Enterasys: Stock Options

By adjusting inventory levels automatically every day, Enterasys streamlines its service parts depots.

“Planning for materials in the service logistics world is not rocket science,” says Ted Heywood, director of global service logistics at Enterasys Networks. But though you might not need a genius to devise a solid plan, the best strategy does little good if it’s out of sync with your daily operations.

If the plan says a depot must always keep one unit of a part on hand, what happens when a service engineer uses that part? Planners who manually monitor inventory might not learn of the change for a week. Or a month.

Based in Rochester, N.H., Enterasys manufactures network infrastructure equipment, including routers, switches, servers, gateways, and wireless access points. Its service organization keeps parts in 120 depots around the world, all operated by a third-party logistics provider. Enterasys offers several levels of service, with contracts promising a technician will arrive in two or four hours, the same day, or the next business day. It manages parts logistics for North, Central, and South America from Andover, Mass., and the rest of the world from Shannon, Ireland.

In the past, Enterasys developed its own algorithms to determine how many of each part to keep in its depots. It set minimum and maximum levels based on its commitments to customers served by a given depot, the projected failure rate for each part, and other factors. The algorithms produced “a good, basic materials requirements plan,” Heywood says. But because it was hard to monitor usage, the depots kept more inventory than they needed to avoid running low.

Checking on thousands of parts in 120 depots takes time. “When you’re in a manual environment, you can’t do it as frequently as you should in order to minimize inventory,” Heywood notes.

To gain a leaner operation, three years ago Enterasys started working with Baxter Planning Systems of Austin, Texas. The Andover service logistics organization implemented the core functions of Baxter’s web-based Prophet service parts planning and logistics software; it also outsourced many of its day-to-day planning functions to the software developer. This year, Enterasys is implementing Baxter’s entire software suite and expanding use of the hosted system beyond the Americas to its worldwide operations.

Enterasys learned about Baxter while making the transition from another 3PL to UPS Supply Chain Solutions (SCS). UPS is one of several 3PLs that maintain partnerships with Baxter. Customers can purchase a package that includes planning tools and services from Baxter, and execution—warehousing, transportation and related services—from UPS. Links between the Baxter and UPS computer networks allow the two companies to share data and collaborate on behalf of mutual clients.

Off to a Quick Start

Enterasys signed up for Quick Start, a program Baxter offered at the time to quickly implement the basic functions of Prophet. Without much preliminary work, Enterasys could set minimum and maximum inventory levels for each depot and maintain them by moving parts among facilities as needed.

“The idea behind it was to give the customer the quickest bang for the buck without having to spend a lot of IT resources to get it up and running,” says Greg Baxter, chief executive officer at Baxter Planning Systems.

Enterasys uses Prophet to create a service parts plan for its depots, based on contract obligations and business rules. Every evening, Baxter’s system reaches into UPS’s system to check the parts Enterasys actually has on hand and compare those numbers with the minimum requirements.

“If your on-hand inventory falls below your minimum,” Heywood explains, “the system pings other depots or your replacement stock, and makes arrangements to ship materials, in the most cost-effective way, from your replenishment stock to that depot that has the need.” UPS employees then pick, pack, and ship the parts.

When it locates a part in another depot, Prophet considers the freight cost and the critical need for that part before deciding whether to ship it right away, Baxter says. In some cases, it makes more sense to wait a day and combine several parts in one shipment. The system might also decide to pull replenishment stock from Enterasys’ central warehouse in Louisville, Ky.

Prophet also modifies the service parts plan, resetting minimum and maximum levels at the depots as usage changes.

Planners Focus

Enterasys pays a monthly subscription fee to Baxter, covering use of the technology as well as the services of a materials planner, Heywood says. With that planner handling day-to-day details, Enterasys has reduced its own planning staff, and its in-house professionals now focus on higher-level issues.

“They’re working the business rules, doing analysis, and reviewing the performance of the entire delivery network,” he explains. “They’re not spending the entire day trying to figure out, ‘Do I have enough of part A at location B, and did I order them yesterday or do I have to order them tomorrow?'”

Because the system quickly replaces parts as they’re used, it gives Enterasys the confidence to work with less inventory in its depots, Heywood says.

Although materials requirements continuously change, overall “we’ve pulled our inventory down about 40 percent from where it used to be when we were in a manual environment,” he says. At the same time, “our on-time delivery in the Americas is 99-plus percent.” This compares with service delivery levels “in the lower 90 percent” before Enterasys started working with Baxter.

Hoping to reap even greater benefits, Enterasys is now implementing the entire Prophet suite for all its service operations. It expects to have the full system up and running in the Americas by the end of March and have it operating in Shannon for overseas service depots by the third quarter, Heywood says.

The full system gives Enterasys many additional capabilities. Among them are the ability to: optimize inventory in depots based on more sophisticated modeling; strategically plan where to locate its depots; manage contracts; forecast demand for products and parts; determine whether to repair malfunctioning parts; and manage orders for replenishment parts, whether they’re obtained from other depots, the central warehouse, or suppliers.

Weigh the Costs

Prophet’s model-based inventory optimization is one feature that sets it apart, Baxter says. The system doesn’t use arbitrary service delivery targets to set inventory levels—stipulating, for example, that the depot keep enough parts on hand to meet its obligations 99 percent of the time. Instead, it compares the cost of holding a part to the cost of failing to do a repair right away. A service delay could trigger a penalty, but its size often depends on the product involved and what the malfunction costs the customer.

“If a customer is down on a mainframe, the cost could be millions of dollars. If a printer is down, it’s usually not a big deal,” Baxter points out.

With the new site planning module, Enterasys can optimize depot locations on its own, whenever the need arises. In the past, the company has asked Baxter to choose locations for new depots on a case-by-case basis, Heywood says.

A complementary feature helps sales representatives and channel partners determine the service levels Enterasys can offer a new customer, given the customer’s distance from the nearest depot.

“You can enter any U.S. ZIP code, indicate if you want two- or four-hour or next-business-day service, push the button, and within a second or two the answer will come back, yes or no,” Heywood says.

With the full system in place, Enterasys could realize further savings by better managing defective parts. As a rule, an engineer on a service call replaces a bad part with a good one, then takes the defective part back for repair. “In most systems, people just repair and put it back in stock and worry later whether they’re really going to need it,” Heywood says.

Using Prophet, Enterasys can forecast future demand for a part. It considers, for example, whether the product that uses the part is a new one or is nearing the end of its life cycle. The forecasts help determine what to do with defective units.

“You may want one-third of those products coming back to be used,” Heywood says. “You may get those repaired and put them back in your inventory, or bring back the other two-thirds and sell them for scrap or have them repaired and sell them off to the aftermarket.”

Just as they can maintain correct inventory levels, planners at Enterasys can better determine which parts to repair. The system does many of the same analyses that planners did manually in the past, but it performs them quickly, every day. That leads to more profitable decisions.

“It’s the automated element that makes it so critical to us,” Heywood says.