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Auto companies and dealers can boost parts sales and reduce overstock costs if they can work together
At Subaru of New England, parts sales are up 17% this year, and most of the 60 dealerships it serves have reduced their costs tied to holding too much inventory and the losses caused by having to write off obsolete parts. Sounds like an ideal situation in an industry that has scrambled to maintain revenue streams in a limping economy, offering incentives such as zero-percent financing that have helped drive sales but also lowered profits.
When it comes to building cars, auto manufacturers have invested a lot of time and money in technology to squeeze costs out of their supply chains. But with aftermarket-parts revenue in the United States hitting about $246 billion this year, according to the Automotive Aftermarket Industry Association, some carmakers are starting to think about how they can work better with dealerships to boost profits from that channel.
The hardest thing about parts management is gathering information from different dealers' systems, says Klugh, Subaru of New England's VP of fixed operations.
Photo of Bryan Klugh by Jason Grow
It won't be easy. Even Bryan Klugh, VP of fixed operations at Subaru of New England, the automotive company's distributor in that region, admits that. "The hardest thing about parts management is gathering information from different [dealerships'] systems," he says. But that's what it takes to accurately forecast demand so parts are in stock at dealerships when customers need service, building loyalty to both the brand and the dealer.
This week, Reynolds and Reynolds Co., which sells management and other software and services to auto dealers, distributors, and car manufacturers, and Servigistics Inc., a vendor of service-parts-management software, will reveal a partnership that may help. Reynolds and Reynolds already claims much of the automotive supply chain as customers, including more than 90% of the dealers and most of the carmakers in North America. Both Subaru of New England and Norwood Subaru, one of the dealers in the New England network, are customers.
Subaru of New England has been using Servigistics' service-parts-management software since October of last year to consolidate data from multiple dealerships. The software runs analytics based on factors such as historical-use rates, seasonality indicators, campaigns, and vehicle introductions, as well as data sent by File Transfer Protocol each night on individual dealerships' transactions, to arrive at stocking forecasts and recommendations. Each morning, the 85% of New England dealerships Subaru has so far signed on to the network can log onto a private Web site for parts-order suggestions based on the factors analyzed. Norwood Subaru, which was a test site for the deployment, has seen its investment in parts decrease by about $100,000 this year, while the amount of time it has a part it needs in stock is up 10%, parts manager Denny Goodrich says.
Subaru of America Inc. is watching the New England pilot closely, Klugh says; if its success merits a wider deployment, the company likely will use Reynolds and Reynolds to implement the Servigistics software, he says. The system can be implemented at a cost of 5% or less of the contractor's inventory value (whether it's the manufacturer, a dealer network, or a specific dealership) and be up within 10 weeks, Reynolds and Reynolds says.
Taking the responsibility for stocking parts away from the dealers will be a cultural change. Many dealers' parts managers forecast demand by pulling in data from systems ranging from spreadsheets to warehouse-management systems, and even Reynolds and Reynolds' own parts application that monitors which parts sell and which ones don't, among other things. But they lack the deeper understanding that comes from integrating data from a number of sources across an automaker's dealer network. "The industry hasn't done a very good job of connecting the dots that make up the automotive retailing value net," says Mike Kapolka, director of original equipment manufacturer solutions for Reynolds.
The dots aren't necessarily connected even within dealerships. The Lou Fusz Automotive Network Inc. in the St. Louis area uses Reynolds and Reynolds software among 13 of its 18 dealerships to identify parts that are frequently used and should be stocked in advance and ones that shouldn't. This helps to maintain stock at a compromise level between service managers, who want to stock a lot of everything to be safe, and parts managers, who want to avoid being stuck with obsolete parts. "The parts department is essentially its own and different business" from service, says Jim Shelton, general manager of fixed operations at Lou Fusz. It won't be profitable if it stocks everything the service manager wants, he says.
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