With the introduction of thousands of new SKUs, a lack of fresh and accurate data, and poorly trained technicians and counterpeople, return rates in the aftermarket are going everywhere but down. Plus, our culture supports a policy that just screams, “everything is exchangeable,” and the effects haven’t only trickled down to the aftermarket, they’ve drenched it, as the industry as a whole is suffering heavily from product returns.
Every segment of the supply chain deals with comebacks and their financial effects on a daily basis. Some are taking active steps to curb them with technology and inventory management. Others just consider this problem a cost of doing business, although that mentality won’t solve any problems, as many in the industry testify.
A growing challenge
“It’s not just a problem this year...it’s been a problem for years,” Scott Grill, vice president and chief purchasing officer of Auto-Wares, Inc., says about returns. His company has a return rate around 20 percent. “We’re always 21, 22, 23 percent, and we talk about those numbers at our monthly management meetings. There are always a few factors involved in returns that skew that number — if you introduce a new product or have a big changeover, for example. Whether you keyed it as a new return, it all comes back as return money.”
According to Grill, a return costs him 72 cents per part at his warehouse, which only accounts for the time it takes to process the part and put it back on the shelf. The cost isn’t tracked at his stores. In addition, he reports, “The average selling cost of a part that I send out every day is $19.77. Yet my average return item cost is $33.56,” evidence, he says, that customers are making sure they are not sitting on expensive parts.
Aftermarket Business’ 2005 State of the Industry report found that comebacks definitely affect some segments more than others. The study revealed that warehouse distributors report the most comebacks in the aftermarket, with 38 percent stating that 10 percent or more of their product (not including cores) is returned annually.
They cited customer cancellation, wrong part ordered and misdiagnosis as the main causes. As for other segments, 26 percent of jobbers and 21 percent of program groups report a return rate of 10 percent or more; 11 percent of retailers and 7 percent of manufacturers report the same rate; and just 3 percent of independent repair shops and 2 percent of dealerships suffer from a rate of 10 percent or more.
Our respondents clearly indicated the importance of quickly sending and receiving parts in this fast-paced industry.
“I don’t think the automotive industry is any different than any other industry with returns in general, although I think the automotive consumers are far more demanding as a customer in general,” says Norm Young, director of North American Sales with Delphi. “Take appliances — we’re very forgiving if our washer is down for two or three days. We wouldn’t accept that with our vehicle. We want to take it to the shop, have it fixed and returned to us within a day. And if you think about the complexity of those two pieces of equipment, it would make more sense the other way around.” Consumers place heavy demands on the aftermarket to get their vehicles fixed at lightning-fast speed.
“Consumers in general are demanding higher quality, lower costs every day. Every time you want to add cost to the system, we as consumers don’t want to pay. The cost gets pushed up the system, making the whole industry less competitive,” Young adds.
At his business, Grill uses an in-house computer system to track and manage his returns, which helps prevent comebacks that aren’t his to begin with. Some jobbers, he says, return products to a distributor they know will accept them.
“If I’m better at returns — which I know I am; I’m easier and faster — I could easily take someone else’s return,” he says. Other times customers don’t remember where they bought a part from, so they take it to Auto-Wares, which is where the system comes in. “We track it, we know if the customer bought it from us. If he hasn’t purchased it, we just don’t issue him his return authorization. If he bought it twice, once in 2004 and once in 2005, he gets the 2004 price for it.”
About 85 to 90 percent of Auto-Wares’ returns are done electronically, says Grill. Jobbers log onto the company’s website to submit returns. Auto-Wares also uses the Evant system, an inventory management/ replenishment software for the company’s 90 owned stores and nine warehouses, located in the Michigan/Wisconsin area.
The software has already helped Grill monitor inventory levels in their stores and analyze what’s moving and not moving.
“We’ve been working on it for six or eight months, but it’s not yet totally installed. We will get a lot of detailed reports that zero in on customer habits,” he says.
Although he expects the system to help, he also says returns are just “the nature of the beast” because some technicians order both part A and part B, if they don’t know which part is needed, and return the unused part, resulting in immediate 50-percent returns.
“I know it’d be nice to tell the jobber ‘you buy it, you own it,’ but that will never happen,” Grill laments. “One of the competitors will take it back.”
Terry O’Reilly, president and CEO of Pricedex Solutions Inc., says, “One of biggest contributors to the level of comebacks in the industry is the currently widespread practice of technicians multiple ordering for single parts to ensure the right version is included. Many of these are now calling OEM dealers instead, and the independent aftermarket is losing the business as a result. The technicians are calling the OEM dealers for their parts because the OEMs are getting their act together for timely delivery of accurate information upon which to order products and parts.”
