The transformation of the industry is at hand

Jan. 1, 2020
Here we are at the gateway of a new and equally trend-setting change like the one we witnessed with the convergence of sales and marketing in the 1970s and 1980s.

One point that I find myself making of late as I attempt to spread the gospel of supply chain technology is that we are standing at the gateway of great change in our business. To illustrate my point, I like to recall the rise of the discipline of marketing in the aftermarket.

Going back not so many years, say to the 1970s, our business was dominated by sales. The idea of a good business plan was to “turn the boys loose” with catalogs, price sheets and a good spiff program. We created programs to load stores with merchandise. We measured our success by sales volume. And typically the guy who was “next in line” to be the big boss was the sales manager.

Then the aftermarket discovered marketing. Overnight we started to care more about integrated programs, not to load-up, but to pull-through. We started paying more attention to market share and ROI than to pure sales volume. And most companies started having a person to head marketing in addition to one to run sales.

That marketing transformation helped the aftermarket. It made us better business people and helped us focus on doing the right things for the entire channel, not just that which would buy us short-term volume.

So here we are at the gateway of a new and equally trend-setting change like the one we witnessed with the convergence of sales and marketing in the 1970s and 1980s. This time I think the convergence will be between marketing and information technology (IT).

The awesome potential that IT represents to transform our business in the aftermarket is unarguable. However, our ability to recognize, accept and implement it may be problematic.  Sales- and marketing-types try to look and act as though we are comfortable with technology, but the fact is, they’re not. Then there are IT-types who understand the technology, but are oblivious to who the customer is and what he needs.

Getting it

To effectively implement supply chain technology in the aftermarket, we need more people who “get it.” We need IT people who can relate to the market and marketing people who understand the application of technology. Too often these days, IT people are relegated to the backroom and are not involved in the process between customers and vendors. But equally as culpable are sales- and marketing-types, who when they hear the mention of anything technology related immediately tune out and say, “Why don’t I put you in touch with our IT team to help you with that.” What we desperately need are more people on both sides of the technology fence who are willing to work toward implementation. That’s what I mean by people who “get it.”

Mike Williams is one guy who gets it. Mike is an IT guy (specifically the vice president of IT at O’Reilly) who realized that there is life beyond his Oracle database and his Cisco servers. A guy, who observed a problem, stepped outside of his comfort zone and did something about it.

The problem that Williams observed was the relatively primitive way that we in the aftermarket communicate electronically between systems. Much of the electronic data exchange was transacted over a proprietary network that allowed only for one-way communication of just one EDI (electronic data interchange) document — a purchase order. It was adequate for what most trading partners were doing, but it wouldn’t accommodate what they needed to do. Anybody that was trying to do more EDI than what the industry-recognized system would accommodate, had to reinvent the wheel. As such, everyone was doing EDI a bit differently. And the lack of standardization in technology can often defeat its savings potential.

Williams realized that what the industry needed to gain the efficiency and savings that supply-chain technology represents was to develop a communications link that would allow for the standardized exchange of a variety of documents and do it virtually free of charge over the Internet.

Williams, with the blessing of his management at O’Reilly, set out to create just such a system. With help form collaborators at IBM, Gates Rubber Company, Cardone, Unit Parts, Dana, Federal-Mogul, Delphi, ArvinMeritor, CARQUEST and CSK Auto, Williams and his team created a system they initially dubbed, “Gateway.”

“‘Gateway’ just seemed such a natural thing to call it,” said Williams. “The program literally is an Internet gateway that opens a secure communications link between trading partners.” Then Williams goes on to muse. “I guess in our excitement we never stopped to think about that company in South Dakota with the black and white cow-patterned boxes.” With some sage counsel from attorneys, “Gateway” was renamed and is now known as the “Partnership Network.”

Here’s what the network is…and isn’t

In a nutshell, the Partnership Network is a communication gateway (there’s that word again), which allows one trading partner to transmit virtually any information in a standardized way to another trading partner quickly, accurately, securely plus send it relatively cheap.

Since this is a column that disdains “technospeak,” let me attempt to explain the Partnership Network in a way us real people can understand. And maybe the best way to do that is by explaining what the Partnership Network is not.

Traditionally, communications between computer systems in the aftermarket has been accomplished in one of three ways, through a VAN, through a hub or with a proprietary direct system. The Partnership Network is none of those things, but has commonality with them all.

VANs (Value-Added Networks) like Transnet, Sterling or GE are closed systems, which are networked over dedicated lines. On the up side, they allow for direct communication between trading partners and because they are pervasive in many industries (like Sterling or GE) or industry sponsored (like Transnet) they also are standardized per se so one partner can set up their system just once and allow for communications with many others. Additionally, they are very secure, quite reliable, reasonably fast, although, rarely “real time.” Their down side is their cost. The architecture that gives them their reliability and security also makes them quite expensive.

