I was most intrigued reading the cover story of the March issue of Aftermarket Business by John Wirebach offering insights into the demise of Kmart. (See story, here.) It offered many lessons for those of us in the aftermarket. The piece revealed some strategic miscues in marketing, customer service and purchasing, all of which contributed to the dimming of the Blue Light.
Interestingly, and perhaps, coincidentally, someone sent me an article a few days later from Crain’s Detroit Business entitled “Unplugged – Years of Neglecting Technology Cost Kmart on the Road to Bankruptcy.” In that piece, Andrew Dietderich chronicles a compelling yarn about how executives in the Kmart organization waffled between a “technology for technology’s sake” position and an “if it ain’t broke” attitude. This ambivalence postponed and deferred technology expenditures as a method to protect short-term profitability and cost Kmart significantly in the long term.
This new perspective on Kmart’s technology failures got me to thinking, is the aftermarket in general guilty of the same technology avoidance or complacency or even outright Technophobia?
I reflected on what are the real, compelling problems of our industry; on what I hear my compatriots say “keeps them up at night,” a list that includes: depressed margins and sagging prices, stagnant inventory turns, overstock at every level, mounting returns, increased warranty claims, and increasingly unreasonable demands from customers.
That got me to thinking about a presentation I heard recently by Jerry McCabe, vice president of marketing, Dana Automotive Aftermarket Underhood Group. He speculated that many of the problems we are struggling with in the aftermarket are not really problems (as in the plural), but are symptoms of a larger, more problematic issue, specifically technology.
That begged the question, have we as an industry spurned the technology that has enabled other industries to make quantum leaps in efficiencies because we didn’t understand it, feared the investment or thought what we were doing was “good enough?” Are we guilty, like Kmart of neglecting that which can help us?
I’ve decided the short answer is “Yes.”
Wonder drug?
Is supply chain technology the wonder drug to cure what all that ails the aftermarket? One must always be careful not to place too much faith in any technology. It is, after all, people who ultimately solve problems, but again I think the short answer is, “Yes,” along with a caveat.
Let’s go back and consider how supply chain technology can address our myriad symptoms. Overstocks are typically the result of benign or passive neglect in inventory management. They result in stagnant inventory turns, especially in slow-moving parts. Clearly, this is an area where supply chain software can truly shine.
Software that projects future demand based on historic usage has been around for years. What is exciting is the ability of new applications to consider a greater range of factors in developing an inventory projection. Software that, for example, resides on a server between trading partners has the ability to consider circumstances and factors of both the buyer and the seller. It can also schedule shipments in accordance with production schedules, availability of inventory, even the schedule of freight carriers.
Today’s machines can quickly and easily perform countless sophisticated, algorithmic calculations over and over, continually refining themselves. Buyers and stock managers just don’t have the time to do as good a job as today’s technology can do. The application of this sort of technology routinely serves to improve stock profiles, improve inventory turns or most often both.
The next three items –– mounting returns, increased warranty claims and unreasonable requests from customers –– are ways that customers are attempting to deal with their problems. These areas have become part of the “default strategy” of many business people in the aftermarket as a way of dealing with the pain of their individual situation. Unfortunately, the pain is added to the next step in the supply chain.
Jay Ferron, a financial analyst from Price Waterhouse, described this phenomenon at a recent industry gathering as the strategy of “squeeze.” This is a rather humorous way of characterizing this rather insidious behavior where everyone in the channel bangs on anyone above them or below them in an attempt to find relief from their myriad problems. We have all probably experienced it, some times as the “squeezee,” sometimes as the “squeezor.”
The manifestations of “squeeze” aren’t very pretty. They come in the form of insisting on returning more than the stated sales policy under the threat of changing suppliers, in demanding price and discount concessions or extended terms, even as increased alleged defectives that are nothing more than stock adjustment returns masquerading as warranties.
Self-fulfilling prophecy
Thinking about this reaction, it occurs to me how natural and how human it is. When we feel pain, we let others know in the hope that we can find relief. The problem is that while reaching out to others is the right thing; we aren’t doing it in the right way. Squeezing vendors or customers for relief in an effort to compensate for our own problems or shortcomings is a self-fulfilling prophecy. One needs only to examine some of the practices of the Big 3 automakers to see how this strategy has resulted in animosity and outright disdain.
Again, the implementation of effective supply chain technology can and will address the roots of these problems. Effective supply chain technology prevents inventory from getting out of whack by performing an ongoing daily inventory analysis against history, usage, even statistical models factoring vehicle builds and failure rates.
It’s not some kind of hocus pocus, as said earlier, just the ability of machines to perform countless mechanical calculations over and over that buyer and stock managers just don’t have the time and patience to do. When stocks and net sales are analyzed daily, parts that are not going to sell are not reordered. When small returns are made regularly, store and distributor inventories never get so far out of whack that huge returns, or surreptitious warrant claims (returns) or other outrageous demands are ever required.
Finally, I think the depressed margins and sagging prices we are experiencing are in large part the result of well-intentioned business people attempting to deal with perceived customer dissatisfaction (and the strategy of squeeze) by increasing discounts and reducing prices. Instead, they should be focusing on the historic strengths of our industry: quality, availability and service.
Can supply chain technology help here? Yes, in an indirect sort of a way. If a jobber or distributor is utilizing the technology tools to manage his or her inventory, then they are more likely to have the right parts in stock, meaning service levels and order turn-around time are much better. That translates to happier customers that are less likely to shop around or to be seduced by a slightly deeper deal. It also means that faster-turning inventory and reduced investment will create higher profitability.