Cataloging concerns
Jim Olson, VP and general manager of Full Service Auto Parts, says his company sees returns in the 25 percent range. Full Service is a 98-percent wholesale business with 11 locations; 65 percent of their customers are independent technicians and 35 percent are dealerships.
Olson says everyone knows the reasons for the scores of returns in the aftermarket. “I don’t think we’re going to defeat the problem. We know part of the reasons are that catalog manufacturers don’t give the right information and there isn’t enough description. If you look up a 2002 Silverado, there are four different fuel pumps without much detail. You can send one at a time (until the right one arrives) or send all four at once and get three back. We’re doing things to not make our inventory situation more of a problem than it is.”
For example, Full Service has a route truck that picks up returns and brings them back to the warehouse so their stores don’t get out of control. “We program our computer so it does not order from a manufacturer for three weeks on slow-moving items. Our inventory is what we focus on.”
Full Service Auto Parts has been using Activant Ultimate™ for about five years, which helps streamline inventory management, accounting and purchasing. Olson plans to use future Activant technology, too. “Information is the name of the game.”
The distributor also pays $600 per month to equip five computers with MicroCat, a product that GM and Ford dealerships use at their counters. “You can look up products by VIN, which is more specific. For our dealership business, it lets us know we have a product that might not be in the catalog yet,” Olson explains.
Pete Kornafel, vice chairman of CARQUEST Corp., says returns have been getting worse because of parts proliferation and less-than-perfect information in everyone’s hands. “One of the things that a little background research revealed is that almost half the new merchandise that comes back from the professional repair shop to a store is related to not getting the right part the first time. It’s a combination of everything. The dealer didn’t know exactly what he wanted, we didn’t get all the information when they placed the order so we sent the wrong thing, or we sent him three things and he picked the right one and sent others back. All these things lead to returns.”
Kornafel thinks e-commerce is helping this problem. CARQUEST participates in Internet Auto Parts, Inc. (IAP), an industry-sponsored project, and also offers FastLink. Both are Web-based parts ordering platforms linking automotive service providers and distributors. Through these, CARQUEST allows repair shops to access the parts catalog and get available, accurate information. The service dealer can look at the vehicle for any special options or features, and see item images and information to pick the right items more frequently.
Making matters worse
Our industry’s fast-paced and technical nature is just one reason returns affect the aftermarket so drastically.
“If you look at the hardware business, a shovel’s a shovel,” explains Grill. “They might come out with a new design, but the old one still digs a hole. That fuel pump only fits that car and can’t work on the one next to it.”
Jerry McCabe, vice president of communications and marketing services for Affinia Group, says manufacturers have consolidated too much and don’t have timely or accurate information. Distributors allow their jobbers to return more than they should in an effort to keep business, and service dealers are ordering redundantly. “In our industry, everybody is working to make the situation as bad as they can,” he claims.
McCabe says one customer experienced a 47-percent return rate last year.
“I don’t think there’s much earnest activity going toward fixing it. It’s easier to build (returns) into your price than fix it,” he says. Even though the industry has policies in place to curb returns, the reality is, if a product is out there and is not selling, it has to go somewhere, he says.
“We might as well do what we can about returns from our perspective — try to collaborate more and use technology,” he adds. “A lot of this business is still sitting and totally manually doing their inventory. That’s not a superior way of doing things. The tools we have today would do a better job if people would let them. We don’t seem to have trust in the technology.”
Affinia uses CARS (Continuous Automated Replenishment System) to do stock profiling. Last year, the company’s overall return rate was around 5 percent.
The first time’s a charm
Getting the right part the first time is crucial to solving return issues throughout the supply chain, and some manufacturers are hoping technology and education will aid in the cause.
Joe Stephan, marketing director of brake, chassis and fuel products with Federal-Mogul, says, on average, their returns are in the low single digits across all product lines, although some categories present problems.
“Fuel pumps are a challenge, and I understand heating and cooling products often fall into that same category,” he says, adding that Federal-Mogul has put exhaustive energy into training and education.
They developed a “diagnostic guide to fuel delivery problems,” which takes the technician through a yes/no chart and asks a series of questions to determine if a bad fuel pump is really the culprit. The company also provides counterman training CDs, brochures for do-it-yourselfers and the Federal-Mogul Techline, a toll-free number to help technicians diagnose problems.
“I believe it’s going to get better. Whether it’s fuel or any other product line, we all need to focus on how to train and educate technicians or DIYers to do the job right the first time,” he says.
Last year, Detroit Diesel Corporation launched its e-Parts catalog using Pricedex’s Product Information Management (PIM) system, which, the company says, has significantly reduced comebacks.
