IT for the Aftermarket
Information technology (IT) can have a big impact on the important area of aftermarket parts. This business offers the highest profit margins for automotive manufacturers, while dealers depend on lucrative service operations to stay in business. And both the OEMs and the dealers can suffer if there’s poor availability of service parts. The name of the game in the aftermarket sector is high parts availability and low inventory. To accomplish both simultaneously requires managing demand, manufacturing and logistics information, in unison and often in real-time. It is informationally intense. Managing the logistics element is particularly important. This component accounts for 37% of aftermarket-parts costs. This is because of the complex supply chain: aftermarket can flow through 80,000 jobbers or to a final destination of any 200,000 service centers.
Information flow is a major challenge. Multiple networks that poorly interface to one another bedevil many aftermarket supply chains. Different manufacturers and distributors label the same replacement part using different numbering schemes. As a part moves by truck, through distribution centers, and through warehouses, part visibility may be poor or nonexistent. In addition, there is too much manual entry of data as a part crosses from one company’s responsibility to another. Such touch points introduce opportunities for data errors. Not surprisingly, many parts are incorrectly shipped only to be returned via costly reverse logistics.
Handling the financial aspect is also a challenge due to the shear volume of parts (Ford’s parts services business handles 260,000 order lines per day) and the overall complexity. What’s more, inventory in the parts pipeline is huge. For instance, an order to a parts maker can take 80 days for that part to reach the final customer. This is hardly a speedy, just-in-time, made-to-order environment.
These difficulties beg for information-technology solutions. OEM’s have the most to gain (and lose) from their services businesses. In addition, they have the power to shape the supply chain far more than even a major, replacement-parts manufacturer such as Genuine Parts. In efforts to improve things, Chrysler tapped SeeCommerce and Toyota chose i2 Technologies for their respective supply-chain-management software. Ford is in the midst of totally revamping its services business. This includes shutting eight, old facilities and replacing them with 23 new facilities. Ford tapped Schneider Logistics as its partner to design and operate its new network. Its results to date have been significant. Its inventory costs have dropped from $1 billion to $810 million. Its customer satisfaction rating from its dealers has gone from 50 percent in 2001 to 65 percent today.
On-time delivery expectations can be tough in this business. For instance, Ford can receive an order from a dealer as late as 9 pm for next-day delivery. Actually, “next-morning delivery” is what its dealers expect often. Ford located a facility close to FedEx in Memphis simply to make such fast deliveries possible. Ford ships its parts in different supply chains. Those parts then travel at different “velocities” depending on the part and the channel. For instance, Ford’s high-speed parts supply chain gets a part to the dealer in 10 to 15 hours. Via cross docking and other initiatives, about 65% of these parts never sit in any warehouse on their way to Ford’s dealers. Slower less, critical parts are shipped direct. In this case, order-to-delivery time is about 72 hours. Ford is developing its next generation of supply-chain-execution capabilities with SAP and Caterpillar. Specialized logistics software companies such as G-Log see ample opportunities for achieving high-visibility, high-velocity, adaptable, supply chains.
Future scenarios look much different from how the aftermarket business operates today. One workflow, for instance, begins at the service-repair counter of a dealership. The counter person would get a parts explosion for the repair work. In real-time, the system would give an available-to-promise time when all the parts would arrive at that location, accurate within one hour. The supply chain meanwhile is continuously aggregating these “lot-size-of-one” orders and organizing the shipments. The infrastructure and organization to support such capabilities could revolutionize the supply chain. It could lead to an external company managing the dealer’s own stock, for example. This would be in addition to that firm also coordinating transportation, payment and so forth. Truly, the aftermarket business in 10 years could make today’s supply chain and practices seem almost quaint in comparison.
Ford’s results to date have been significant. Inventory costs have dropped from $1 billion to $810 million. Its customer satisfaction rating from its dealers has gone from 50% in 2001 to 65% today.
Ford has made an accomplishment that will never be bested, never even be tied.
When you think of Costco, you probably think about buying lots of stuff for your home and your family, but there are probably some things that don’t necessarily come to mind when you think of the membership-based store chain.
Often when there are vehicles that have ceased production and are in the process of being completely moved out of the system there are sales numbers that look like this: Honda Insight: June 2016, 9; June 2015, 126; % change: 93.1% Sometimes there is a vehicle that has just gone into production and it catches the sales at just the right time so that there are numbers that look like this: Honda Ridgeline: June 2016, 2,472; June 2015, 7; % change: 33,856% OK.