The Motor & Equipment Manufacturers Association has numerous agenda items for 2005, but they plan to focus a large portion of their attention on supply chain management, says Bob McKenna, the company’s new president, who gave an exclusive interview with Aftermarket Business magazine. He explained to us that supply chain efforts would help increase profitability by cutting out unnecessary costs in the chain. “It’s an issue of getting more return on the assets that are employed,” he says.
Though this effort was in its infancy when Aftermarket Business went to print, MEMA was in the process of creating an Automotive Aftermarket Suppliers Association (AASA) Manufacturers’ Advisory Council comprising 12 to 15 executives. “It will start at the macro-level with manufacturers and then will involve the rest of the distribution channel,” says Paul Foley, vice president of the AASA, who adds that the first priority is to “zero in on the most critical problem areas” so that the organization can start educating the entire supply chain on how to eliminate costs.
“We’ve already started some work on logistics and we are looking at the pricing issue,” he says, emphasizing that it’s time to learn how to properly price products and justify increases.
Once the council has been formed, and it establishes a list of items needing to be addressed, MEMA will conduct a seminar presenting several different initiatives. The event will be open to anybody in the industry who is interested in increasing profitability. “We need to figure out what the needs of the community are and the depth of education that’ll be necessary,” Foley says, adding that the council will likely address everything from RFID and logistics management to returns, warranties and legacy-type programs that are very costly.
“In this industry, it is really difficult to get people rallied behind something,” he says, but makes it clear that this is an issue we all need to support since shrinking profit margins are affecting the livelihood of the entire aftermarket.
“There’s lots of waste out there,” he asserts. “We know that we can become a much more efficient industry by working together and collaborating.”
Supply chain management and profitability concerns will become all the more critical as raw material costs, like resins and steel, continue to spiral upward, as many can’t pass along these costs due to contractual agreements or competitive prices.
“Margin shrinkage is so common right now. And to add to that, the price that the consumer will pay for things has sort of hit a glass ceiling. Yet all the cost increases like health care, energy, raw materials are coming this way,” says McKenna.
That glass ceiling seems to have been in place since the early ’80s as the prices consumers will pay for motor vehicle parts and equipment have increased little since then. According to a study done by MEMA in 2004, “prices for motor vehicle parts and equipment have risen at a rate far lower than inflation and most other consumer products,” with many suppliers and distributors only adding to the problem, making low price their No. 1 priority over other, more important goals.
MEMA is currently working with McKinsey & Company to survey industry executives in the supply chain to determine what has been “done wrong” with regards to pricing and cost.
Analysts from Frost & Sullivan say there are very few products that are even getting 5-percent annual revenue growth at the manufacturer level, and that most products only see 1- to 2-percent growth in the course of a year.
They also say that some studies have shown there is as much as $1 billion worth of waste in the system that can be removed, and that the responsibility falls heavily on the shoulders of the manufacturers to get leaner.
Jasmine Sachdeva, industry manager for the automotive aftermarket division at the firm, says, “They need to look for different sources to reduce costs. Several industries are being faced with the same increases in health care and raw materials and we can’t just raise prices 20 percent on the end products to reflect the 20-percent increase on running the business.”
She and her colleague, Mary-Beth Kellenberger, senior industry analyst for Frost’s automotive group, say that cleaning up data in the supply chain so that there aren’t so many errors in pricing, unit quantity and accessibility will help. “Some manufacturers actually proliferate parts on purpose to push smaller participants out of the system,” says Sachdeva, who adds that though this is a competitive strategy, it ends up creating glut in the system and everyone pays the price.
Supply chain management efforts wouldn’t be complete without addressing how various technology applications will serve as major enablers to cutting costs. MEMA is focusing on RFID education and awareness. They believe this technology will have a significant impact on the aftermarket in terms of costs, benefits, data management and trading partner relationships.
MEMA’s technology division MISG has also enhanced its Transnet network to help eliminate costs and make generating and sending orders between partners easier than it had previously been. Transnet is used by thousands of distributors, retailers and manufacturers. The upgrade, which will be complete in the coming months, will provide more document delivery flexibility to aftermarket manufacturers, but will not impact the way distributors currently send their purchase orders through Transnet.
Other issues on the MEMA action docket this year include Right to Repair efforts (see our cover story for more), education and training, inventory management and escalating health care and raw material costs, all of which, in their own right, affect profitability for the aftermarket.