“Now we can provide complete parts and service information to our customers via the Web, CD or in a ‘print-on-demand’ format for their exact engine,” Jack Cunningham, Detroit Diesel’s manager of service parts publications, says in a press release.
Young of Delphi claims the industry is becoming more robust technologically. “The information isn’t great yet, but it is out there and is improving. We still need to help jobbers/service techs access that information. As they become more adept at using that information, we can see some of these problems alleviated.”
Young says Delphi works with technology to help remove cost from the whole channel. For example, Delphi Integrated Service Solutions focuses on developing technical data, repair data and part information to get into the technicians’ hands. “Techs can use it with their internal shop management system to diagnose more effectively,” he adds.
Delphi also allows their customers to re-balance inventory, based on slower or faster moving parts to keep the freshest levels in stock. The company uses an e-catalog system that is AAIA compliant and can work with any operating system such as Activant or Wrenchead, Young says.
Breaking the ‘parts hanger’ habit
Many distributors and jobbers are pushing for more training at the very end of the supply chain since many say the tech creates much of the problem.
Full Service Auto Parts has designed and implemented a training center to help their countermen aid technicians. “We all have to be proactive on the training,” Olson explains. “We use the center all the time. We have a lot of clinics on just the equipment” because many times a technician receives equipment without getting proper training on how to use it. Full Service Auto Parts recently completed a six-month e-tronics equipment training.
While no one can dispute the necessity of training, some repair shop owners think the industry needs to focus more on proper diagnosis and a strong work ethic.
Bill Cahill, owner of B.C. Auto Repair, a four-bay repair shop with two ASE- and L1-certified technicians, agrees that the repair industry in general knowingly returns more product than they should. “Therefore, the repair industry gets tagged with...‘we need to be trained’,” he says. “Some guys still do the whole ‘looks like an alternator, smells like an alternator, tastes like an alternator’ bit.”
Cahill, who is also vice president of the Alliance of Automotive Service Providers (AASP) of Massachusetts and Rhode Island, considers his shop an exception. “We have very few defective returns, especially with starters and alternators, because we do test everything very thoroughly before we replace something.”
When it comes to a diagnostic strategy, Cahill uses a strict procedure that involves completing a worksheet before any diagnosis is made. “The same worksheet is used on anything from windshield wipers to the toughest driveability issue we face,” he explains. “I know exactly what my path is going to be before we start to diagnose. Training is at the heart of things, but training alone doesn’t get you there. Tools alone don’t get you there. You have to have a policy or procedure in place so things get done in an orderly fashion.”
Cahill, who has one primary aftermarket supplier and two that serve supplemental roles, would like to see his shop, and others like his, rewarded for keeping their returns low. “I would think the parts industry would want to create some kind of reward program with the shops that do well. And, I don’t want to say punish the others, but do something about the shops that don’t do well.”
Collaboration at the core
John Washbish, president of customer relationship management and vice president and general manager of the under vehicle group for Affinia Group, says comebacks affect the guilty and the innocent alike. “Our system is like a series of canal locks, and needless expense will not be contained within one level. As an industry, we’re way too preoccupied with finding ways to shift cost to someone else, rather than remove it altogether. Real collaboration is the only answer, and someday the folks who are left in this business will get there.”
Although there are slight improvements being made, Washbish notes the industry still has many distributors reporting returns running as high as 30 percent. “I know that if any business has to incur the expense of taking back one in three items they are selling, they are hard pressed to make a profit.”
Collaboration also comes in the form of data management, and making sure the logistics are right: Everyone in the supply chain must use the same terminology when it comes to parts ordering.
According to a 2003 Automotive Aftermarket Industry Association (AAIA) study on data synchronization, $1.7 billion was lost in the industry as a result of unsynchronized product data and discrepancies between buyers and sellers. The study reports that “product and pricing data that is not synchronized between trading partners is costing the average manufacturer about 1 percent of sales and the average resellers about .75 percent of sales in the aftermarket industry.”
For example, a technician might request one foot of heater hose, which the seller has listed as one box and the distributor has listed as one unit. Buyers and sellers who can’t agree on how many products come in a box, minimum purchase quantities or units of measure contribute negatively in managing returns, says Scott Luckett, vice president of standards and solutions with AAIA.
“My perspective is largely from the data management angle. I haven’t met a problem yet that couldn’t be favorably affected by better data practices in our industry — more information, more timely information and more accurate information is essential to help sell the right part the first time,” he declares.
For retailers and WDs, data synchronization is key, O’Reilly of Pricedex states.
