Article: Innovating obsolescence management in a service logistics network
A network of companies has been involved in the maintenance of maritime equipment for the Royal Dutch Navy. More specifically, ‘Directie Materiële Instandhouding’ (DMI) maintains vessels on behalf of the Royal Dutch Navy and closely works together with shipbuilder Damen Schelde, maritime systems integrator RH Marine, and naval defense systems provider Thales. How can this complex network of organizations improve the way they work together to enhance availability of ships and uninterrupted missions due to missing spare parts for maintenance?
The supply of spare parts can be compromised if the original equipment manufacturer discontinues a product line, or if a product is no longer suitable due to changing requirements. The network wants to innovate the way they collectively manage this often-unexpected stream of unavailable parts and spares, also called obsolete resources. Such innovation requires a shift from an organizational to a network-level perspective on obsolescence. A first step to counter obsolete resources from a network perspective is to understand existing obsolescence relationships. In the MARCONI project, supported by DINALOG and NWO, Eindhoven University of Technology, Netherlands Defense Academy, Twente University and Maastricht University are developing a method for network-level management of obsolescence in service logistics.
There are always two sides to a story
Obsolescence problems can arise as a result of either logistical or functional obsolescence. Logistical obsolescence is a situation of obsolete parts, meaning that a part is not available anymore while the system might still need it (upstream problem in the value chain). Companies decide at some point to discontinue their production runs. Functional obsolescence, on the other hand, is a situation of changing performance requirements in which the part is still available but from a customer point of view no longer compatible (downstream problem in the value chain). These two types of obsolescence problems lead to customers experiencing a capability gap during the operational lifetime of a part. The challenge is to synchronize the upstream development and production of a part with downstream asset use, monitoring, and maintenance.
In order to understand the existing management of obsolete resources and create a mutual beneficial situation, Work Package 2 in MARCONI created an Obsolescence Management Script (OMS) that includes both sides of the business:
- For the suppliers in the network the Script includes a wide range of aspects about their relationship with DMI, including benefits from the relationship, things to avoid, who is internally involved and what is contributed, the revenue model, and the information and material provided.
- For DMI, representing the customer/ user, the Script includes the goal of obsolescence management, things to avoid, challenges, who is internally involved, formal and informal coordination mechanisms, and the information and material provided.
All MARCONI network partners filled in their respective templates during a workshop in which everyone got the opportunity to listen and respond to each other’s input. The Script is added in Figure 1.
About the authors:
- Tom Schiefer, PhD candidate at the Brightlands Institute for Supply Chain Innovation (BISCI), Maastricht University
- Dominik Mahr, Professor in Digital Innovation & Marketing, at department of Marketing & Supply Chain Management and at Service Science Factory, Maastricht University
- Paul C. Fenema, Professor of Military Logistics, Netherlands Defense Academy
The workshop provides 1. valuable input to understand the one-on-one, or dyadic, relationships between DMI and the respective suppliers, and 2. underpins conceptualization of a new player facilitating network-level obsolescence management.
Is a proactive approach to obsolescence management always best?
Every company makes choices, either implicit or explicit, in how to manage obsolete resources. If a company takes an implicit approach and assigns only limited strategic importance to obsolescence, it will most likely not manage obsolescence with its supply chain partners and take a reactive stance. This approach, represented in the bottom-left quadrant in Table 1, leaves the organization relatively unprepared for dealing with unavailable parts; it does not reach consensus with supply chain partners on how to deal with such a situation.
|Reactive obsolescence management||Proactive obsolescence management|
|Cross-organizational level||Problem-based collective triggering of the spare parts value chain||
Anticipating obsolescence in value network
|Organizational level||Problem-based organization-centric triggering of the spare parts value chain||
Organizational anticipation of obsolescence, then triggering the value network
|STRATEGIC FOCUS||Cost efficiencies inside an organization for simple obsolescence value chains||Innovation effectiveness across organizations for complex obsolescence value networks|
Looking at the top-left quadrant of Table 1, organizations with a reactive stance to obsolescence problems can tackle them collectively with their value chain partners. They add a cross-organizational approach to their organizational processes (bottom-left quadrant). This approach prevents value chain partners from being uninformed about obsolete items, thereby reducing potential sudden shocks in order quantities. A reactive approach to obsolescence is in fact the most efficient approach in terms of costs for most items (Seuren, 2018).
A proactive approach to obsolescence management means that obsolescence problems are dealt with before they actually happen, by using methods, tools and processes that focus on active measures to avoid or reduce the impact of obsolescence (Wilkinson, 2015). Moving to the bottom-right quadrant, in this approach organizations anticipate obsolescence and subsequently trigger the value chain. They concentrate investments in this capability in their own organization. The most demanding approach in terms of required resources is the top-right quadrant, in which obsolescence is anticipated together with supply chain partners. This cross-organizational approach builds on organizational level investments. Proactive obsolescence management can result in significant cost reductions for electronic safety critical items with a limited number of manufactures, with a long planned remaining service life and high expected resolution consequences (Seuren, 2018).
