NEW YORK —
Every other week, aftermarketNews.com offers an interview with a high-profile individual in the automotive aftermarket. We give executives free rein to express their views on anything from the state of their corporations to recent legislative news to future trends in their niche markets. Here you see what matters to the newsmakers themselves.
Our latest edition of “Executive Interview” features Eric Sills, director of headquarter operations at Standard Motor Products. In this role, Sills leads the BWD Integration Team at Standard Motor Products. While Sills joined Standard Motor Products full-time in 1991, he has worked for the company on and off since he was eight years old.
From 1991 to 1992, Sills was a member of the Quality Assurance staff. He spent 1993 working in Japan at three primary suppliers, studying their manufacturing techniques. In 1994, Sills became an Industrial Engineer and in 1995, he served as the Coils Business Unit Manager.
From 1996 through early 1998, Sills worked in Puerto Rico as the Ignition Business Unit Manager and then as the Project Manager for WMS/PTO Implementation.
In 1998, Sills began serving as the Oxygen Sensor Business Unit Manager. While in this position, he moved the product line from AlliedSignal’s Ohio facility to the Wilson Greenfield facility. He was responsible for fully staffing the facility and fostering it to full, functional operation.
From July 2000 until August 2002, he worked as the Director of Product Management. Prior to his current position, Sills was the director of LIC operations, where he was responsible for coils, plastics and the facilities.
Sills received a BA from Bowdoin College, Brunswick, ME in 1990, and an MBA from Columbia University, New York, NY, in 1998. Sills also holds an AAP from AWDA University.
It’s been just about one year since Standard acquired Dana’s Engine Management division. Join us as Sills brings us up to speed on the integration, and shares some of Standard’s goals and plans for the coming years.
Tell us about Standard Motor Products, your involvement in the business, and the types of aftermarket products the company manufactures and sells.
Standard is a family business. It was founded by my great grandfather in 1919. It’s a public company but it’s family controlled and pretty thinly traded.
Standard is a two-division company. We have an engine management division and a temperature control division. Prior to our acquisition of Dana’s Engine Management division, the two divisions were roughly 50/50 in terms of revenue contribution. Now that we have essentially doubled our engine management business (and since temperature control has essentially stayed flat) it’s now a two-thirds, one-third split.
I’ve essentially been involved with the business since I was born. I’ve been full-time with the company since 1991 and I’ve gone through various parts of the operation – from manufacturing and management to distribution, marketing and quality – I’ve pretty much been on a tour of duty over the last decade or so.
I think being involved in the business since I was young gave me a valuable amount of exposure to the industry and hopefully that’s helped me.
It has been about a year since Standard purchased BWD Automotive, NAPA Echlin and Niehoff. How has that transition been going?
We closed the deal back in June of last year. All things considered, it’s going very well. We’re on time, we’re on target, we’re hitting all of our projections, in terms of what it is going to cost us to do the integration and what it is going to get us.
We went into this thinking that the worse that could happen is that we lose business as a result of this and we’re pleased to show that almost a year into it we have maintained all of our customers on both the Standard side and on the Dana side. We were certainly a little more nervous about the Dana side, but we’re very pleased that we’re retaining the customer base and hitting our numbers.
It’s not that it’s been without hiccups and bumps in the road. Any integration is going to have that and I think that we’ve been addressing them as we hit them. Nothing has been catastrophic by any means.
Has it been difficult to bring all the companies and philosophies together?
Cultural differences are often among the biggest stumbling blocks in an integration in any industry – cultural differences. Usually the two biggest pitfalls are cultural or systems-based. And if you think about it, Standard and Dana are really two companies that grew up in the same industry as head-to-head competitors, selling the same product to the same customers. So, in terms of operating philosophies and strategies, and in terms of approach to the marketplace, we were really very similar. When we started having meetings with the counterparts, it was fascinating to see how many topics and issues were so common to both. For a room full of people who had just met each other for the first time, you’d think that they were all working for the same company and had been for decades because we were really that similar.
That’s not to say we didn’t have different approaches to manufacturing or distribution, internal operations or marketing concepts. But from a culture and philosophy standpoint, they really weren’t that difficult to blend because they weren’t that far apart.
