Supply chain management cannot be a success unless everyone gets on board.
The aftermarket has recognized that companies can no longer remain within their own walls and survive. David Demers, a managing partner and co-founder of Avicon Partners, a supply chain consultant, says, "We are on the cusp of major change in supply chain management." Through a process of supply chain transformation, the automotive aftermarket, like other industries before it, can move from a management to an execution focus.
To transform how we utilize the supply chain, a paradigm shift to embracing a systems thinking approach is required. Rather than trying to understand the individual parts of a supply chain, the emphasis is on understanding the relationships and interdependencies among them. One example is accepting that the supply chain is not a linear chain, but rather a multidimensional entity, wherein each segment is connected to every other one. Another is collaborating on inter-relationships throughout an industry for the industry's gain, as opposed to those relationships that yield a specific gain for one or a few participants.Compared to other industries, collaborative supply chain management within the automotive aftermarket industry has arrived a little late. For many, supply chain management (SCM) within an individual company was enough. Yet in recent years, competitive forces have buffeted the aftermarket, imprisoning working capital inside inventories and squeezing margins.
The supply chain environment is being constantly transformed. Rapid change on a global scale, shorter product lifecycles, new technology, demand-driven supply and the emergence of diverse and complex business models are combining to change the way business is done.
Today, excellence in supply chain execution, rather than supply chain management, has become the determining factor for future survival, separating market leaders from those who follow or leave.
Pain motivates change
Channeling inventory so the right part is delivered on time, every time, to an end customer has been an elusive goal for the aftermarket. The proliferation of parts and SKUs swamped paper-based catalog and ordering systems. Without an effective means of measuring and tracking changing demand on a real-time basis, the information lag caused some manufacturers to continue producing some parts at rates higher than real demand, resulting in a surplus of sluggish, and sometimes dead, inventory.Inventory also grew as a result of phantom demand. Manufacturers unable to completely and accurately describe new parts created order confusion downstream. Distributors and jobbers would place orders with multiple sources in an attempt to ensure the right parts were in hand on time.
In the storm of globalization, the huge amounts of working capital tied up in inventory was like planting cash in a grave — wasteful, hard to get at and a painful squeeze that brought some companies to their knees and survivors to a point where the need to change the industry landscape was worth the pain of doing so.
A revolution of innovation
Before inventory issues could be addressed, it was necessary to develop a common language between stakeholders.
In 1999, the need for standardized data and taxonomy within the aftermarket crystallized in an initiative led by the Automotive Aftermarket Industry Association (AAIA), Motor & Equipment Manufacturers Association (MEMA) and others to promote uniform product data standards for the mutual benefit of all the players in the aftermarket — manufacturers, warehouse distributors, retailers, shops and associations. Voluntary in nature, the effort harnessed the passion and commitment of those involved to develop common standards such as the Product Information Exchange Standard (PIES) and AAIA Catalog Enhanced Standard (ACES), as well as nurturing buy-in from others within the aftermarket.Even though data standardization and synchronization between stakeholders has yet to be perfected, the process laid a foundation and opened the industry's doors for SCM solution providers — firms that focused on software, e-commerce, technological, logistical and other solutions.
Scott Luckett, AAIA's vice president for technology standards and solutions, explains it wasn't that these providers were ignoring the aftermarket; rather, the aftermarket was flying under their radar.
"It was standards that drew the SCM solution providers to the aftermarket," he says. "Standards like PIES and ACES enabled these firms to incorporate them into aftermarket solutions that are both affordable and accessible to the aftermarket today."
Luckett says that just a few years ago, there were only a handful of solution providers active in the aftermarket, with very limited penetration into the industry's participants. Not only is it easier to be standards compliant today than not, the efficiencies gained in adopting innovative solutions have provided the competitive fuel that is driving stakeholders to get on board.Cutting-edge solutions and services available today — including inventory management software, radio frequency identification (RFID), electronic cataloging (e-Cats) and Internet Parts Ordering (IPOs), e-commerce Web-based services, logistics transformation and customer relationship management (CRM) — have and will continue to change the aftermarket landscape. Luckett notes, "Easily, over 50 percent of manufacturers and nearly 100 percent of WDs use at least one SCM solution provider."
WHI, Inc. CEO Bryan Murphy, whose firm provides Web-based e-business solutions to the automotive aftermarket and other industries, agrees that data standardization is key to solution providers entering and helping the aftermarket. WHI was formed from an acquisition of icarz, incorporated by Wrenchead, Inc. in August.
When asked to quantify the penetration of e-commerce solutions, Murphy says that although he couldn't speak for other providers, "In the aftermarket, Wrenchead has over 45,000 service dealers and national account users, and 3,000 distributor locations who have integrated to Nexpart, the company's e-commerce solution." He adds, "Our e-commerce solution user base is growing by 100 percent annually."
Looking to the future, Luckett says, "The aftermarket needs to take wasted costs out of the supply chain. The industry has spent millions fixing problems or bandaging inefficiencies that data standardization and innovation have the promise to resolve. I see the aftermarket looking for two things — inventory visibility though all supply chain channels, and reverse logistics, to identify and handle slow moving parts and returns."
To get there, a number of emerging trends are setting the stage for second-generation innovations that have the potential to streamline the supply chain. These include ongoing data standardization, harnessing the Semantic Web and enhanced Web-based services and supply chain transformation. Where common data made innovation possible, these trends will enable the aftermarket to optimize supply chain execution over a common platform, at an accelerating rate.
Continuing data standardization
If common data provides the building blocks for a solid foundation, the development of a common data platform for the aftermarket provides a house everyone can live in. The continued commitment to harmonizing data across the entire industry is the vehicle that can drive the aftermarket forward. It seeds new solutions and enables next-generation applications.
