So much of our understanding of spare parts management in the modern age comes from theory and broad concepts. It can be difficult to visualize and rationalize the major changes that a company has to undergo to mobilize its spare parts without a clear case study.
Author Nick Saraev
Photo: Freepik
To combat this, Anastasia Buyzhina from Positec took the time to outline her team’s process and success as they worked to overhaul their spare parts management at our recent webinar. By learning from their success, any company can start the journey toward tapping into this revenue source.
The Starting Point
When Buyzhina started her journey with Positec, the spare parts management for Europe was behind the times. They were facing a myriad of problems, including
- No Pricing Structure – Without set levels for pricing, spare parts for Positec consistently had low margins
- No Division Into Pricing Levels – Providers and stores were presented with the same prices. The biggest reason for this was that HQ handled the spare parts from China, and they were mainly relying on providers to set prices themselves
- Irregular Supply – HQ had no interest in making revenue on spare parts, and would simply add a percentage to the manufacturing cost and send them off when requested
- No Webshop – Because Positec had no B2C parts sales, their providers would often sell spare parts to end users without getting them involved at all
While the impetus for this kind of system was the simplicity of repairs, it left much to be desired when creating revenue from spare parts. Buyzhina and her team had their work cut out for them.
1.5 Years of Parts Management
After working diligently on restructuring the spare parts systems, Buyzhina and her team have been able to bring their company forward by leaps and bounds.
Parts Classification
Buyzhina used the ABC method for classifying parts, based on Pareto’s 80/20 rule. This meant that only the parts most likely to cause problems were used for benchmarking. The A parts. Once the team had more time, they were able to expand their focus.
Levels of Pricing
The team took a look at the competitor prices for these fast-moving, A parts. The way Positec operates is that they work with partners to not only get service done but also to make sales. This means they didn’t have an internal sales team for their spare parts, they were relying on their service partners.
To gain more control over this element of their business, they created different levels of pricing for consignment, non-consignment, stores, and direct sales.
Dynamic Pricing
When HQ in China was responsible for all the pricing, they used static pricing for every single sale of a spare part. However, by introducing dynamic pricing based on factors like time of year, location, and expected demand, they are able to ensure they get as wide of profit margins as possible.
This shift takes time, as each shift in dynamic pricing needs to be monitored. Customer reaction to the changes will greatly impact their effectiveness in the long-term.
E-Commerce
Positec works alongside external service providers to build and manage their webshop. This allows them to sell spare parts directly to the end consumer. While originally their partner took the margins from sales as payment, they have been able to shift this model. Now they pay a handing fee for the upkeep of their webshop and retain the margins for the company.
Operational Background for Success
A major player in Buyzhina’s success was the strong operational background and support that she started with. She had experience with the Chinese HQ from her previous work with the company, and brought that experience forward to this project.
The key steps that Buyzhina’s team took to ensure success with their HQ included
- Building Relationships – They not only held regular meetings with higher-ups in China, but also set up more focused one-on-ones with key players to keep communication open and align with the values of Guanxi
- Planning for Consignment – In the previous system, many of the companies Positec worked with were overwhelmed by stock planning. Buyzhina has taken over this process and has more control over the stock management for their main service providers, ensuring folks have what they need when they need it
- Reporting of Sales – Without a set template from Positec, reporting by partners was irregular and inaccurate. They’ve been able to get more data and use it to make decisions by standardizing and requiring these reports
Having these changes in place from the start made it possible for the team to see results fast and build upon a strong foundation.
Results of Changes
All of these changes are impactful on their own, but the results of the concerted effort have been monumental. In August of 2023, the team was able to report
- 35% of revenue coming from the webshop
- A 60% increase in revenue from the webshop since 2022
- Availability of parts increased by 97%
These results have been organic, without any active sales activities. They have been able to dramatically increase sales simply by having their webshop be discoverable when someone searches “Positec spare parts.” As they shift focus to more sales, these numbers will only grow.
Further Steps for Increasing Revenues
With so much growth already under their belts, the team at Positec has more than enough motivation to continue their spare parts journey. They know exactly what they want to focus on next to make the business continue to grow and shift spare parts from a cost-center to a profit-center.
Increase the Visibility of Parts Sales
Traditionally, the parts sales have faded away in the top management report, as it is lumped together with sales of finished goods. By separating these lines in reports, they will be able to clearly communicate the work they’ve been doing and show its value to the C-level executives.
Question Pricing from HQ
Every once in a while, the team notices odd pricing coming from HQ in China. This has required some negotiation to get a more beneficial price. Going forward, the team wants to have their master data clear enough to be able to negotiate and question prices more consistently.
Look into Non-Robotic Parts
Because they were starting from nothing, the team has only been able to effectively implement these changes for their robotic spare parts. By expanding the scope of their spare parts department, they could dramatically increase the revenue they bring in.
In Conclusion
Starting a spare parts department from scratch can be intimidating, but by keeping your eye on the ball, you can turn it into a lucrative part of your company. Focus on proper reporting from partners, open communication with stakeholders, and the ability to correct mistakes quickly. With these points in place, you can open the door to continual revenue.
