Two examples come to mind involving strategic business practices that have been highly effective in other industries and even have a substantial track record of success within the automotive aftermarket. Yet when I have witnessed either of these approaches presented, they have been greeted as ideas from another planet.
My first example involves inventory management through a Vendor Managed Inventory (VMI). When a distributor engages a hosted VMI service, they are installing an objective intermediary between them and their vendors. The intermediary, using modern analytical technology, works with suppliers and the distributor to create and implement optimized stocking and replenishment regimens.
But when you suggest considering VMI to most aftermarket distributors, you hear, "Nobody else has the knowledge I have about my market, so how can they manage my inventory better than I can?"
Recently, I spoke with a heavy-duty distributor who implemented VMI. He has experienced increases of one to two turns and sales increases of 8 percent to 10 percent for every line he's put on VMI. So much for "nobody can do what I do."
My second example is when a distributor sells his fleet to a transportation specialist and then contracts with the buyer for his logistical requirements. The reduction in fixed costs is a substantial improvement on the balance sheet, enhancing liquidity and freeing up cash.
One distributor to take the leap, Adam Honegger, president of Parts Plus of New Mexico, said he would have used six figures of his credit line toward capital purchases of new vehicles in 2009. "Instead, we were able to use that money to keep up with parts proliferation. But, our greatest savings was in our Worker's Comp claims and insurance, around 37 percent. That, along with the efficiencies we gained with flexing our delivery staffing according to demand, helped lower our overall delivery cost by 3.3 percentage points, at the same time we improved our service levels."
I am flabbergasted by the aftermarket's general reaction to outsourced services in light of the national economic situation. The constricted credit situation will impact the way banks evaluate the aftermarket and there will be even greater pressure to free up cash by reducing leverage and managing inventories more efficiently.
Why are automotive practitioners, both manufacturers and resellers, so gun-shy of concepts with a demonstrated track record of success? I can't come up with a satisfactory answer. Some of the candidates were shortsightedness, intractability, resistance to change and stubbornness. But, I think I finally settled on conventionalism.
Throughout my three decades in the aftermarket, I have repeatedly heard "conventional" thinkers talk about the uniqueness of our business. They say this market is so unlike any other that successful practices in other industries cannot be transferable to it. After hearing it for nearly 30 years, I sometimes catch myself starting to think that's true. But that type of thinking will keep many aftermarket companies from surviving this severe economic downturn.
Bob Moore is president of Bob Moore & Partners, a consulting firm that specializes in the automotive aftermarket. Moore, a SEMA board member, can be reached at [email protected].
