Product Support Financial Value Drivers. 9/10 – Life Cycle Stage of a Product

Mar 19
2013

This blog is the ninth of ten discussing the product support financial value drivers of the solutions supplied by a commercial or military focused capital good Product Support Enterprise [PSE]. The blog will provide an overview on how the analysis of the life cycle stages of a product and its components can deliver a better understanding of the life cycle cost of a PSE.

The life cycle stage of a product inducted into a variety of Product Support processes can be broken-down into two primary stages: in-production and out-of-production, and then segmented into early, mid and late life stages. A further break-down can also be employed in which the product’s parts are either in-production or out-of-production. And finally the segmentation of a Product’s parts can be identified as being Made-To-Order [MTO], also referred to as developmental or proprietary, and Commercial Off The Shelf [COTS]. For each stage analyzed, the following 5 financial elements must also be reviewed:

  1. Direct resources: Tech labor (i.e. maintainers, tech reps)
  2. Direct resources: Parts (i.e. reparable, non-reparable)
  3. Indirect resources: Process flow (i.e. shop building, test equipment, schedulers)
  4. Indirect resources: Direct resource management (i.e. warehouse, transport, packaging, training)
  5. Indirect resources: PSE oversight management (i.e. offices, data infrastructure, leadership)

The blog will be a series of the following 3 charts providing a template for a variety of discussions in establishing PSE solutions throughout the life cycle of a product:

  1. Product life cycle graph and corresponding PSE activity
  2. Table of life cycle stages and potential scenarios; there can be many more scenarios that can be reviewed
  3. Example of inputs for each life cycle scenario selected

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The purpose of this BLOG was only to skim the surface as to the multiple questions that must be addressed when reviewing a Product’s life cycle and its financial impact upon the PSE.

Hypatia©, a Giuntini & Company financial software tool, provides a highly automated means of calculating the above and other product support financial value drivers, as well as an effortless way of being able to change any utilization assumption and immediately understand its impact upon total ownership costs. Hypatia is also a proven, trusted and highly effective tool for assisting in the development of product support business case analysis.

OEM PSE Profits -The Secret The Industry Doesn’t Know About

Jul 06
2010

Commercial OEMs create from 15% to 40% of their profits as a result of the revenues generated from each Product Support Enterprise (PSE) that employs their product. A PSE engages all the processes employed by a product end-user to: meet materiel availability levels, increase maintainability, assure capability, grow reliability, improve deployability and decrease costs. The remainder of an OEM’s profits is primarily derived from the sale of new-condition products, with the exception being those OEMs that have a financial arm.

When I have had nothing to do at 0400 on a Sunday morning, I have used that time “wisely” to dig into the Quarterly (10Q) or Annual (10K) Security and Exchange Commission (SEC) financial reports of capital goods OEMs in order to better understand the financial impact of PSEs upon their balance sheet….but I have been highly “disappointed” when virtually no information could be found to satisfy this longing of mine! I have reviewed close to 200 OEMs and I have developed a list below of only 13 OEMs who are willing to acknowledge, in even a minor detail, the existence of investments employed in PSEs.

When an OEM truly believes that being proactively engaged in PSEs is material to their financial health they often segment their balance sheet investments employed for PSEs. Note that for some OEMs, creating opaqueness in being engaged with PSEs is by design; they often do not want to indicate to their competitors that their business model is more like the razor-and-razorblade then one that focuses on the sale of the razor…but that is another story.

# OEM or Key Supplier Sector Financial Statement Description
1 AGCO Farm Balance Sheet: Current Assets Repair and Replacement Parts
2 NCR Office Balance Sheet: Current Assets Service Parts
3 Pitney Bowes Office Balance Sheet: Current Assets Supplies and Service Parts
4 Cognex Mfg. Automation Balance sheet: Long-term Assets Service Inventory
5 Ciena Data/Voice/Network Balance sheet: Long-term Assets Maintenance Spares Inventories
6 Diebold Specialty Balance Sheet: Current Assets Service Parts
Balance sheet: Long-term Assets Rotable Parts
7 KLA-Telcor Mfg. Semiconductor Balance Sheet: Current Assets Customer Service Parts
8 Rofin-Sinar Technologies Mfg. Automation Balance Sheet: Current Assets Service Parts
9 Faro Technologies Mfg. Automation Balance sheet: Long-term Assets Service Inventory
10 PAR Technologies Transactions Balance Sheet: Current Assets Service Parts
11 Terex Construction Balance Sheet: Current Assets Replacement Parts
12 Applied Materials Mfg. Semiconductor Balance Sheet: Current Assets Customer Service Spares
13 Wabash National Transportation: Trucks/Engines Balance Sheet: Current Assets Aftermarket Parts

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