EXORBITANT FUEL PRICES, a decline in consumer and business spending, a reduction in new finished goods manufacturing, an increase in performance-based service contracts and product commoditization have placed enormous pressures on A&D companies to continue growing profit margins while at the same time maintaining increased service demands and expectations.

Maximizing asset uptime, optimizing the spare parts supply chain across disparate business units and geographies, effectively gauging and managing pricing and capturing service-related knowledge are becoming top priorities for best-of-class companies. The current economic and business pressures in aerospace, such as long-term sustainment programs or "power-by-the-hour" contracts replacing "time-and-materials" agreements, are shifting the responsibility for system availability. Service organizations are moving from a traditional aircraft and part sales relationship to a more complex and cooperative environment where vendor incentives are structured to increase system up-time and reduce the overall investment in parts.

The traditional techniques of planning and managing operations will need to be modified and updated in order to work in the emerging cost-sensitive service-for-sale environment. The days of selling parts in support of massive inventories are gone, as the costs no longer are sustainable. Military and civilian support no longer can move "iron mountains" of materials.

This forces supply chains to improve throughput, reduce lead time between network echelons and increase the reliability of the network itself. Economic and business pressure is creating similar effects by pushing airlines to spin off maintenance operations, reduce routes and speed aircraft turnarounds.

However, manufacturers should view this not as a loss but rather as an opportunity. A&D companies can take advantage of the strategic value of service and turn these pressures into competitive advantages by delivering higher levels of service at reduced operating costs by leveraging key technologies designed to support such an environment.

Roger Dycus, senior director-operations at Rolls-Royce, agrees that service is an important driver of corporate performance. "Service is key and strategic to our business," he says. "It actually is the biggest part of our business and will continue to bewe spend as much time developing new services as we do developing new products."

According to AMR Research, post-sale service represents 50%-70% or more of company profits. However, this new approach to service requires effective collaboration across functions, new decision-making capabilities and the underlying integrated technology infrastructure to support those processesan approach the market now is referring to as "strategic service management" or SSM.

Utilizing people and part asset forecasts over the short-term and long-term planning horizons to deploy resources proactively and prepare to respond rapidly to changing tempos and operating regions is the essence of effective service resource planning.

Industry leaders realize the importance of systemwide complex part chains and set forth plans based on system availability instead of individual components or parts. This includes using multiple cost, budget and performance parameters as well as line-item fill rate constraints and component contribution to failure rates.

"Strategic service management means having the right tools and processes so that you can manage your service business and make it profitable," adds Dycus. "To be strategic with service, you need the full package. You need to have the customer expectations set and met. They know what they're going to pay. They know what they're going to get. And then you need your services lined up, and services are about people, about parts and about capabilities, processes. And all those things need to work together in harmony."

Bob Schroeder is VP-aerospace and defense at Servigistics.