“Hot-shot” delivery — delivering parts to repair shop customers in 30 minutes or less — has long been the gold standard for delivery in the independent parts distribution business. Understandably so. When an auto repair shop has a car on a lift and is waiting for parts, that shop is losing money. It’s a race against time, and the parts seller who can deliver the right parts the fastest is the winner. A waiting game in this business is a losing game. Today, price is no match for getting the right part to the right place at the right time.
Today’s shop owners realize that if they are going to be successful, they have to keep their shops running at peak efficiency. One aspect of this is the ability to quickly and accurately order parts online from a number of suppliers, including manufacturers and distributors alike. Then the shop’s concern becomes if those suppliers can get parts to them in time to satisfy their customers. “We’ll have the parts tomorrow” all but guarantees customers will go elsewhere for their repair service.
Getting bogged down
The quick repair performance of the overall automotive parts distribution system in this country has satisfied most customers. But when you look at the response issue from a business competitive angle, some distributors are not responding fast enough by getting bogged down with return claims, or worse, internal inefficiencies such as late billing or misplaced inventory.
Perhaps these distribution inefficiencies are reasons for manufacturers to consider their own distribution systems. As provocative as selling direct seems, it’s important to note that it isn’t exactly new. For example, special orders that require particular care and/or ultra-speedy delivery are usually drop-shipped directly to shops.
Back to the future
Moreover, there’s a history lesson that should be considered: The industry actually transformed itself in the ’60s when manufacturers moved from a factory warehouse model to reliance on a warehouse distribution model because they had difficulty getting their products to market on time. Relying on the growing network of warehouse distributors (WDs) was an easier and more cost efficient way to achieve this. Today the idea of manufacturers selling direct isn’t surprising. Consider what the distribution system has to manage — parts proliferation, the increased complexity of vehicles, the need for ongoing technician training and, above all, the relentless pursuit of distribution efficiency.
But the quest to overcome these concerns doesn't necessarily require building a distribution network. In fact, it appears that most manufacturers, as well as most WDs that service them, are happy with the status quo. Nothing wrong with that…unless the direct sellers reach such a high level of supply chain efficiency that they can reduce costs enough to offer their products at significantly lower prices than their competitors. If that scenario develops, we may see a reaction from WDs similar to what we saw in the ’90s when auto parts retailers were undercutting their prices. First there was the denial of what was happening, followed by anger that competitors were rocking the boat. Finally, the WDs responded with value-added services that the retailers could not or would not match.
Manufacturers selling direct is only one form of disintermediation. Another concern is e-tailing. Just how fast is Amazon moving to sell parts to both consumers and shops? If auto parts retailers figured out that the “do-it-for-me” business is the most lucrative part of the business, hasn’t Amazon figured that out, too? Maybe it makes sense for some distributors to partner with them and/or other e-tailers? And although Wal-Mart seems to be focused on DIYers, don’t they see the same potential to service the commercial side of the massive automotive parts business? After all, Wal-Mart has a colossal distribution network in place with more than 5,000 stores.
A new distribution model?
If a new distribution model is evolving, it’s this: everyone in the business will do what they think needs to be done to stay viable. It certainly looks like selling direct on a massive scale is viable for some manufacturers. Being in control of distribution from start to finish is an attractive proposition. For WDs to compete, they may have to broaden and deepen their value-added services (e.g., offering more technical clinics), as well as compromise on terms and profit margins.
In light of increased competition and the need for greater distribution efficiencies, both manufacturers and WDs of all sizes could lean more on third party logistics (3PL) providers that allow their partners to concentrate on their products and customers rather than on shipping and storage. The sophisticated technologies that 3PLs have developed go way beyond monitoring and tracking cargo from start to finish — they can see the big picture and can assist, or even drive, product design and manufacturing, and distribution strategies. In essence, a 3PL can streamline the entire distribution process because a user contracts with just the 3PL, rather than with multiple companies and services.
Viability could take many forms
For the last 50 years, when we thought of aftermarket parts distribution, we thought of a large number of warehouses located strategically to service customers far and wide. No doubt the strength of same-day service revolves around these warehouses. Going forward their very viability will rest on: controlling capital and investment costs, reducing inventory costs, achieving economies of scale by sharing resources, and having access to interlinking technologies. Achieving these things alone will be difficult, if not impossible. Maybe a truly collaborative relationship between manufacturers and distributors can address them. Or perhaps manufacturers selling direct is the answer. E-tailing certainly will play a part. Virtual parts warehouses are within reason. Or maybe any or all of these possibilities, partnering in whole or in part with a 3PL, could be the answer to long-term distribution viability.
Ultimately, repair shops don’t care where the parts come from, what means are used to get them to their shops, or what it costs the supplier to get them there when they are needed. That’s the way it’s always been. So, the race manufacturers and distributors have to win is catching up with the “I need it now” thinking of repair shop owners.
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