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Ours Is Not a Static Industry; Change Comes With the Territory


12/1/2003

 

For the seventh year, the Counterman staff has determined which forces of change have the most influence on aftermarket distribution. Every year the Top 10 list goes through an intensive editorial review process during which influences are debated, reshuffled, added or eliminated.

  1. Inventory Ownership
  2. Who owns your inventory?

    That seemingly innocuous query has really become a loaded question as inventory ownership becomes a central issue facing the industry as it struggles with slow turns, low margins and SKU proliferation. In 2003, however, inventory ownership was thrust into the spotlight in the wake of AutoZones pay on scan (POS) proposal. POS, in its simplest terms, is a kind of consignment sales system whereby the manufacturer continues to own the inventory even as it sits on WD and store shelves. Manufacturers are paid upon final sale at the store level.

    The benefits of POS to the distributor are obvious: The burden of inventory becomes neatly shifted off the stores back (and onto the manufacturers), freeing up capital for such things as acquisitions or store openings. It also creates far more favorable balance sheets through the elimination of those slow turning inventories that Wall Street seems to refuse to understand and accept.

    Of course, this influence is not really an AutoZone issue alone. Rather, its an inventory management issue pure and simple. How the industry chooses to accept or deny the viability of consignment-style inventory systems will have far-reaching influence that could forever change the store/supplier dynamic.

    Editors Note: For complete details on AutoZones POS proposal, see Pay On Scan Poses Hurdles for Suppliers in the March issue.

  3. Inventory Management
  4. If POS is one proposed solution, then inventory management is the problem.

    The markets inventory management problem extends far beyond the confines of the store or WD. It is a root cause of margin compression, commoditization and inefficient channel operations that costs the aftermarket billions of dollars. It is one of the most troublesome issues the industry faces - so much so that an extensive research project was commissioned by several industry associations. The resulting study, conducted by Northwood Universitys DeVos School of Management, told everyone pretty much what they already knew: The markets ability to manage its inventory is terrible.

    But what the market didnt know (and perhaps still fully doesnt) is how to fix the mess its in. The study warns that the continued shifting of costs to other levels of the supply channel is a short-term fix at best, illustrating just one of the concerns many have over solutions such as POS (see Influence #1).

    How the market addresses this issue and whether it can even repair it will determine what kind of influence inventory management has on the market.

    Editors note: See the June issues An Industry Black Hole for complete details on the Automotive Aftermarket Inventory Management Study.

  5. Technology Implementation
  6. Technology is one of the ways the industry can dig itself out of the inventory management black hole (see Influence #2). The market has reacted with many technology-based tools that promise to tighten supply channel efficiencies and lessen the burden of inventory controls.

    The pace of technology implementation will ultimately determine how quickly the industry remedies many of its efficiency problems. As time has proven, technology will continue to be an influence, but first the industry must accept, embrace and adapt these technologies, a task that is a daunting, challenging - yet necessary -step in the right direction.

    Editors note: For more information on technology and its aftermarket implementation, see Twelve Steps to a More Efficient Aftermarket in the September issue.

  7. OE Penetration
  8. Where do techs source the majority of the parts they install? Hopefully, they buy from you. Increasingly, however, repair shops are calling the dealership parts department for a higher percentage of their parts. In a growing number of categories, the dealership is becoming the source of choice for a variety of reasons, including price, availability and quality. As a result, OE dealers are fast becoming real players in the aftermarket, and unless the aftermarket finds a way to be competitive across all product categories, OE dealer parts programs will be a greater influence in the aftermarket, at the direct expense of us all.

    Editors note: For more information on sourcing trends, see the Professional Automotive Repair Technicians Survey, which was polybagged with the September issue.

  9. Store and WD Ownership
  10. If supply chain efficiency is one of the doors to successful distribution, then captured distribution is one of the keys.

    While consolidation at the distribution level has slowed since its highest pitch three or four years ago, it certainly has not stopped. Notable companies such as GPI, GPC and OReilly continue to acquire WDs and stores, further solidifying their positions as distribution powerhouses.

    But perhaps more importantly, these companies realize that there are great efficiencies (inventory control, purchasing and standardized operations among others) that are gained by owning either all or a high percentage of stores within the group. Supply chain efficiency is one of the major factors that continues to make store and WD ownership a seriously important influence in the market.

    Editors Note: For the top store groups in the United States, see the February issues Super Stores list.

  11. Returns
  12. The industry has a real problem when store managers are forced to measure success not by the size of the margin, but by how much product remains sold. In fact, one-quarter of everything that goes out a stores front door comes back as a return.

    The outcome has been a blame game between supplier and customer. Calculating the true cost of returns is not a simple task. Increased inventories, forecasting inaccuracies, returns handling changes and resources allocated to process negative sales are all results of the markets inability to manage its returns.

    The blame game needs to end, otherwise this influence will continue to eat away precious margin points at every level, leaving the whole aftermarket as the real loser.

    Editors Note: See Reeling From Returns in the January issue for details on the aftermarkets returns problem.

  13. Asbestos Litigation
  14. The aftermarket certainly does not want to shirk its individual and collective responsibility to those whom have been affected by asbestos. It just doesnt want to go out of business while trying. Now, finding no more manufactures to sue, asbestos-minded lawyers have cast their eyes on the distribution chain.

    Without solid legislation, this is one influence that will continue to thrash its way down the supply channel.

    Editors Note: For more information on asbestos impact on the aftermarket, see Asbestos Absurdity in the February issue or search Countermans sister e-publication aftermarketNews.com.

  15. Access to Information
  16. Does the driving public have the right to choose who works on their cars? Maybe, maybe not.

    The aftermarket must have affordable, easy access to the tools and information necessary to repair todays vehicles. The aftermarket must collectively fight for this information or risk more business being forced the dealerships way.

    Editors Note: For more information on this, see New Congress, New Challenges in the May issue.

  17. Training
  18. Theres all sorts of soft and fuzzy reasons companies offer training. There still is one hard fact: training helps create better customers. Attrition rates at the stores and repair shops, as well as increasingly complex technology feed the need for consistent, current and accessible training. Training is an influence that does not net immediate results. It is, however, one influence that eventually produces nothing but positive results industry wide.

    Editors Note: See the March issues Creating Better Customers for more details on training.

  19. OE Warranties
  20. For the nations dealerships, 2002 was a decent year, but not for the reasons you might think. Take a look at the typical dealerships balance sheet and youll see something interesting: Nearly half of dealership profit came from parts and service.

    Extended new-car warranties and better-built cars have forced dealerships to look to aftermarket parts and service as a way to boost profits. They are succeeding, influencing the very way in which the aftermarket defines itself and competes for market share.

    Editors Note: Look for an in-depth analysis of OE dealerships aftermarket penetration in a future issue of Counterman.















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