One indication of how slow information technology (IT) spending is in the aftermarket is the fact that no one appears to have been actively measuring it for several years. In 2002, AMR Research reported that the automotive aftermarket was spending just 9 percent of its capital on IT (most other industries are in the double digits). In a 2004 Aftermarket Business article, consulting firm G2 Solutions reported that software changeovers had hit a 25-year low.
"What we're seeing now is a very cautious aftermarket," says Scott Huston, manager of information process management at R.L. Polk & Co. "Companies are very apprehensive about IT expenditures."
The aftermarket invested heavily in new technology throughout the 1970s and 1980s, but spending has slowed significantly during the past 20 years for a number of reasons.
First, product data is relatively complex and requires a degree of industry-specific knowledge that has kept many larger software companies from providing solutions for the aftermarket. That means that just a handful of software vendors serve the industry.
Shrinking margins also have reduced the amount of capital that companies have available to spend on their technology infrastructure, and smaller and mid-size companies lack the IT staff to support the solutions they already have. Technology vendors, with few competitors and a shrinking customer base, have found themselves supporting older platforms far beyond their intended lifespan or they risk losing those customers.
According to the G2 Solutions report, in 2003 software development staffs had been reduced to approximately 33 percent of their 1998 levels, and vendor sales staffs also were shrinking. There were fewer than 20 software changeovers valued at more than $50,000 among distributors with sales above $5 million that year.
Supporting older software and hardware platforms has become increasingly costly and difficult for systems vendors. As systems age, finding qualified technicians to support them, or even coming up with replacement parts for the hardware, gets harder and harder.
"Our ability to enhance the product and give the tools to those customers that can help them be more competitive is limited, because they just won't work on those platforms," says Scott Roush, director of sales for Activant. According to Roush, the company has customers still using systems built in 1982.
This is not how it works in other markets. In the retail industry, for example, hundreds of software companies compete not only with each other, but also with horizontally structured behemoths like SAP and Oracle. Vendors periodically drop support for older platforms, and their customer base largely follows along with the upgrades.
This is true even in the worst of economic times. AMR, for instance, recently reported that 65 percent of small and mid-size businesses plan to increase their IT spending by an average of 5.3 percent this year, and that the general automotive industry will increase its IT spending by an average of 7.2 percent in 2008 — this despite record losses, strike threats, bankruptcies and industry consolidation.
Of course, it's easy to pump resources into your IT systems when you're General Motors. The math is more difficult for a mid-sized distributor, particularly when the return-on-investment case isn't entirely clear.
It's also important to note that much of the older technology is still in place because it works, and works well. By holding off on investment, the aftermarket as a whole has avoided dumping money into flavor-of-the-month technologies that ended up failing in other markets. A number of companies have shied away from new IT investments after deploying new solutions that didn't perform as advertised.
"Just a few years ago, there was a rush to market from IT companies, both major and minor, to provide some sort of solution, and too many people got onboard and got burned," says Huston. "The solutions didn't work, were not well supported, and many people were sold systems that really didn't fit with their company."
Signs of change
There have been a few signs of improvement in recent years. Broadband connections are supplanting dial-up, and green screens are slowly giving way to graphical user interfaces (GUIs). Larger distributors, suppliers and retailers are adopting industry standards like ACES and PIES and promoting e-commerce initiatives throughout their own supply chains.
This is, however, widening the gap between the technology haves and have-nots. In a January interview with Aftermarket Business, WHI Solutions President and CEO Bryan Murphy pointed out that aftermarket companies are buying technology, but that "the smaller guys don't make the types of investments that they need to be making."
Cost is always an issue, particularly for these smaller companies, but Murphy says that the software-as-service model and other innovations are eliminating that barrier.
"In my mind, the financial burden has been removed," Murphy says. "Now the only obstacle is whether or not companies are willing to make that change. Many people are change-averse."
Companies also have to take a hard look at their own business processes. Many of the technology failures in the aftermarket have had more to do with poor planning on the part of the customer than poorly designed technology.
"Companies expect a magic bullet or a push-button system," Huston says. "It's not that easy. You have to take a serious look at your processes, and you need a major buy-in from senior management. That's where a lot of companies miss the boat. They don't consider the culture of their company, and how they get things done on a daily basis."
Solution providers are trying to spur more investment by offering new products and functionality. New vendors also are entering and targeting the aftermarket. SAP announced an automotive aftermarket solution in 2005, and a number of new vendors have also begun offering product information management (PIM) solutions to the industry.
"The fly-by-night vendors have weeded themselves out, and the ones with good product support have survived," Huston says.
Getting customers to invest in these new solutions has not been easy, however. "One thing we've found is that data functionality alone is not enough to get customers to move on these solutions," Roush says. "The things that get their attention are technologies they can deploy today that decrease costs."
That focus on cost and efficiency, combined with competitive pressure from the OEs and retailers like Wal-Mart, will ultimately drive new technology investment in the aftermarket, according to Huston.
"Everybody is trying to reduce their inventory and improve efficiency," he says. "The market will demand that companies continue to become even more efficient."