There was a fear going in that there would be significant cultural clashes and I think that those that there were have been addressed and managed for the most part. It is going to be a Standard culture that emerges and survives because the majority of the facilities that are staying open are Standard facilities. We are certainly looking to keep as many of good people as we can, so these people have to learn to operate under the Standard mindset but I think that they will find it not to be that different than the one they were living in before.
You also mentioned systematic differences. Has this been an issue?
It’s been a minor issue. That is the trickiest part because business is so system-driven and systems are very complex and interdependent. You usually have multiple systems with years of integration between those systems to make the interfaces work and when all of a sudden you have two completely different systems and you try to get them to talk to each other that’s where things fall apart.
From the beginning we went into this integration knowing that this is one of the most significant risk areas. The main thing we did to mitigate that risk was to minimize how much we asked the systems to talk to each other. The standard legacy systems are going to be the surviving systems for the most part, unless they are stand-alone systems but in terms of any major Material Requirement Planning systems, Enterprise Resource Planning systems — main driving business systems — we basically decided that on the Dana side, if it’s a facility that is going to be shut down we will minimize the number of interfaces and keep it simple. For the facilities that are surviving we decided not to try to have two systems that must talk to each other. Instead we worked on replacing the Dana systems with the Standard tried and true systems.
From a systems standpoint, there have definitely been some bumps in the road, but it has mostly been minimal, and that has been at the part number level as opposed to system-wide.
What justified this acquisition to begin with was the fact that because we are such similar businesses with similar product lines, and since both companies had ample capacity both in terms of manufacturing and distribution, the whole idea was to close down a lot of operations and maximize the operations and survive. For example, Dana had a huge distribution center in Tennessee, and we have a large facility in Virginia. Each one had its own order-writing system and what we are doing is moving all the national distribution into Virginia with a system that is already proven, tried and true and communicating with the same customer base. It has made those types of inventory management processes much cleaner.
What has been your biggest challenge in the last year during this transition?
Certainly systems have been a challenge. We basically tried to tackle a major amount of concurrent projects where if we had the luxury of time, we probably would have reduced the number of things we had in flux at any given point. We basically moved all the distribution and all the manufacturing at the same time so it was a project management headache keeping all of these concurrent activities going at the same time.
It’s been an exercise in control in management. Any project is simpler in a static world, but business doesn’t stand still. Customers are coming to us saying they need this and that. We are continuing to launch new part numbers. We have to get our catalogs out. All the ongoing business just adds additional complexity to the transition.
The biggest challenge has just been the sheer magnitude of it. We still have a lot of work to do but I think we are beyond the peak of it. We have great people and they are all highly dedicated. I’m personally incredibly proud of all our people and the effort that they have put forth both in terms of focusing on the integration while continuing to do their own jobs. We’re typically a fairly lean operation so people are already very busy and this on top of their normal workload they’ve really responded unbelievably well. Really it’s been an ‘all hands on deck’ kind of situation and everybody appreciates the urgency of getting this done and getting it done right, but also keeping the rest of the business afloat.
I should also point out I’m incredibly pleased with all of the Dana people who came on board, especially those who, frankly, at the end of this have no job. Out of the nine facilities that came with the acquisition, seven of them are going away and one of the biggest fears going into this involved putting a lot of trust into the ongoing dedication of these people working at a factory that was going to be closed. Anything could have happened – from sheer complacency to sabotage – if they wanted to, they could. They could put whatever they want in the box, or simply put nothing in the box.
We are pleased beyond our wildest dreams with the way the Dana folks have responded. What we saw more than anything was a commitment on their part to ride it through to completion, a kind of pride of workmanship that says “We want this integration to be successful and this is my responsibility and even though at the end of it I have no job, if this integration is not successful that’s a reflection on me.” The Dana people have been really great. There was a big fear going into it and it proved to be a non-issue.
How important is the automotive aftermarket to the overall success of Standard Motor Products?