The upshot of this rather interdependent (if not codependent) set of circumstances is that all of these symptoms are addressed to some significant degree by the effective implementation of supply chain management. As I stated at the outset, supply chain technology is not the wonder drug that will cure all that ails the aftermarket. However, if you accept that the myriad symptoms we are experiencing are part of a vicious cycle perpetuated by too much of the wrong inventory in most aftermarket enterprises, then acting to address that root problem will start to affect all of the other “squeeze” factors plaguing manufacturers, WDs, retailers, jobbers and installers.
Salvation comes with a cost
And now the bad news. Like most things, the solution comes with a price. The biggest price is clean, robust data. If you are like most aftermarket people, you just went back and reread that last sentence all the time thinking, “surely he meant to say money, time or anything other than data.”
This fact is, data is grossly misunderstood, especially in the aftermarket today. All of us, be we store operators, distributors or manufacturers, own, host and maintain incredible banks of data. Unfortunately, few of us recognize the significance or importance of the data.
As a consultant, I am consistently asked the same question about e-commerce: “Where do I start?” My answer is painfully simple. “Your data.” And I get the same glassy-eyed stares.
Data is the fuel that powers every software application. And, as it turns out, all those catch phrases that we have heard about computing over the years like, “content is king,” if you put “garbage in” you will get “garbage out,” are true. And just like contaminated fuel in an engine, if you put incomplete and inaccurate data into a system it will sputter, spit and stall.
I have seen two extreme examples of this problem, and I can tell you it is an experience you never want to live through. In both cases, one a manufacturer, one a distributor, fill rates plummeted into the teens; the system couldn’t recognize the stock that was on hand; and there were adequate inventories of depleted items. In both cases, the lack of complete, robust data was the problem.
Data is like a baby –– everybody thinks theirs is perfect. If you speak to anyone in any company (other than the two I just described above) and ask them the condition of their company data, you will be greeted with one of two responses, a blank stare or a superlative. (By the way, in most cases, the blank stare is the better answer.)
We have all experienced the problems when computers don’t recognize simple data mistakes like the addition of dashes or spaces. Computers take data entries literally and are not able to “filter” even simple errors like an extra prefix or slash.
Consider this one example of data errors between trading partners on a data field as simple as quantity. The plant considers a “unit” to be a spool of wire or hose 1,000-feet long. The master distribution center breaks those down into 50-foot rolls and considers that a “unit.” Both the warehouse and jobber sell the product by the foot and, as such, consider that their “unit.” Now, just for fun, imagine the jobber order for a quantity of 50 being electronically transmitted to the plant as a drop ship order. Picture the truck driver backing up to a parts store with a trailer load of 50,000 feet of hydraulic hose for delivery. Or even worse, what if that quantity was transmitted as order demand to the plant for, say just 30 customers. That would be about a 150,000-foot overstatement of demand on which the plant might schedule production. Explain that one to the boss.
Not just a manufacturer’s issue
Just in case you are a distributor or a store operator reading this and are thinking that data problems are just an issue for manufacturers, let me share another case study. In a recent data clean up, one distributor discovered that he had one manufacturer’s part number duplicated in his system six different times. That meant that he was maintaining the same part number in inventory six times with six sets of sales history. Even more ironically, two of the six part numbers were classified as “A” movers. That same distributor discovered in the data synchronization process with his jobbers that his typical customer had a 10-percent duplication of part numbers in their systems. Eliminating the data errors helped reduce inventories by about 5 percent, before the implementation of any supply chain automation. As outrageous as this seems, this is not an isolated instance attributable to bad business people.
“Not isolated at all,” said Ed Heon, chief technology officer for a data management software company. “Of the hundreds of distributor and store data files I have work with, I have yet to see one that didn’t have a significant number of errors like the ones that you mentioned.”
It is only by taking the time to clean up your data and then synchronizing it with your trading partners that businesses can begin to chisel away at the nagging problems of our industry with supply chain technology. When Kmart finally did get to the point that they could query their data and begin to use some of their supply chain tools, they discovered things like they were stocking over 13 different toasters, yet two accounted for over 85 percent of sales.
Information, and the ability to use it to make smart business decisions is power. But it all starts with having accurate data on which to base decisions.
The $2-billion fix
What else can we learn from Kmart? Well, Kmart has recently announced that it will invest $2 billion in an attempt to catch-up to where they need to be on the technology front. Two-billion dollars just to catch up! I know some people will think that is just throwing money at a problem, others will say that it is something they have to do just to attempt to survive.
I say, “Take heed.” The key is to put yourself in a position to not have to play catch-up. When you find out from one of you sales people that you just lost one of your biggest accounts because their new supplier has some sort of automated system that will reduce your customer’s inventory, improve his service levels and cut his labor costs (and believe me, it will happen soon at every level of distribution) you won’t be able to throw money at your problem fast enough.
I know that there is tremendous trepidation with which system to use or what vendor is best. But there is time to make those decisions down the road and as you learn more. Just start with your data. Get smart enough about the new systems to see why data and the condition of it is even important. Then assess what sort of shape your data is in and what you need to do to get it ready to use with the new systems. Believe me, that is work enough for anyone right now. And it will put your business out in front of 95 percent of your competitors. n
