Now if you were paying attention to the lesson on service contracts, you would know that you should be charging for this service in one form or another.  I encourage the contract method, this way it makes it optional to the customer, but perhaps you just factor this “feature” into your price.  No matter how you do it, you must understand that this service costs your business money.  So make sure you’re marketing this feature as something you do.  If you do it, and aren’t publicizing it to your new customers, you could be losing out on a whole new market.

Now exchange and loaners are two very similar concepts.  A loan or loaner is simply sending a temporary replacement to your customer.  Then they send you their broken unit.  You fix their unit and send it back to the customer.  Then the customer sends you back the loaner.  The exchange is far simpler in terms of steps in the process.  You send a new or refurbished unit to the customer and they send you their broken unit.

In my experience the exchange process goes by many names, but it all equates to the same thing.  Anytime I send a product to the customer before they return their product to me.  It is also implied that the customer keeps the exchange item you shipped them, and you keep the customer’s unit (otherwise, it would be a loaner).

Some of the common terms I’ve heard this called:

• Exchange
• Service Exchange
• Advanced Exchange
• Rapid Replacement
• etc.

Alright, enough of the sales pitch, now for the things you need to be aware of in the process.  This lesson will focus on the process.  From the previous lessons, you’ll already know the configuration you need to touch.  I’ll just briefly go over the areas where it changes.

If your organization is already using the exchange, you might be aware of these points. For everyone else, this is what you must consider when designing the process (or re-designing).

I do want to make you aware of side effect of configuring the exchange line to automatically occur in the repair procedure.  If you are using the SDREPA01 program to generate your service order line item (typically IRRP item category), then this will NOT work for exchanges.  For some reason, the exchange in the beginning throws off the sequence.  The service order line item can only be generated manually in standard SAP.  Renovation by JaveLLin Solutions provides an opportunity to automate this functionality, just like the SDREPA01 program.

Exchange Inventory

Now this is a fun topic and has multiple implications.  First, let’s start with the financial world.  You now have a unit that is coming back into inventory.  It is an exchanged unit; the customer already has the replacement.  When you receive this in, because of the service process, it is received as Sales Order Stock for the repair sales order.  As long as it remains in this stock, it has $0 value.  SAP believes that the inventory is customer owned.  So that big question becomes when is it yours?  And when should it be received back into your inventory and out of sales order stock?  I’ve been at organizations that have immediately posted it to their inventory.  I’ve worked at other organizations that chose to receive it into inventory after the repair is completed.  As always, I don’t pretend to understand the ins and outs of financial accounting, much less claim to know what is legal and what isn’t.  This decision must come with input from your FICO group.  They are ultimately the ones that will have to answer to the auditors.  ha ha ha.  But, it is your job to make sure they know the issue.

Ok…  so you’ve decided when to receive it into your inventory, but now the next dilemma.  At what value should it be received in?  Typically your refurbished inventory gets received in at a value less than a new part, but again you will need to rely on FICO to determine what this value should be.  Now, we have yet another decision point.  When you receive it back into your inventory, do you create a new material number to denote a refurbished unit?  Or do you rely on split valuation?

This question inevitably comes up at nearly every client that implements the exchange process.  This is always a trade off, between creating, potentially, a lot of materials vs. complicated transactions for multiple valuations.  Most organizations decide that different materials work better for their processes.  Some of the determining factors include how and where to stock the rotable inventory.  It sounds like a simple question, but if you have the same material with different valuations, how do you plan to identify it in your inventory.  The simple material number tags in your warehouse may not suffice.  This would drive you to consider a new plant, storage location or perhaps an entire warehouse.  None of this is over the top, but in general many clients have decided that the master data of material masters is a price worth paying to avoid the general confusion of moving materials with different valuation types.  I encourage you to prototype the split valuation.  Give it a try to see for yourself.

Now, regardless of your choice to create new materials or use split valuation, I encourage you to have a new storage location at a minimum.  The new storage location makes it easier to control the delivery and storage location determination.  It also gives you an easy segregation for your service parts.  A word of warning; Service management is not integrated with WM.  If you choose to use a warehouse managed SLOC to do your service work, you will be forced do a lot of manual TO’s to move the material.  If you’re interested in a better way of using SM and WM together, check out Proximity by JaveLLin Solutions.  It contains methods to acquire parts for your service order regardless of WM or IM managed locations.

Service Order Workload

One of the next things to determine is how your workload should be distributed between exchange service orders that will go back into your rotable stock vs. actual customer repairs.  This is always a challenge.  On the one hand, your customer’s orders should take top priority.  On the other hand, if you deplete your entire rotable stock, then your only option will be to send brand new units to the customer.  This can severely cut your profit margin, although it will make your customers happy =).  Our recommendation is normally to use a separate service order type.  This gives you very quick recognition of what exchange orders vs. customer orders.  Often you’ll try to do a 90/10 or 85/15 in favor of customer orders.  By splitting the service order types, it gives you the distinction your service planners will need to recognize the orders.  Alternatively, you can use fields such as priority or even the service order description.  The important factor is to distinguish the exchange orders.

Tracking your unreceived inventory

While it’s always good to know what orders should be expected at your receiving dock, but in the event of an exchange, this is your inventory you are waiting for.  While it doesn’t sound like a big deal, it is common for customers to forget to send back their broken units once they receive a working unit.  This makes it vital that you keep close track of the outstanding exchanges.  Remember, without the customer’s units your refurbished inventory will quickly dwindle and you may be forced to exchange brand new units.  If you don’t have a method of tracking this, I suggest checking out Broadsword by JaveLLin Solutions.  It has metrics to track all of your service management processes, including exchanges.

Contract Management

If you use service contracts to manage your exchange business, you will need to keep your serial numbers current.  Remember that your notifications will pick up the contract by serial number.  If you don’t account for the changed serial number, your customer’s contracts will not be effective.  You will also want to remember to take into account your warranty policy for refurbished units.  If you don’t have a method to keep your serial numbers current, please check out Renovation by JaveLLin Solutions.

I hope this gives you a better approach to handling your exchange business.  If you have any questions, please feel free to email me:

mpiehl@goJaveLLin.com

Mike