It is what we live and breath. We are really at this point one of the only manufacturers left, certainly the only manufacturer of any size left, that is almost purely aftermarket. We do almost no OEM business, we do a little OE service – selling to the ACDelco’s of the world.
This is what we know and what we do best and so, the aftermarket’s success is our success. It is vital for us.
It does appear that strictly aftermarket companies are almost a thing of the past. Do you have any interest in further pursuing the OE side?
We have some good possibilities in terms of OE service, and getting involved in producing parts for new vehicle production. That’s an area that we certainly wouldn’t turn our back on but we are not pursuing it that actively. We are much more geared toward OE service, which is a very different business and a very different mentality. It’s 10,000 parts, selling one of each instead of one part that you sell 10,000 of and that’s really what we are good at. There continues to be a significant need for it.
The aftermarket is also a much less volatile business. It’s not as reliant on the economy or on vehicle sales. If all of a sudden General Motors told us they’d like us to become their coil manufacturer for their Malibu, we wouldn’t say “No thank you,” but we are an aftermarket company.
What are your goals for Standard Motor Products over the next five years?
Really, the biggest issue that drives our goals is the fact that the aftermarket is a changing place. The most significant threat to the independent aftermarket is the trend toward OE products. That’s not exclusive to our product line, it’s in a lot of product lines. But I think that engine management has been hit especially hard because there are a lot of high-tech products involved. On top of that, technicians who are starting to look elsewhere for their replacement parts and the OE’s are realizing that this is a significant area of growth for them. It used to be more difficult for a technician or an independent service station to get parts from the OE. Now the OE’s are doing deliveries and having house accounts and really starting to court the technicians.
Certainly in the near term, our primary objective is internally to take full advantage of this integration. Now that it’s off and running we want to start looking for best practices and make sure we’re taking the best of what Dana brought to the table and the best of what Standard brought to the table and getting rid of the things that each one was weaker on. We’ve already done a lot of that but there’s a lot more to do – consolidating vendors, applications, cataloging. By doing this, it just makes us that much stronger of a company and that much of a better supplier to our customers. It really allows us to compete much better with these big goliaths out there.
Really we think that there are several major drivers moving this trend and this integration really allows us to tackle each one. In a nutshell, probably one of the most significant things is availability – parts proliferation that’s affecting all product lines. Right now, we have 20,000 parts in each brand. We are adding a couple thousand more a year and prior to the acquisition, Standard had a group that was doing it and Dana had a group that was doing it. Now you’ve got one larger group that is going to allow us to add that much more, address the coverage issue and make sure the part’s available at the time of need. Late model coverage is a major issue. It has become a rally cry for the OE’s to say “Hey, we’ve got this late model coverage.” Well, we do too and now we’re able to accelerate how we’re launching it.
Slower moving products have always been an issue. This is where the aftermarket has a difficult time competing on price and part of the reason is that again, we’ve got 20,000 part numbers in the book, but we can’t justify tooling all of those because a lot of them are very slow moving. If we are only going to sell 1,000 of them a year we probably can’t pay for the tooling. But now with the combined volume of the two businesses that 1,000 pieces a year is now 2,000 pieces a year, and now we can justify tooling it. Once we bring it in house we can now get our costs down and we can share that cost savings and get our pricing more in line.
Another key is technician training. We really don’t believe that we are just in the business of selling parts. We think that it is our responsibility to help the technician fix a car. The part is only one piece of the equation. Another major piece of the equation is the skill and the knowledge it takes to fix the cars, because they are getting much more complicated to repair. We have a lot of installers out there who quite frankly are under equipped to deal with some of the diagnostics that are required now. We have several things that we have done to help this. Now, with a much broader customer base, as well as with more resources to put toward it we can get that much more training done, and that much more technical information distributed.
We are going to train 15,000 to 20,000 technicians this year in drivability issues. We have thousands of members in our technical subscription-based club where technicians can call in and get a mechanic on the phone to help walk them through diagnostic issues. They are thirsty for knowledge. They are signing up left and right for our training seminars and this allows us to get more trainers on our payroll to cover more of the country and get access to more customers. And that’s not necessarily to help Standard, that’s to help the industry.