Logistics: The Final Frontier

May 14, 2015
Perhaps the aftermarket could benefit from the influence of outside sources such as third-party logistics providers (3PLs) that specialize in seeking the most efficient manufacturing and distribution possible.

Close your eyes. I’m taking you into a local auto parts store. OK, you can open your eyes. Can you identify it? Unless you’ve been there before or happen to know a particular color scheme of a particular auto parts chain, you don’t have a clue.

The auto parts chains have virtually become the same. They offer basically the same planograms, the same parts, the same warranties on those parts, the same discounts and the same employee training. They are even open the same hours and are all located in the same area. For the most part, differentiation has taken a backseat to “me-too” thinking.

“Me-too runs deep

From an operational point of view, the overall sameness also is evident. Resellers — independents and retailers — basically negotiate with and buy their products from manufacturers in the same manner, have them shipped to the same kinds of warehouses and store the parts in the same manner. Then they ship the products to auto parts stores in the same manner and the stores deliver products to their repair shop customers in the same manner.

Having said this, who can argue that resellers haven’t been successful? But that really isn’t the question, is it? The real question is: how can resellers distinguish themselves from one another while making themselves more efficient and therefore more profitable? Not too many years ago, vendor managed inventory was supposed to be the answer to efficiency and differentiation. Later it was category management and electronic cataloging. Today, it’s implementing a telematics strategy.

Here’s the answer

Of course, these initiatives have helped to some degree. But none of them have led to, or can lead to, ultimate efficiency. Manufacturers are still “force feeding” the channel with products and resellers are lackadaisical in accepting unwarranted returns from some repair shops. If that’s not bad enough, end users that have legitimate product returns have to wait an unreasonable amount of time to receive credit for returned parts and, worse, often do not fully recoup their labor charges. 

In order to clean up this mess, I see the final frontier to be logistics, particularly the aspect of transparent inventory control. The only true way to accomplish this is for all channel parties to have real-time visibility of products and accompanying financial information. If manufacturers and resellers can’t pinpoint needed parts this very second and don’t have the means to handle returns fairly and efficiently, they are just running their businesses by the seat of their pants. The request for products from repair shops to resellers should not be a hit-or-miss proposition. The process of delivering and/or returning products should be managed by monitoring and tracking them in real-time.

Those who will lead this market in the future will be the ones who form collaborative relationships with a singular vision: complete and unadulterated transparency for the benefit of all trading partners. The purpose of manufacturers cannot be just to sell products to resellers. Rather, they need to treat them as true marketing partners. Likewise, resellers cannot press manufacturers for product and marketing welfare in the form of unrealistic terms and discounts.

What is true collaboration?

So what does a true collaborative channel relationship mean? It means buying into a partnership where each participant has skin in the game. If manufacturers and resellers are going to continue to approach distribution independently, they need to invest in collaborative software technology, computer programs and the data required to assist with analysis and decision-making. Moreover, it involves strategic planning from the outset and joint execution throughout the distribution process. At an optimal level, participating partners should literally invest in the partnership by sharing in costs and finances. Needless to say, both parties will have to change their way of thinking drastically to pursue such a course.

Fortunately, there is a logical alternative to making major investments to manage product inventories. Perhaps the aftermarket could benefit from the influence of outside sources such as third-party logistics providers (3PLs) that specialize in seeking the most efficient manufacturing and distribution possible.

In effect, a 3PL can manage products from design to final sale. With their heavy and ongoing investments in technology, they are uniquely positioned to account for product movement. Unlike current aftermarket practices, they are able to respond quickly to changing market trends, changing business environments and seasonal product requirements — all without disrupting distribution. From just an economies of scale perspective alone, 3PLs are worth consideration because they are able to benefit from volume shipping discounts, shared resources and, of course, the final frontier — transparent inventory control.

Focus on core competencies

Although no one can criticize the present distribution system for having the right products in the right places at the right time, much room for debate on how the individual players achieve that exists. Is it too outlandish to think that manufacturers should concentrate on their core competencies? Is it more important for manufacturers to spend their time on product innovation and fine tuning manufacturing operations or on how they are going to move their products down the distribution channel? As for resellers, is it more important for them to focus on marketing and merchandising versus accounting for and juggling millions of parts and products?

Make no mistake — we’ve reached the point in the evolution of the aftermarket where product distribution management needs to change. Mark Twain said, “The difference between the right word and the almost right word is the difference between lightning and a lightning bug.” In this discussion, a truly collaborative distribution partnership between manufacturers and resellers — directed in whole, or assisted in part, by logistics experts that offer real-time product visibility — is the lightning. As good as the traditional aftermarket practices have been over the years, they are lightning bugs by comparison.

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