com
Contacts