Two types of results can be reported from the first MARCONI obsolescence management workshop in Q3 2019.
Result 1: Understanding the existing business model and relationships
- When considering cross-organizational obsolescence management, a benefit that the suppliers experience from their relationship with DMI is the ability to better understand and plan the use of parts and spares, which is in line with DMI’s goal of continued availability of parts.
- Suppliers want to avoid their customer (DMI) and customer’s customer (Navy) from being dissatisfied and want to avoid discontinuation of their relationship. They highlight the long-term nature and strategic importance of their relationship. In order to keep DMI satisfied mission interruption and extension or delay of maintenance should be avoided, since they can both result in higher costs and reduced task execution.
- It is a challenge for DMI to deal with uncertainty regarding forecasting breakdowns and accordingly to determine the mean time between failures (MTFB). There is potential for advanced data analysis tools to take away uncertainty if the required data is collected and shared. Suppliers already contribute aspects like spare parts information, risk status of obsolescence and advice to the asset owner. An important step to better manage obsolescence is to reach consensus on which data is relevant and how it will be shared.
- Formally, the business relationships are based on functional and technical design requirements, but at least equally important are informal mechanisms. Relationships in the network are supported by trust and transparency gained through meetings, seminars, and prior experiences. The combination of trust, transparency and the long-term nature and strategic importance of network relationships can be a foundation for data sharing, including arranging for data value management and governance.
Result 2: Developing a player for network-level obsolescence management
As a next step, the companies were asked to imagine a new abstract player with new capabilities in their relationship that would improve obsolescence management: What kind of player, regardless at this time of organizational matters, would help with the identified risks? What could be a valuable contribution to what the existing players deliver?
The workshop reveals the following insight regarding network (i.e. triadic) relationships: There is potential for the role of a facilitator in managing, combining, analyzing and storing data across the value chain. Other suggestions are third parties with monitoring capability to counter uncertainty of obsolete parts, and third parties with a mediating role. Potential roles of a third party in obsolescence management are conceptualized in Figure 2. These roles are associated with increasingly innovative capabilities and services.
First, at the core of managing obsolescence is managing the available data with the other supply chain players in order to get data consistency. A buyer and supplier can jointly organize this, but an alternative is to outsource data management to an independent (‘neutral’) specialist. Second, advanced analytical methods can be developed for improving obsolescence management. The use of data analysis based on Artificial Intelligence (AI) can be a learning tool from extracting knowledge from data. There is potential for academic organizations to transfer knowledge about data analysis tools based on AI, but also for business players sharing their best practices. And finally, third parties can be facilitators of creative, collective ideation and concept development for obsolescence management. Consultants can take this role by analyzing current operations and developing a new perspective. Various players, within and outside the network, can perform the potential roles of an abstract player described here. Networks that go beyond data management by extracting knowledge from data and involving fresh perspectives from third parties are on the path of finding innovative solutions.
The work of the MARCONI companies with the Obsolescence Management Script leads to a better understanding of the existing business model and relationships. More specifically, we find that a benefit which the suppliers experience from their relationship with DMI is the ability to better understand and plan the use of spare parts. Suppliers want to avoid their customer (DMI) and customer’s customer from being dissatisfied, so interrupted missions and extension or delay of maintenance should be avoided. An important step to better manage obsolescence is to reach consensus on which data is relevant and how it will be shared. The combination of trust, transparency and the long-term nature and strategic importance of network relationships can be a foundation for data sharing, including arranging for data value management and governance.
The MARCONI companies also considered how a third player in their relationship could improve obsolescence management. There is potential for the role of a facilitator in managing, combining, analyzing and storing data across the value chain. Networks that go beyond data management by extracting knowledge from data and involving fresh perspectives from third parties are on the path of finding innovative solutions.
The next step in developing a method for network-level management of obsolescence in service logistics is to expand to the network level for the Network Business Model (NBM), including a Network Value Proposition (NVP). In parallel, these concepts are elaborated in the MARCONI data science use case.
Seuren, T. (2018). From reactive to proactive obsolescence management: A guide for implementing proactive obsolescence management within the Dutch maritime industry. Retrieved from https://pure.tue.nl/ws/portalfiles/portal/101390794/Master_Thesis_Tim_Seuren.pdf
Wilkinson, C. (2015). Obsolescence and Life Cycle Management for Avionics. Retrieved from http://www.tc.faa.gov/its/worldpac/techrpt/tc15-33.pdf