It has been acknowledged by most within every level of the automotive aftermarket industry that this industry has changed so dramatically in the past five years. It is also starting to be acknowledged that the independent service shop and parts distributor, need to clearly understand their role in the industry, and more importantly, understand that they must develop a different kind of relationship than that of the past.
The amount of mistrust in this industry between the independent service shop and his/her parts distributor has grown over the past ten years. Many retail shops seem convinced that every parts distributor out there is determined to “take advantage” of them. They don’t, and can’t, trust their parts distributor company. This truly is, “old style” thinking. Nothing, today, could be further from the truth. Many good parts suppliers do exist across the country.
It is time to address, and change, the business relationship between the independent service shop and the independent parts distributor.
In business today, the better shops understand the process that they must build a level of confidence, and trust, between themselves and their customer/client base they choose to sell to, if they are going to get, and keep all the client’s automotive maintenance and repair business. To do this they must slow the process down, communicate, educate, and understand to whom he/she is selling to, and then build a plan tailored to that customer/client.
The better parts distributors today also understand that they must slow their process down, learn everything possible about the shop owner’s segment of the industry, earn their trust, and build a relationship of open communication, education, and provide comprehensive support for their customer/clients they choose to sell to.
Times have dramatically changed for both parties. Both parties are clearly now in the relationship business. Both parties need each other more today than ever before.
These are realities, yet the independent service shop and the independent parts distributor have failed miserably at the art of communication and education about each other; then again, each party never asked.
The parts distributor never clearly communicated that he/she is in the commodity business. Commodity businesses need volume, and they need cash. Distributors never communicated that they can easily carry an inventory that can range in value from $500,000 to $3,000,000. They never communicated that they must strive to turn over their inventory 4 times a year, and in the future, due to the growth in number of skews, they may be striving to turn it over only 2.5 times a year. Poor inventory management in the parts distribution business increases their costs dramatically. Too many distributors are operating on an overall business margin of only 26% to 33%. The better distributors need an average of 40% to really make his/her business click, in order to bring real value to their service shop clients. Too many distributors make 50 to 60 deliveries per month to each service shop customer delivering only $6,000 or less per month in purchases. You can do the math, it doesn’t add up. Too many distributors carry accounts receivable in the $100,000 to $500,000 plus range, yet they must pay their wholesale distributor in full each month. When the parts distributor doesn’t have the cash to pay the WD, then the distributor can be forced into a line of credit at his/her bank, and you know what kind of interest the banks charge.
These are but a few of the very basics of the parts distribution business, yet the service shop owner never asked, and the parts distributor always seemed to keep everything a big secret too. The bottom line is that both parties need more “NET PROFIT” to their business, yet everyone goes around thinking if you made a profit from me, you “screwed” me. This must change if we are to grow and prosper.
Let’s take a look and see how your service shop business measures up to your parts distributor’s needs:
P is Positive, and N is Negative.
P — Do you have a solid relationship with one main parts supplier by sending them 85% to 90% of all purchases? Volume counts in the parts distribution business.
N — Do you deal with a distributor only because of the best price and discounts they offer?
N — Do you try to build your shop’s net profit mainly on the margin of your parts and other hard goods you sell (oil, tires, batteries too) because you are among the lowest labor rates in your area?
N — Do you usually spend time on the phone or on-line and shop 3 or 5 different distributors to save a few bucks?
P — Do you pay your statement in full each month? Cash is king in the commodity business!
N — Do you pay only a portion of your monthly statement because you haven’t managed the business properly in order to pay all your accounts in full when due?
N — Do you blame your supplier for your mismanagement of the business?