You’re Missing Opportunities Not Recovering Defective Parts

When did you last take a fresh look and update your spare parts recovery process?

Selling Spare Parts

An OEM can sell a spare part under two conditions:

1. Either a distributor or end-user includes spare parts stock with the original equipment P.O. The parts will then remain in a stockroom until the equipment fails. At the end of the equipment’s useful life, the original purchaser may still have new parts in their stockroom with no future demand.
2. When the equipment you sell fails, the plant maintenance personnel or your field service technician diagnoses the cause of failure as a field-replaceable unit (FRU). When the parts department ships the replacement part and the on-site technician receives and installs it, the equipment is fixed. They have a defective part with some value remaining in it.

The unasked and unanswered question is: What happens to either the new or the defective part when it has finished serving its intended purpose?

Recovering the Value Associated with Each Spare Part

A recovered part, whether defective or never used, still has value. Depending on your cost to recover and process an unwanted part, if you are not recapturing the remaining value, you are probably leaving money on the table. The challenge is to calculate each part’s costs and remaining value before deciding how you will handle the potential return and disposition.

The Value Elements of a Spare Part

I recently watched a webinar presented by Cooperberg featuring Andy Bailey, CMO of OnProcess Technology. In the webinar, Bailey identified four major value-creating areas, some with several subheadings. I then added a fifth value element. Here they are:

1. Costs
   1. Asset valuation
   2. Reuse to prevent new buys
   3. Use some of the parts to reduce supply chain outages
2. Revenue
   1. Remarket either with or without remanufacturing
   2. Warranty claims reduction
3. Theft and Fraud
   1. Replace lost or stolen items
   2. Brand protection – prevent unauthorized reverse engineering
4. Sustainability and Circularity
   1. Recover materials
   2. Reduce emissions
   3. Reduce landfill
5. Customer Loyalty
   1. Repurchase unused parts (at a discount)
   2. Support customer’s sustainability initiatives

The Potential Cost Elements Required to Make a Part Resalable

Before you consider the cost of making a part salable, you should ensure that there will be a future demand for it.

Usually, calculating part and assembly costs is easier than projecting their value. However, because of the number of uncertainties, when talking about returned parts, the opposite is true. This is a listing of the significant cost areas:

1. Return shipping
2. Incoming visual inspection and initial use/scrap disposition
3. Cleaning: Will there be any safety or hazmat issues?
4. Inspection and test: What is the current revision level? Can it go right back into stock?
5. Rework or disassemble?
6. Resell as equivalent to new (ETN) or as refurbished?
7. Costs associated with reselling the part include:
   1. Commissions
   2. Seller fees (eBay, parts auctions)
   3. Inventory carrying costs if selling from your inventory
   4. Order processing and credit checks
   5. Lost revenue if an existing customer buys a refurbished part at a discount instead of a new part at the list price

Each of these costs will vary depending on the characteristics of the part, your industry, and how you do things in your plant.

For many B2B industrial OEM manufacturing businesses, the spare parts business is central to their value proposition and should be actively managed just like any other important product line.

To read a previous article about spare parts, tap here.

About Middlesex Consulting

Middlesex Consulting is an experienced team of professionals with the primary goal of helping capital equipment companies create more value for their clients and stakeholders. Middlesex Consulting continues to provide superior solutions to meet the needs of its clients by focusing on our strengths in Services, Manufacturing,  Customer Experience, and Engineering.  If you want to learn more about how we can help your organization improve your spare parts processes, please get in touch with us or check out some of our free articles and white papers here. 

Image credit: Image by Michal Jarmoluk from Pixabay