I was speaking to a group of field sales people about the emergence of supply chain automation and the role that it was beginning to play in our market. The purpose was to give these front line combatants an overview of how technology is beginning to transform our industry and how they can use that to their advantage in selling their goods and services. As the old saying goes, about a third of the group was fascinated with the subject and wanted to learn more, another third were doing their time, watching the clock and waiting for the cocktail hour and the last third were truly troubled, if not intimidated by the subject. Not surprisingly, the question came from somebody in the last group.
His question came from the heart. It was simple and it was succinct. He said, “I just have to ask, why? Why is all this ‘techie’ stuff necessary?”
I could tell by the look in his eyes that he was serious. He just had this look of overwhelmed frustration. Maybe he was too old school, too intimidated by the technology, too tired of his job, but this was an old dog that had no interest in learning any new tricks.
I answered his question, although I must admit, not very well. I said something about the fact that other industries had achieved positive results and that it was just the right thing to do.
But it was the sincerity with which the question was asked that wouldn’t let me stop thinking about “Why?” After thinking about it a few days I decided that it was a question worth answering better. So, after due consideration to the question I want to share with you why I think all this “techie” stuff is necessary.
What’s lost in a mature market
Considering “Why?” requires surveying our industry from the proverbial 50,000 foot level. When viewed accordingly, one sees that ours is a mature market. Mature markets have distinct characteristics and respond to certain business strategies and tactics better than others.
In mature markets, brands have a diminished impact. This may not be a popular notion, but I believe that the value of brands in the aftermarket has been on the decline for many years. This is not to imply that brands and brand promotion are not important –– they are. However, the power and strength of brands is diminished in today’s aftermarket.
Simply put, aftermarket end users are increasingly less inclined to pay a significant premium to get a brand. I don’t think that this is a phenomenon that is profoundly different than in many other market segments. Consumers are increasingly aware that store brands and private label merchandise is often manufactured in the same plants as the branded merchandise. As such, the allure of brands has diminished.
In mature markets, the effectiveness of promotional marketing is reduced. It is clear that fewer and fewer traditional promotions stimulate sales. And loader programs, once the promotional mainstay of the aftermarket, are no longer welcome nor appropriate.
In mature markets, the effectiveness of personal selling and long–standing business relationships are reduced. There once was a time when a salesman armed only with a catalog, price sheet and his relationship with his customers could book enough orders to make a promotion or product line launch a raging success. Today, market sophistication, centralized buying and product line reviews have turned relationship selling from an offensive tool to a defensive tool, where salespeople use their long–standing relationships to stave off problems rather than leverage opportunities.
But most of all, in mature markets, price or “the deal,” drives almost everything — extra discount, extended terms, deferred payments and even consigned stock, a financial device that has the effect of lowering price or reducing investment.
This increased focus on “the deal” requires that businesses choosing to play should focus on how efficiently they can deliver the market with a product or service that is “fit for use.” Those that can wring out costs, either in their product or their processes (and, more than likely, both) are the ones that win. In essence, the object of the game is now to see how lean and efficient one can become.
The airlines in a nosedive
I think the airline industry offers an appropriate case study for the efficiency model and one that is remarkably similar to our own market’s circumstances. Certainly, theirs is a mature market. Air travel has moved past being the glamorous providence of the rich into the undifferentiated get me from point A to point B as cheaply as possible for the masses. Brands don’t matter; American is as bad as Delta and United is as bankrupt as U.S. Air. The only way to differentiate is by “the deal.” The deal consists of some sort of discounting; first class at coach price, friends fly free, double miles or just plain cheap seats. In a market like this, the efficient provider that can deliver the traveler from A to B for the least amount of money wins.
In the airline business, Southwest is the poster child of the efficient business model. It is the model of ruthless efficiency. They operate only one type of aircraft. They “turn” their aircraft in half the time of the majors. They don’t operate a hub and spoke system — they simply fly point to point. They are basically non-union. They don’t reciprocate with other airlines on baggage or tickets or interconnections. They maintain service to markets only if they able to make money. They have looked at every aspect of operations and wrung out every ounce of inefficiency.
Moreover, they have also instituted some cost effective technologies that are further reducing their costs and increasing their efficiency. They give heavy incentives to customers who purchase e-tickets online, reducing both the labor of telephone sales and handling charges of paper tickets. Self check-in via kiosks has speeded customer wait times and reduced labor associated with gate agents. Frequent flier statements are e-mailed, reducing costs associated with paper, handling and postage. All of these are simple applications of technology that have a profound cost savings on the daily business operations.
What I’m talking about is “process improvement,” which is pretty well covered by most aftermarket companies. The relatively intuitive nature of “doing what you do the best you can” is obvious. And the accepted business practice these days of “continuous improvement” causes most operators to look for waste, redundancy and better ways of doing most everything. As such, most aftermarket companies have this base covered. Also, I think it is important to note that process improvement is an inward directed function, meaning that one only needs to be concerned with what goes on within one’s four walls to impact this area.
Woeful technology
The area of technology is a much different story. We can’t make the statement that most aftermarket companies are using technology to its full potential to maximize efficiency. The state of technology adoption in the aftermarket is woeful.
If you doubt that for one second, just consider bar coding. When I started in this business 25 years ago, the subject of bar codes was getting hot. As far back as 20 years, I can recall distributors giving ultimatums to suppliers that if they didn’t get their product and shipment bar coded, they would be looking for suppliers that could.
Fast forward to the AAPEX show in November of last year where I heard a representative from MEMA report that 95 percent of distributors are not using bar code technology. Machine-readable technology (bar codes) represents a simple and relatively inexpensive technology, which allows for fast, accurate entry of all sorts of data. Properly implemented, it can reduce invoice reconciliation, speed order cycle time, increase customer service levels and order accuracy and even reduce labor costs. But less than 5 percent of distributors have implemented it.
I’m not picking on distributors. The vendor and system suppliers have been slow in adopting industry data standards and doing any of work that is required to facilitate data synchronization between them and their trading partners.
Unlike process improvement, implementation of technology is an outwardly directed function requiring a significant degree of collaboration between trading partners to make it work. Collaboration requires trust, and trust is a commodity in short supply in this aftermarket.
In my next column, I will deal more extensively with what collaboration means to our industry. (And in the column after that, I will explore where none of us wants to go: a re-invented industry.)
In the meantime, I encourage each of you to think about any trusting relationships that you have with other aftermarket companies. Resellers, do you thrust your suppliers? How far and with what information? Vendors, do you trust your customers? How much information would you be willing to share with them?
If you agree with my notion that the aftermarket is a mature market and that the winning strategy is to be efficient, then you should accept that the implementation of supply chain technology is essential. The full implementation of that technology can help to get our mutual inventories under control and to achieve a reasonable level of profitability. Completing full implementation of technology will help us differentiate our mature market from a decrepit one.
