Article > Opinion

Publisher's Perspective: The Point of No Return

By Jon S. Owens


I‘ve just hung up the phone, after having an interesting conversation with one of my favorite readers. He runs a successful chain of stores in New England, and I’m always more enlightened after having spent even a small amount of time with him. What prompted his call? It’s the alarming rate of labor claims his stores have experienced over the past couple of years. He says the volume of labor claims for alleged defective products has doubled over the past two years. Doubled!

I quickly checked some data and found that AWDA members claim their total return credits have increased from 25.9 percent of total sales in Dec. ’04 to 29.6 percent in Dec. ’05. That’s a staggering 14.3 percent jump in a mere 12 months. What’s going on here?

When I was a factory rep, I serviced the returns for each WD in my territory. I dedicated a couple of hours each month, per WD, to inspecting returns. My time in the return bin area netted a minimum 50 percent decrease in the total credit amount for my product line, and provided me with hundreds of training opportunities. I saw this as productive time, because it saved money for my company and customers. This was a synchronized strategy that delivered benefits to every hand that touched our products throughout the supply chain. At the end of the year, my return credits were always less than 1 percent of my total sales. How has this simple process gotten so far out of hand?

Here’s one simple reason: the reduction of dedicated and trained factory sales and service organizations. This reduction, used by manufacturers as a way to lower operating costs, de-values our industry on so many levels, and we’re just now feeling the impact. Uncontrolled returns and abuses of return policies are just one example of how an insufficiently supported sales and service organization is easily taken advantage of. Other ways include the dilution of brands and the inability to educate and train re-sellers and users on a personal level.

Think about the combined savings and sales growth that could be achieved among just three mid-size WDs on one product line, if they were properly and routinely serviced by just one dedicated factory rep. If the product category were just 5 percent of total WD purchases, then the savings alone would be enough to pay for that rep. Let’s do the math.

If a mid-size WD does $25 million in annual purchases from all of its vendors, then its purchases for this product line would be $1.25 million. If annual returns are 30 percent across the board, then this product line has $375,000 in returns. If a dedicated and properly trained factory rep were able to cut those returns by 25 percent in the first year, he would have saved his company $93,750. Let’s assume that same rep, dedicated to just this one WD, were also able to grow sales and increase his product’s shelf share by 5 percent. That’s an additional $18,750 in revenue. Therefore, after one year, it’s feasible that this factory rep could deliver more than $110,000 in savings and growth to the manufacturer of this particular product line from just one WD customer. Would that be enough to pay his/her salary? What if you multiplied that across three WDs?

When will we stop cost-justifying our way through the complex service and supply system in the automotive aftermarket? This type of strategic implementation is costing manufacturers and their customers a bundle of money. Thirty percent return rates? Reverse-flow logistics are best managed by trained experts at the point of return. I sure hope the industry is not yet at the point of no return.  

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