“Receiving the correct information from the manufacturer, either directly or via a catalog service, ensures that the manufacturers’ catalog of the product data, along with the application data (ACES), is being correctly transmitted downstream to its customers, without rekeying it,” he says. “This helps reduce errors and data corruption, which in turn reduces the potential for comebacks.”
Key solutions
Information and technology seem to hold the key to unlocking the return problem. In addition to the technology used by WDs and jobbers, tech-savvy companies continue to offer solutions to the great data management debate. Wrenchead Inc., FastPic Systems, Pricedex Software Inc., Activant Solutions Inc. and many others have developed technology that is aimed at helping control returns and manage inventory and parts numbers.
Bryan Murphy, CEO of Wrenchead, says product management and cataloging help address the return issue, and Wrenchead’s Parts Select™ electronic catalog works to minimize returns based on catalog error. The company strives to provide fresh, accurate data. “We publish data in a 45-day cycle. The faster we can get data in the field, the fewer returns there’ll be.” Murphy says their information includes updates on new application data, obsolescence (parts that get replaced with something new), superseding (new parts numbers that replace old parts numbers) and error correction.
Data is also processed through Wrenchead’s CDI™ (Catalog Data Integra-tion) process, which corrects errors, augments data where necessary and cleans up the data presentation.
“We work closely with the manufacturers during the CDI process. If we published some of the data as it is received, there would be riots in the street,” Murphy says.
Murphy adds that parts proliferation is a big problem for the industry. The company developed a product about a year ago called the Inventory Optimization Solution, which allows customers to input several variables into the solution — such as buyers’ guide information, vehicle registration data and sales history — and the tool calculates the smallest inventory possible to manage the required customer demand.
Adding more detailed product descriptions and images is another way to use technology, and Activant Solutions Inc. recently launched their Cover-to-Cover e-catalog to electronically provide everything that is found in a hard catalog — graphics, descriptions, pictures and more.
“One of the main reasons for returns is either that you’re sending the wrong part or you’re sending multiple parts. Even with a traditional e-catalog, counterpersonnel are often required to pick the right product from a list,” says Michael Betron, director of product marketing with Activant. “Cover-to-Cover provides much-needed information such as images and product specs that instantaneously enable the counterperson to identify and sell the right part.”
In addition to images and product specs, Cover-to-Cover includes technical service bulletins (TSBs), installation instructions, warranty information and OE reference numbers. One of Cover-to-Cover’s biggest selling points is the fact that the information can be accessed by pressing a function key that brings up all of the information, including pictures, on a separate Web page hosted by Activant. About 60,000 parts counters are using an Activant e-catalog, Betron says.
Activant is also working on data warehousing, which allows distributors to work with distribution partners and manufacturers to optimize inventory by capturing and analyzing point-of-sale and inventory status information. “We’re trying to help customers make better stocking decisions based on factual sales data,” says Rod Bayless, senior staff product manager for Data Warehouse Products, Activant. “Today, much of the aftermarket must rely on anecdotal rather than factual data.”
Of the 45 distributors participating in the data warehouse project, Bayless sees this database as a bellwether to illustrate the scope of the returns problem in the industry. A common return rate from technicians back to the store level in the distribution channel is about 15 percent across all parts categories. For rotating electrical parts, the rate can jump as high as 48 percent, followed by steering and suspension at 27 percent and fuel system components at 23 percent.
Along with the cost of returns is the cost of the inventory, he adds. For slower moving part categories, “30 to 32 percent of inventory may not have sold in two years at the store level. Those two things combined at the store — the cost of putting inventory there just in case it’s needed and having some categories where as much as 48 percent of their product is returned — that’s a big deal.”
What lies ahead
Olson of Full Service Auto Parts thinks the future looks brighter because returns will subside as catalog providers get better information through the Internet and other technologies. Also, the complexity of vehicles will drive those technicians who fail to diagnose the repair out of business.
“The independent installer who is keeping up with proper equipment and training — with a highlight on proper — those are the better ones. I see (returns) getting better simply because of the fall-out of parts hangers,” he says.
O’Reilly says consolidating all product information into one central repository is essential to survive.
“Coming from a central repository, where all data can be validated as relating to a particular application or part, and validated as compliant with the PIES data format, ensures that information pertaining to the right part, with the right price, is sent to the right place at the right time,” he explains. “The two key elements here are: a single, central repository of accurate product information, and the PIES compliance of that data which, in turn, enables the buyer to select the right part or product by virtue of the differentiating attributes which constitute PIES compliance. Ultimately, when properly deployed this could virtually eliminate the problem of comebacks related to incorrect part numbers or application data.”
Only time will tell if embracing the technology will provide a permanent solution.
