As we continue our bi-weekly article series from Schwartz Advisors (SA), today we hear from longtime industry veteran Pete Kornafel, partner at SA. In his guest commentary, Kornafel talks about the improvements that could potentially result from better supply chain visibility.
A personal experience some years ago illustrated just one small benefit that could be gained from full visibility in the supply chain in the automotive aftermarket. I’ve been thinking about the potential ever since.
I was at one of our auto parts stores, talking with a counter person when he took a phone call. It was from the store’s largest customer, a service center just across the street. I listened to one side of the conversation: “Hi Mike”… “OK, you need a set of front ceramic brake pads for a 2001 Chevrolet Silverado 1500 pickup”… “Is it a 4×2 or 4×4?”… Pause – (The shop hadn’t looked). Then, our counter person said, “OK, what color is it?”
Over time, a few customers have told me what color their car or truck was, but I never thought I needed to ask a customer that question, so I paid closer attention. “OK, it is blue”… Our counter person put down the phone, reached under the counter, retrieved a big set of binoculars and focused on the vehicles parked outside the service center.
He soon picked up the phone and said, “OK, Mike, I see the blue Chevy pickup, and it’s a 4×4. I’ll send you the right brake pads.” Our counter person said it was normal, but I was startled and very pleasantly surprised.
Ever since then, I have wished the entire aftermarket had that set of binoculars. Just imagine how much we could improve service to vehicle owners if everyone could see all the vehicles and all the activity in the entire aftermarket supply chain.
It is an impossible goal to give 100 percent order fill to every customer on every order, with “exactly when needed” delivery, but the aftermarket could come closer to that, and minimize inventory, if it had those binoculars.
Here are just a few examples of what you could see:
- On the Chevy pickup, our store sent exactly the right brake pads the first time, because they could see the needed vehicle specifications. They also saw that vehicle was still parked outside the shop, so they knew they had a little time to deliver that order.
- Our store could see that another shop just ordered a brake hose for a vehicle up on a hoist, wheels off, tech standing by, and that the vehicle was promised for 5 p.m. The store would know they had to rush that delivery.
- Our store could see that a different shop only used one of the two tie rod ends they’d delivered earlier for another vehicle. They would know the other tie rod end is going to come back as a return. That would let them know they did not have to replenish that item on their daily stock order.
- Our store could see their customer shops’ estimates for vehicles scheduled for repairs tomorrow and the next day. The store would have time to source some items for those vehicles from their distribution center and still give complete and “when needed” delivery of everything the shop might need for those jobs.
Each of these is pretty minor, but scale it across the millions of repair jobs performed every day in the aftermarket, and the potential is astronomical.
Extended visibility “downstream” would offer even more potential. We’re getting closer to the day when an aftermarket service center will be notified when a customer’s vehicle just got a check engine light with a fault code P0132 showing that O2 sensor No. 1 in bank 1 is giving no signal. That shop could let the customer know about available appointment times and schedule the work. The serving auto parts store could translate that to an expected order for the proper item, and would know when that part will be needed.
Another vehicle might be approaching 60,000 miles, and the whole supply chain would have time to be ready with items for that maintenance job.
The aftermarket still has lots of work to do to ensure access to the full telematics data stream from customers’ vehicles, and has to figure out a workable business model for widespread use, but the potential is huge.
It would be a gigantic “big data” project, but visibility of all the vehicles near a shop or store, and their mileage, and any OBDII codes, merged with vehicle to part catalog data, could significantly help the aftermarket optimize assortment planning for every store and distribution center.
There would be big advantages to aftermarket distributors with full visibility in the “upstream” direction as well. Almost all auto parts stores can see the inventory at their serving distribution center, but the DCs can’t see as much about their suppliers.
A DC could see when all shipments will arrive, and could schedule work efficiently.
Many DCs receive advance ship notices (ASNs) from key suppliers, but few use them to update near future inventory availability and generate emergency orders to maximize their order fill.
A DC could see that a container of imported brake rotors just cleared customs at a U.S. port, and will have much better data about when it will arrive. The DC could plan “fill in” orders properly based on that, to maximize order fill.
A supplier could see all inventory in their entire customer base. It would be another “big data” project, but that could be used to help optimize inventory everywhere in the channel.
A supplier also could see vehicle population and mileage to assist in forecasting and planning for new needed items.
The visibility provided by those binoculars could give a big boost to the entire aftermarket supply chain’s ability to fulfill the goal of 100 percent order fill exactly when needed.
With disparate shop management, store and distribution center supply chain systems, and incomplete standards for data exchange, it still seems impossible.
But, it ought to be on the industry agenda to work on standards and systems to provide this level of collaboration.
About Schwartz Advisors
Pete Kornafel is partner at Schwartz Advisors. Schwartz Advisors (SA) is a team of highly experienced auto aftermarket experts working with clients in corporate growth projects and both buy-side and sell-side merger and acquisition activities. As part of its growth consulting work, SA keeps current with the emerging technologies and business models that will drive the future supply of automotive parts and service.