Analysts who cover financial markets are always talking about "corrections," especially as they pertain to markets in distress. In the past few months of economic turmoil, we have been hearing about corrections in the housing and stock markets. But are we going to see a correction in the aftermarket?
We are a market in the midst of plenty of stress. Gas prices are skyrocketing, driving up the cost of doing business at every level. Higher fuel prices are impacting demand by reducing miles driven and gobbling up a greater percentage of the consumer's budget. The relentless pressure of parts proliferation continues to swell inventories throughout the supply chain. Global demand for raw materials to fuel the emerging economies in places like China and India also is driving up costs for manufacturers and squeezing margins. Many categories of globally sourced products, which have been the dominant force in driving down street prices, are now undergoing rapid and substantial price increases — in some cases so rapid and so substantial that suppliers are not able to pass them along.The aftermarket has historically used inventory to support its ability to provide customers with same-day (if not 20-minute) availability of any part to repair any vehicle in operation. In another touch of irony, the aftermarket is literally busting at the seams with "just-in-case" inventory. As an industry, our working capital ratios are beyond the understanding of most analysts. We are in desperate need of radical action to proactively deal with this issue. While I realize that historically it has not been our nature to deal with an issue before it becomes a problem, I think it might be wise to forgo tradition and give it a try.
So what do we need to do if we are to survive this inevitable "inventory correction?" We must get our arms around our "collective inventory" and at the same time implement more sophisticated inventory techniques to begin shaping consumer expectations regarding vehicle repair parameters. Both are obviously massive undertakings that will require a cultural change in the way the aftermarket functions, but I believe they can be done.
The issue of getting our collective inventory under control challenges our ability to work collaboratively and extends beyond the walls of any one manufacturer, distributor, retailer or jobber. To address this issue, we need to implement supply-chain technology that will predict what inventory we need, tell us where we have too much and show us how to redeploy it. And to do that, we need to take data more seriously and get comfortable with seeing each other's inventory.
The issue of shaping consumer expectations regarding vehicle repair parameters is far more difficult than implementing supply-chain technology. We must reprogram consumers to not automatically believe that they can get their car repaired by the end of a workday. As a side note, we also need to attack what many believe to be a sacred cow in the aftermarket, the 20-minute hotshot delivery. We must find a way to reduce, and eventually eliminate, dependence on such inefficiencies if we are to survive.
So in the months ahead, let's examine the coming inventory correction and focus on how we can weather that storm without perishing. Maybe along the way we can slaughter a sacred cow or two.
Stay tuned...
Bob Moore is president of Bob Moore & Partners, a consulting firm that specializes in the automotive aftermarket. Moore can be reached at [email protected].
About the Author
Bob Moore
Bob Moore is a partner in the consulting firm J&B Service that specializes in the automotive aftermarket. Moore who chairs the SEMA Business Technology Committee and is a member of the SEMA board of directors, can be reached at [email protected] or follow him on Twitter @BobMooreToGo.
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