For example, the recent development of the IPO standard facilitates emergency orders being handled electronically without the need for phone calls or faxes. With continued global adoption of standards, in the future every order could be electronic, which could optimize the time and costs of hired employees, streamline inventory flows, help to eliminate false demand and reduce the overall inventory in the supply chain.
E-Cats are fast replacing paper cataloging, empowering counterpeople to source, order and quote the right pricing in real-time with more reliability, fewer materials and reduced costs.
Vertical Development Inc. CEO Ron Garand, whose firm helps companies develop e-catalogs to help drive their businesses, says that for many of the 70-plus suppliers his company works with, over 80 percent of their sales today are electronic. In the future, the integration of e-Cats with telephony, CRM systems and real-time, fully visible inventory flows has the potential to minimize overall supply chain parts inventory, minimize returns and false demand and provide end customers with reliable, more satisfying experiences.
RFID tagging — "bar codes on steroids" as Johan Sauer, a managing director with Click Commerce Inc. describes them — is another application that could jump from individual companies to a common platform, with exponential benefit. The company's website states: "RFID technology promises to further distance leaders from followers as forward-thinking companies embrace RFID as an enabler of real-time, sensor-based supply chain execution."
Already some distributors are tagging every part with an RFID holding PIES and ACES data, individual serial numbers and other information. Then, employing wireless antennas and readers, inventory can be tracked faster and more accurately than alternative means.
Sauer says that a 100,000-sq.-foot facility could be RFID-enabled for approximately $3,000, and that the RFID tags cost under a dime each. For the future, an RFID-enabled, demand-driven supply chain would allow companies to extend execution across the entire supply chain, creating a collaborative execution network that drives tangible results for all. In addition, RFID can incorporate security counter-measures to combat counterfeiting and intellectual property encroachment.
The Semantic Web
According to Joe Register, president of Prescient Technologies Inc., a firm specializing in aftermarket systems integration and B2B development, "The aftermarket is a data-intensive business, much of which lies outside databases. There is a real need to publish dynamic, on-the-fly rich media documents."
Until recently, the standard language for transferring files has been HyperText Markup Language (HTML). While it permitted the transfer of database, that transfer was limited and excluded the type of information that Register refers to. In 1998, an initiative known as the Semantic Web began, with the aim to enable the exchange of richer and fuller database information over the Internet. To do that, a new language with more structured relational logic was developed, known as Extensible Markup Language (XML), which allows pictures, applications and more to be transferred with databases. In addition, a new structural framework for representing information using XML syntax was developed, known as the Resource Description Framework (RDF). RDF facilitates data to be processed or analyzed outside the particular environment in which it was created, such as combining data from several applications to arrive at new information and/or meaning.
Boiled down to its essence, the Semantic Web, with XML and RDF, has the capability to empower more information to be shared and analyzed across a network. Murphy states, "Today's Web allows for a much richer user experience. Technologies such as XML and RDF allow us to incorporate, for example, pictures, specifications, service intervals, labor times, wiring diagrams, technical service bulletins and more."
He explains the impact an enhanced Web offers, stating, "The goal is to maximize the fill rate at the lowest possible inventory cost."
In the past, inventory management solutions, typically local installations of software, were sold to customers with a user license. The users had to manage, maintain, provide the infrastructure to support it and pay for new updates. The revolution that Web service has enabled is changing software from being a product to being an on-demand service, he says.
"Software as a Service (SAAS) is different in that it eliminates customers having to buy the software. Instead they use the software services over the Web as they need it, eliminating the big upfront costs, support costs and ensuring the latest and greatest functionality and allowing collaboration in new ways," Murphy says.
In addition, automated analysis results in e-reports of critical information in seconds that used to take days to compile.
Examples of the e-solutions offered by WHI include Axess, which allows large buyers of products to manage their buying across the entire supply chain; MacCel, AutoEase and PartsWatch, which provides parts distributors with an end-to-end business solution; and Nexpart, which provides parts distributors with a 24/7/365, Web-enabled online e-catalog and ordering service that each of their clients can customize to secure their branding.
Another example of a Web-enabled application is Vista™, recently released by Activant Solutions Inc. Rod Bayless, director of Business Development for Activant, says one key benefit that Vista provides is the ability — nationally or locally — to mine and determine from real-time databases of all parts in the supply chain, which parts are the fastest selling for each separate vehicle. Given the short shelf life many of today's parts have, Bayless says this knowledge can help with planning inventory to ensure that "hotter" parts today are available, while slower moving parts are kept to a relative minimum.
Supply chain transformation
Demers notes the aftermarket needs to redefine "strategic business value" as being the optimization of both shareholder value and customer experiences. This requires a commitment to shortening cash to cash inventory cycling time, increasing margin and revenues and improving response time and predictability.
Once done, Demers then suggests bringing together a working group of committed aftermarket participants and other experts to review the supply chain as the next step in supply chain transformation.
Identifying the core processes, information, cash flow and organizational elements would help the industry prioritize its needs, develop appropriate solutions and implement change that would optimize execution and value to both industry participants and end customers.
Data standardization has provided a foundation upon which innovative tools and applications have been, and will be, developed to revolutionize supply chain execution in the years ahead.
The benefits that can accrue to the aftermarket — leaner inventories with liberated working capital and higher margins, less revenue leakage and eradication of phantom demand, optimized customer experiences and others — will position the aftermarket to survive in the face of any global forces. We know it works, even if not yet perfected. But as the aftermarket moves toward a common platform, two questions remain. Do we have the collective will to continue to embrace, implement, share and transform how the supply chain is used? And secondly, will we do so in time?
Bob Chabot is a Midwest-based freelance writer specializing in industry news and management topics.