Hubs on the other hand are typically very cost effective, primarily because they use the Internet as their free communications link. Basically, hubs are the electronic equivalent of an office mailroom. There is a central location, in this case a website, where communications from one trading partner can be stored in a secure “mailbox” until it is picked up by the intended recipient. This “store and pick-up” makes them slower than other methods. (However speed can be a pretty relative term since some hubs can perform the store and forward for pick-up service in well under a minute.) Also, someone has to operate and maintain them; hence, there are typically transaction fees. Those fees are usually much less than those charged by a VAN. Hubs are very reliable and can be very secure (although never as secure as the dedicated lines of a VAN).

Arguably, a hub’s greatest feature is the standardization of communication that it affords for all partners who transact business over the hub. There are several examples of hubs currently operating in the aftermarket. Some are public like the HDX (Heavy Duty Exchange), the not-for-profit IDW (industry data warehouse) and hub operated by the heavy-duty industry, and some are private enterprises that associate themselves with distribution groups and trade associations.

Proprietary direct communications are essentially custom solutions. They are very secure, very fast and costly to maintain. Their expense is not so much in the charges directly associated with setting up and maintaining such links, as it is with the endless variations that trading partners have to care for and feed. Consider this model: if the aftermarket had only 100 suppliers and each had 100 distributor/retail customers with whom they had a unique data communication relationship (and we have many more of both) that’s 10,000 unique relationships. Each one must be nurtured and maintained by IT people at both ends. It is this sort of phenomena that begs for an industry standard for communications.

The answer is the Partnership Network

Enter the Partnership Network (PN). It establishes an industry standard for the transfer of information between computers over the Internet without transaction charges. It combines most of the advantages of all of these systems and has few, if any of their limitations. It has speed and security similar to VANs and direct communications, but is as standardized and inexpensive as a hub.

I have had the technical explanation of how the Partnership Network operates explained to me by the techies several times and this is as simple as I can translate what I was told. Once you have installed the PN software on your system, you can send any document directly to any other member who also has the PN software installed on their system. That document could be anything from a standardize EDI document such as a purchase order, an advanced shipping notice or an invoice to a simple stock check request. The PN software literally “wraps” whatever document you are sending in a secure XML (eXtensible Markup Language) “envelope” that allows only the party for whom it is intended to receive and open it. The system even confirms that is what was sent by the identified party. That is really all there is to it.

So if you are like me, you have been wondering just how inexpensive is it? Initial pricing has been pegged at a one-time charge of $1,500 for the activation fee and a $2,750 annual license fee (remember there is no transaction or line item charge for each document sent). I think that qualifies for the use of the “inexpensive” tag.

Those of you who follow my written ramblings know that I am an advocate (some would say zealot) about non-proprietary, free and open standards when it comes to shared supply chain applications. Too often people and companies that pioneer breakthroughs in this area try to cling to their development and exploit it for their profit or strategic advantage. Rather, in a move of nearly altruistic proportions, Williams and his management team at O’Reilly had the vision and conscience to share their development with the industry.

AAIA, the industry partner

“The Automotive Aftermarket Industry Association (AAIA) has partnered with O’Reilly to bring the Partnership Network software to the industry,” said Scott Luckett, vice president, Information Technology of AAIA. “AAIA applauds the management of O’Reilly Auto Parts for recognizing the value of an open and shared solution to rising communications costs. By involving AAIA for distribution and administration of the gateway solution, O’Reilly has ensured that this software will be widely available at a low cost to the industry.”

Luckett concluded by observing, “With full support by retailers, distributors and suppliers, the annual savings to the aftermarket could be measured in the millions of dollars.”

O’Reilly could have chosen to use PN as a communications tool for just themselves. They could have used their leverage as a significant purchaser to require vendors to adopt their method of communications and probably gained an advantage (albeit temporarily) over their competitors. Instead, they looked at a bigger picture — a picture, which suggested that if this solution were available to everyone at little or no charge, chances are it would become the standard for the industry and everyone would benefit, including them.

The industry owes a debt of thanks to O’Reilly, Gates, Cardone, Unit Parts, Dana, Federal-Mogul, Delphi, ArvinMeritor, CARQUEST, CSK Auto and Mike Williams for their pioneering work. Recognizing that, at the most recent AAPEX show, Williams was the recipient of the prestigious Chairman’s Award from AAIA in recognition of his work in developing the Partnership Network. Upon receiving the award, Williams was quick to share credit with Mike Ballard and Dan Burtchett from his O’Reilly IT team. To those of us who understand the significance of the Partnership Network, that was a most appropriate gesture. AAIA is to be commended for acting is such a timely fashion. However, knowing Williams, I think a more appropriate gesture is for every distributor, retailer and supplier in the aftermarket to move quickly to implement his labor- and cost-saving technology. The expedient rollout of the Partnership Network is one of the best things that could happen to this aftermarket in many years.

And that is the best way for all of us to tell Williams and the Partnership Network development team thanks for a job well done.