This current series of columns began several months ago in response to a simple question asked of me during a training session. The question was simply — “Why?” That is, “Why is all this supply chain technology critical to the aftermarket?”
My answer was in three parts. First was the application of supply chain technology to improve efficiency as nearly the only tactic that can make doing business in this aftermarket profitable. The second related to the need for forming trusting collaborations to facilitate the implementation of technology because it is only through such collaborations that the full benefits of the technology can be realized.
The third element of why supply chain technology is so critical to the future of the aftermarket relates to the very way that we are currently doing business and the challenge we must face to transform our business model if we are to remain viable. That sounds a touch foreboding, and maybe it is. Without the implementation of technology, facilitated by trusting trading collaborations and followed by changes in how we do business, we have no shot at making the transformation.
To illustrate my point, let me return to an analogy that I used back in April when I introduced this thought. At that time, I offered Southwest Airlines as an example of the efficient business model that was profiting in a business segment awash in losses. I pointed out their relentlessness in how they have wrung every ounce of inefficiency out of their operations, in some cases, even to the point of sacrificing customer amenities.
Conversely, the other major airlines have built elaborate “systems” that allow customers to travel seamlessly from Fargo, N. D., to Fukuoka, Japan. These system networks are something to behold. Customers can make a single reservation, purchase a single ticket, fly on two, three or even four different carriers, and arrive at their destination with a minimum of inconvenience. They’ll even find the bag they checked at the other end. When you stop to think of the complexity of this system, you must stand in awe. Unfortunately, it is a system that fewer and fewer people are interested in paying to support.
When you hear people talk about Southwest Airlines the discussion usually is accompanied with a complaint about “a cattle call” for boarding, and being rushed onto planes; but that epitomizes their efficient business model. The fact remains that their loads and profits are increasing in the face of a declining market. The same customers who grouse about the “cattle call” will tell you Southwest is almost always on time, they never lose bags, they have the best safety record of anybody flying, and above all they have the lowest fares.
Ruthlessly efficient, even at the expense of customer amenities, is what makes Southwest truly amazing. They have had the intestinal fortitude to challenge the traditional business model of the airline industry, using their efficiency to deliver a value proposition that meets with customer approval. Isn’t that what it’s all about?
A system too elaborate to support?
So that got me to thinking. Have we in the aftermarket, like the airline industry, built an elaborate system to perform a function that fewer and fewer people are interested in paying to support? The distribution model we have built will locate just about any part to repair almost any vehicle, and deliver it to a repair facility within hours.
Think about that for a minute. When I point this out to people in other industries, they nearly always seem surprised. As they think about it, they are very impressed, then shocked as they get around to asking the same question that got this series of articles started, “Why would you want to do that? Imagine the INVENTORY it must take to run such a system!”
But what really floors them is when they discover the customer doesn’t pay a premium for either the really old, slow-moving parts, or for the expedited service. For example, I tell them that a disc brake rotor for a 2002 Buick Century costs $60.83 compared to $58.13 for the same part for a 1977 Buick Century.
And if that doesn’t get them, I’ll tell them that we will sometimes drop ship from a distribution center or a manufacturer, directly to the repair facility with no special handling charge!
So that got me to thinking, again. Is everyone in our supply chain leaving money on the table? Are we providing a service that people are willing to accept, but not pay for? Is our business model flawed?
If I had to answer “yes” or “no,” I’d have to go with a qualified “yes.” But, as I am sure you realize, the answer is hardly that simple.
I have a friend with whom I enjoy kicking around “out of the box” aftermarket ideas. He is knowledgeable about the aftermarket and is also dialed into the whole Wall Street mindset. It’s his contention that if the aftermarket ever hopes to get Wall Street analysts to recommend our stocks to institutional investors, we have to do something about our inventory problems.
“They (the analysts) hate us because our balance sheets are burdened with huge inventories,” he argues. “Unless –– and until –– we do something about that, our stock prices will remain low and we will never get the capital we need to transform the business.”
He’s right. Those who attended the recent Global Automotive Aftermarket Symposium in Dearborn, Mich., got an earful of how analysts view our industry, and for the most part, it was not favorable. Excess inventory is our greatest nemesis and figuring out how to deal with it is arguably our greatest challenge.
No overnight fix
The big question is, “What can we do?” I’m not so naive as to suggest that we can wake up one morning and suddenly be able to charge more for slower moving parts, and expect customers to accept up-charges for rush orders. That just isn’t going to happen.
The inventory battle must be waged on three fronts. Foremost, we must establish the trusting trading partnerships I keep harping on. Only in that type of relationship will we gain the broad visibility of the entire stocking landscape that is required to advance to the second front. And the second front is to reduce the amount of stock everyone in the supply chain has on hand, while maintaining acceptable and appropriate service levels.
The third front will be to redefine appropriate fill levels and shipping performance in terms of what people are willing to pay for. After we get by the trust issue, the weapons for the rest of this assault are technology-based.
Much has been written and reported on reducing the glut of inventory in the aftermarket. There are many initiatives being undertaken by system providers, program groups, manufacturers and retailers that are intended to reduce inventory and improve turns. These are critical initiatives and everyone serious about surviving should be actively pursuing one or more of them for their businesses.
The greater challenge is the third front of the battle; changing your business model to provide the services customers value highly enough that they are willing to pay for them. It is a greater challenge because many of those services are provided today at no additional charge. Making the changes that allow you to be compensated for those services must have broad industry support and be done in incremental steps.
I believe technology represents the last best chance to collect for some of the extra services that we have been providing and have not been paid for.
It’s difficult to present a laundry list of examples that will relate to the breadth of readers of this publication, but let me suggest a few that are fairly universal in their appeal.
Technology represents an incredible opportunity for resellers to engage in variable pricing, yet virtually everyone in the aftermarket is chained to the published blue sheet. By using technology to take data feeds from manufacturers and basing price adjustments on local market demographics, vehicle populations, customer types and even competitor activity, resellers can find precious points of margin in myriad places. It is even possible for the progressive reseller with the proper analytical tools to vary pricing based on the service involved to meet the customer’s needs.
Another area on which technology can have a huge impact is parts delivery. The scheduled delivery of parts between WDs and jobbers is a well-defined concept understood by both trading partners. Nearly every jobber knows that if he places his order electronically with his warehouse distributor by a prescribed time, it will be in his place of business by 8 a.m. the following day. Virtually every study about product availability tells us that this sort of consistency is the most important aspect of availability.
Yet parts orders between jobbers and service centers are a knee-jerk reaction; more like a pizzeria delivery order than a vendor/supplier transaction. When a call comes, the parts go. Using the WD/jobber model as our point-of-reference, we should be able to use technology to establish a similar order by X, deliver by Y model. If technicians know they will have a part regularly and reliably at a specific time based on when and how they order, it would relieve much of the expense associated with hotshot deliveries. Again, in a technology-enabled, parts-ordering environment, costs and expectations will become easier to manage.
These are but two of many opportunities for controlling cost and maximizing returns based on connectivity and technology. Which brings us back around to the “why” question that started all of this. This new technology, properly applied throughout a supply chain:
- helps create the sort of efficiency that makes its adopters more profitable than its detractors;
- mandates the cooperation and collaboration that builds more efficient trading partnerships, and
- helps its adopters transform the way they conduct business and find competitive points of difference and cost reductions that give them a leg up.
And that’s a pretty good set of reasons “why.”
