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The Parts Paradox

Source: searchautoparts.com

Having more than two million SKUs from more than 400 manufacturers is portrayed by many in the independent aftermarket as a disaster. Besides declaring parts proliferation a mess, the industry has addressed the number of parts like it is some new phenomenon. Both notions are ridiculous. - See more at: http://www.searchautoparts.com/aftermarket-business/automotive-aftermarket-technology/parts-paradox#sthash.tFQSrZXS.dpuf

First, a large inventory is necessary because most vehicle repairs are completed within one day. Availability of parts trumps everything else, including price.

Second, parts proliferation was a hot topic more than 30 years ago when I got into the industry. How can it still be a hot topic when new vehicles and new parts will forever be introduced? Having a huge number of parts defines the very nature of an industry addressing the needs of consumers who expect a one-day or less turnaround time for vehicle repairs.

At the risk of contradicting myself, there is no doubt that this industry has too much inventory. As I have written before, we not only don’t know how much inventory is out there, we don’t know where it is.

The problem is not the number of parts being added, it’s that we aren’t tracking the inventory we have — whether the parts are newly added or ones that are already in the system. Let me put it this way: if you’re an optimist, parts proliferation simply means there’s a whole lot of new parts being introduced into the marketplace at any given time, which provides more sales opportunities. If you’re a pessimist, it’s the influx of a whole lot of new parts being added to a stack of old parts that can’t be sold, returned – or found, for that matter – because they are not being properly tracked.

To help streamline inventories, program groups turned to data warehousing a few years back. No doubt that its implementation has helped clean up some nagging inventory problems, including parts proliferation and returns to a degree. Data warehousing helps pinpoint what’s in the pipeline from manufacturers to the repair shops. All too often distributors are buying products not knowing what has actually been sold to repair shops, or to do-it-yourselfers (DIYers). If distributors don’t know what’s sold at the store level, they’re going to buy more – possibly more of what they already have. Conversely, they may not buy what they need, which results in lost sales.

The parts business is a game of getting the right parts to repair shops quickly as well as having the right parts for DIYers. If the distributors don’t know what they have or when they can get it for customers, then customers will seek other suppliers.

Busy shop owners don’t care where they get their parts. Loyalty to a sole supplier is from a bygone era. A half dozen or more suppliers is the new normal. And with the competition from auto parts retailers and dealerships becoming even stronger, program group distributors do not have the luxury of asking shops for patience while they hunt for parts. Instant gratification is the only kind of service that shops understand.

Although there is some cross-communication among program groups concerning inventory, it is hardly what you would call open and transparent collaboration. Any more than a cursory association may be too much to ask. After all, these groups are in competition with one another.

Distributors, stores and shops choose one group over another for certain value added services that each group offers. I don’t realistically see groups freely opening up their data warehouses to their group competitors any more than I see them opening up to their retail competitors or to dealerships. The only way the free exchange of data will happen is when groups consolidate. And in my opinion, I don’t think we’ve seen the end of mergers among groups and/or with retailers. The big will get bigger.

Given the present state of the program groups, parts proliferation will remain largely a private matter that each group has to manage. A group can’t worry about other groups having too many parts in the wrong places at the wrong time. Their charge is to have the right parts in the right place at the right time for their members. Unfortunately, this approach does have consequences, especially for the manufacturers who are bound to see their parts returned for various reasons, including the epitome of distribution disfunction – parts obsolescence. Every returned part, no matter the reason for the return, eats away at a manufacturer’s profitability, which inevitably adversely affects every entity in the supply chain.

For years, the wholesalers have been moving toward the retailing model and the retailers have been moving toward the wholesale model. In the case of inventory management, the wholesalers can’t move fast enough to adopt all of the retailing practices and procedures. I suppose the retailers are quite amused watching the program group distributors trying to manage parts proliferation. Not that the retailers are pining for more SKUs, however, they are in a better position to deal with parts proliferation. This is due to their adaptation of the Wal-Mart model, the gold standard of real-time data management. Their model features an accurate account of inventory at all stages of distribution and relies on automatic reordering of sold parts so that their stores remain stocked with needed products.

In their quest to adapt and implement the latest inventory practices, independents can never lose sight of being able to deliver just about any part imaginable in 30 minutes or less. In the final analysis, parts proliferation may be better described as a parts paradox. No doubt that too much inventory adversely affects the overall market, however, it just might be what has made the independent aftermarket what it is – a vibrant, responsive and reliable mechanism to keep motorists on the road.

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