The green flag effect

Jan. 1, 2020
The coming green flag of economic recovery will provide tech & data savvy companies with disproportionate reward.

Depending on which political propaganda machine you listen to, we are either mired in the doldrums of a sluggish economy, or in the middle of one of the greatest recoveries of our lifetime. At the risk of showing my political cards, it is clear to me that the post 9-11 recovery is now well upon us. Even our beloved but beleaguered aftermarket is showing signs of life again. People are generally more optimistic. The rhetorical greeting of “how’s business?” is drawing nods or at least some upbeat, “not bad” replies, rather than  streams of muffled grousing. And, what is surely the most optimistic sign? The acquisition machine seems to be clicked on again, indicating that even the capital markets are seeing signs of life in our neck of the woods.

While reading what various economic observers and pundits have to say on the recovery subject, I have come to the conclusion this one, the first of the new millennium, will be substantially different from those that came before it. Historically, economic recoveries have pretty much benefited everyone evenly. But, rather than the proverbial rising tide lifting all boats equally, I think this one will be different.

While the recovery is cause for celebration, some people are in for a surprise. Simply because they have fielded a team does not mean everyone in the aftermarket will enjoy the same benefit. We have too many businesses chasing too few customers, both trade and DIYer. The level of sophistication between players has widened to the point that the highest performing companies, those that have readied themselves with technology, will reap disproportionately as the recovery gains momentum.

Returning to “tried and true” strategies and tactics may not yield satisfactory results. Familiar gambits like loader programs, buying market share with changeovers, and reaching profit goals through additional cost cutting won’t get technology laggards where they want to go.

I have written in these pages before about a phenomenon I call the “yellow flag effect.” It is a concept based on the work of business strategist Joel Barker. He says that paradigm shifts, especially those resulting from the imposition of new technology, put all the players in the game back to square one. I have used the idea to explain how, as technology adoption escalates in the aftermarket, no one size of business has an inherent advantage. In auto racing terms, it’s the same impact a yellow flag has — no matter how big a lead the big boys might enjoy, the yellow bunches everyone back up. Everyone, that is, on the lead lap!

The yellow flag that is being waved today is in the form of product/price and application data that fuels supply chain technology. The evidence of this phenomenon continues to mount. Data standards are being more widely adopted as various e-initiatives take a front seat. More and more resellers are demanding that their suppliers become AAIA DAC certified. Requests for data synchronization efforts within and between supply chain members are increasing rapidly. Companies who have become standards compliant are on the lead lap.

And what follows a yellow flag? A green one, of course. And the economic recovery is ready to wave it. As the job situation, consumer confidence and business improves, tech savvy companies will reap unequivocally large benefits. As the green flag of the recovery drops, companies that are tech enabled will be leaps and bounds ahead of their not-so-up-to-speed counterparts. It will be the economic equivalent of four fresh tires and a topped off tank. The ability of tech-enabled companies to build a lead will be astounding to those companies that have not been paying attention.

Vendors equipped to provide their resellers not just with products, but with timely electronic catalogs as well as full and rich product attribute data will jump to the front of the pack. In the first case, that means a vendor can provide customers with the data to look up a part electronically at the same time the part is made available to the market. In the second instance, the vendor has the ability to synchronize between 12 and 100 fields of data on every SKU they sell, with all of their reseller partners. Likewise, resellers that can take their vendor’s data and use it to make more new parts available more quickly, and who can provide more comprehensive and correct information to their customers, will greatly outperform those who can’t.

If you didn’t read James Guyette’s cover story entitled “First Call — Dead Last” in the June issue of this magazine, I recommend you stop reading this drivel, find a copy of the June book (or go to www.aftermarketbusiness.com and click on the “Issues” link) and read it now. The subtitle of that piece tells you everything you need to know about the green flag effect of data being so critical. It reads, “independent shops are turning to dealers… because of poor aftermarket data and sub-par parts.” Is that clear enough?

The fact is, what used to work won’t work now. Guyette exposed two critical issues in his piece. One, the aftermarket has nearly “consolidated” itself out of business with technicians; and secondly, the timeliness and accuracy of our data is out of step with what the customer needs and expects.

The practice of “consolidation” by designing parts to cover multiple applications (and thus reduce inventory) has been carried to the extreme for years. We never bothered to consult with our technicians about this “universalization,” and now it’s meeting stiff resistance in the service bays. Coupled with dismal data availability, it is sending our technicians directly into the very open arms of the dealerships.

When you think about the motivation for the “consolidation phenomenon” the situation becomes almost ironic. Its intent was to deal with burgeoning inventories and attempting to restore some profitability to manufacturers and resellers alike. Manufacturers, faced with ever-growing parts proliferation, worked creatively to combine applications and reduce the amount of inventory required to cover the parc. Resellers gleefully accepted and encouraged the practice by rewarding more business to those suppliers with the most consolidated lines. Neither bothered to ask the people throwing away the box what they thought, and now it’s coming back to haunt them.

The second issue, data accuracy, is something that, bluntly put, is inexcusable. As an industry (and I mean everyone — manufacturers, resellers and technology providers), we have not cared enough about the state and condition of our data, and the problem has now come home to roost. Just read the quote from the technician in Guyette’s story who orders three sets of brake pads for a job because he can’t be sure which ones are right. Again, if our goal is improving our profitability, why not fix the root problem (the data) and stop wasting time on superficial symptoms with weak medicine like product consolidations and efforts to reduce returns?

Companies in front of the data and technology curve not only can address the nagging problems that Guyette’s story brings into focus, they actually can garner benefits that will serve to galvanize customer relationships and establish a competitive edge. Companies that are “data driven” are better prepared to address their customers’ needs and provide them with tools to improve their business. These companies can wring costs out of their business and become savagely efficient, delivering the profitability others seek by addressing symptoms, rather than root problems.

One final thought. We have been sending our technicians to dealerships to buy what we have been unable to provide (form, fit and function and accurate data) on an increasing range of products for several years now. They have come to realize that dealerships are not the devils incarnate we’ve made them out to be. Simultaneously, OE dealers are realizing that the profits from parts sales are double, triple and even quadruple what they make selling big iron. They’re also learning that independent technicians are not the pains they may have thought. Unbelievably, technicians still profess a strong preference to buy from their aftermarket source. I want to ask every aftermarket person reading this, “How long do you think that will last?”

It’s time to get serious about fixing our data  —  it’s a root problem that has resulted in overconsolidation. To continue to ignore it only assures that the OEMs will devour an ever-increasing portion of our lunch. The yellow flag is out and the green one is a lap or two away. How does the sprint to the finish look for your team?