A looming 'correction'

Jan. 1, 2020
The aftermarket is bursting with "just in case" inventory. Our working capital ratios are out of line in comparison to other industries, bewildering most analysts.
The aftermarket is bursting with "just in case" inventory. Our working capital ratios are out of line in comparison to other industries, bewildering most analysts. Yet, when speaking with industry insiders about our inventory problem, I see we are shortsighted as a supply chain. There are too many in the aftermarket who think the way to deal with problems is to push them onto someone else.

Manufacturers fight resellers to get price increases, reduce returns and protect their brands and IP against short, unsupported lines from low-cost countries (LCCs). Resellers often demand supplier financial concessions under the threat of buying direct from LCC suppliers.

The objective of concessions, which may take the form of grossly extended terms, factoring, or pay when sold, is to move burdens from their balance sheet to the suppliers'.

Resellers are pressured by jobbers struggling to balance cost of inventory and missed sales. It's likely that many of these independent jobbers pay bills by returning products. The jobbers then battle with technicians, who often expect free delivery with no sympathy for the associated carrying costs or rising fuel costs.

On one side is the "make my problem somebody else's" attitude where some think their historic gross margins are entitlements. On the other, there is a resignation that these conditions are the marketplace reality, and we are powerless to change anything.

I'm not buying it. We can do something about it, and we had better proactively and collaboratively do something before the market takes its natural course and "corrects" itself.

To avoid casualties in the "inventory correction," we must think and act in terms of "collective inventory management."

The cooperation needed for this approach requires closer, more trusting relationships between channel partners and more sophisticated technology. We need "see you, see me" inventory visibility and better and faster sharing of point of sale data between trading partners. We also need to develop better forecasting techniques for failure rates and understanding of companion parts sales.

The flow of products and information must also be rethought. Why do products have to go from maker to a warehouse to a store to a user? And why does data and information have to flow in the same pattern down and back? Simultaneously, we must reshape our customers' expectations that vehicles can be repaired in a single day. That is no longer feasible.

We need someone in a leadership capacity to inspire us to change how our market does business. We need new efficiencies to improve financial results rather than constantly trying to pick another's pockets. It probably will require the head of a trade association, the CEO of a major reseller and the CEO of a major supplier to get the ball rolling. These tasks require a change. It's a tall order, but it can be done.

Bob Moore is president of Bob Moore & Partners, a consulting firm that specializes in the automotive aftermarket. Moore can be reached at [email protected].