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Myth busting 22: We can’t trust OEMs

In the late 90’s, the show “60 Minutes” did showed that an average economy car worth $15,000 new would cost about $95,000 if it was to be built from aftermarket parts, and adding in an allowance for your own labor, excluding the uni-body (which wasn’t for sale). It is more or less a given that manufacturer’s make more money on parts for their products than on the initial sale of the product. The parts market is so lucrative that there is an entire industry of aftermarket, non-OEM parts manufacturers with their own reverse engineering capabilities to sell parts at costs lower than the OEMs. If you’ve ever needed an OEM part in a hurry, the premiums are even higher and lead times can be longer than the aftermarket parts “pirates,” as they are sometimes called.

Anyone working in spare parts management, storerooms, procurement for Maintenance supplies and parts, knows that part numbers change even if the item doesn’t. OEMs will change numbering in a bid to thwart the aftermarket pirates who do indeed struggle to keep up with part numbering changes. It plays havoc with your stores too! I’ve yet to find a storeroom in a plant or other industrial facility where there are no instances of the same item with multiple part numbers and names. In fairness to the manufacturers, that’s due in part to lack of consistency and standards on the part of the user. Never-the-less, frequently changing part numbers creates a moving target as well.

From the OEM perspective it would be ideal if end users simply relied on them entirely, but that doesn’t happen often in most industries. If the OEM is relied upon, as it is in cases where the OEM performs maintenance (e.g.: mining vehicle fleets) the whole part numbering and management challenge lies with the OEM. Are their costs higher than they need to be? Probably, but you do get what you’ve contracted for (availability for example) and some savings because you don’t need to manage the parts yourself. I’ve found that outside North America, there is greater trust in OEMs, increased likelihood of using OEM parts and less pirating.

My sense of it, is that this challenge of high costs for parts is not going to go away anytime soon, if ever. The best solution is to lower demand for parts but having highly reliable assets. But the challenge there is that highly reliable assets tend to be more expensive to buy. Keep in mind that we do get what we pay for!

Distrust of manufacturers, those who supply us with the very assets we need to be productive, runs deep. Many believe, and with some justification, that their products are designed to fail more often than they could be. I don’t believe that designs are intentionally rigged to fail often, but I do believe that quality of engineering, materials, workmanship and parts do suffer because of industry’s relentless pursuit of low cost. To some extent, manufacturers fall victim to their customers’ demands for cheap in preference to “good”. Eliminate cost from the buying decision, or replace it with a defensible estimate of Life Cycle Cost, and you might find this situation changes.

Asset Management is a discipline that encompasses the management of all aspects of our physical assets throughout their life cycle so that we get good value from them. Value that we get what we want in terms of performance (which can include safety, environmental, productive, etc.) at low risks and reasonable costs. A good way to asses that is with Life Cycle Cost analysis. We’ve all heard of this, but few actually practice it. It looks at all cash flows for competing alternatives (e.g.: two or more different design options) over a period of time (often 10 years), discounts them all back to a standard year baseline and looks for the lowest of those total “life cycle” costs. In these analyses, it’s not uncommon to see that higher capital costs can be offset by lower maintenance and operating costs, higher resale value or longer life (leading to deferred capital replacements).

As we get more comfortable with these Asset Management concepts and apply them, we will see a shift away from low cost bidder winning every time, towards value driven decisions. High reliability and long asset life, provided it can be achieved at a reasonable capital cost, will become major drivers. Today, only the more sophisticated companies and their engineers do this. That is changing. Perhaps as it does, then so too will the misconceptions about manufacturers and their motives.