The Automotive Aftermarket: Time for a Tuneup?
By diagnosing and responding to three service alerts—omni-channel retail migration, Mexican plant expansions, and the Trans-Pacific Partnership—automakers, parts suppliers, and 3PLs keep the aftermarket engine purring like a kitten.
As the automotive aftermarket continues to evolve, automakers, auto parts suppliers, and third-party logistics (3PL) providers must react to the constant changes driving the industry’s supply chain, from the widening of the Panama Canal to the migration of cargo from East to West Coast ports.
But, of all the changes that are currently transpiring, three recent developments—a shift to omni-channel retailing, an increase in manufacturing investment in Mexico, and the approval of the Trans-Pacific Partnership—are having an especially pronounced impact on automotive aftermarket supply chains.
In response, automakers, auto parts suppliers, and 3PLs are gearing up to navigate through these developments and help effectively streamline the automotive aftermarket supply chain in 2016 and beyond.
Omni-Channel Retailing: Consumers Change Lanes
Consumers are currently combining mobile, online, and in-store channels when shopping for auto parts, resulting in an omni-channel experience, according to UPS’s 2015 What’s Driving the Automotive Parts Online Shopper study.
Of the online shoppers surveyed for the study, 56 percent have purchased parts online, a rise of 8 percent compared to 2014’s study. And, 95 percent of surveyed shoppers compare prices before they purchase any items.
In addition to an increase in purchases, the UPS survey found that online shoppers interact differently with automotive aftermarket companies than they have in the past. They seamlessly move between their mobile phones, tablets, laptops, desktops, and physical stores to either purchase, research, pick up, or return merchandise.
"This shift is significant because many small and mid-size automotive aftermarket companies have linear supply chains for their online and physical store businesses," says Brian Littlefield, UPS’s director of marketing for the automotive industry. "To successfully service consumers in an omni-channel environment, automotive aftermarket companies must integrate both the online and the physical store businesses into a single, seamless process."
To integrate their online and physical store businesses, and provide customers an omni-channel experience, most large companies have already reconfigured their supply chains. But small and mid-size companies are playing catch up, and investing in supply chain improvements to increase the likelihood of long-term success.
"It can be challenging for a small or mid-sized business to invest the time and budget in these capital improvements," Littlefield says. "But it’s absolutely imperative that these investments are made. Just as general consumer retail has shifted to the omni-channel experience, the automotive aftermarket industry is also moving in that direction."
changing lanes: Shipping Preferences
From the rise of ship-to-store to a growing interest in alternate delivery options, auto parts consumers are increasingly open to having packages delivered to locations other than their homes.
Source: 2015 What’s Driving the Automotive Parts Online Shopper Survey, UPS
Seamlessly integrating online and physical store businesses typically begins by re-evaluating how the company monitors and maintains inventory levels for individual parts, as well as completed assemblies, whether they’re across online marketplaces, high-volume wholesalers and retailers, or small-volume retailers.
All inventory levels at the assembly, warehouse, distribution, and retail segments of the supply chain often require greater visibility for sales, as well as returns. To improve their customers’ omni-channel experiences, some automakers and automotive suppliers may need to increase their inventory levels as well.
"Because this is different from traditional distribution strategies, and requires a higher level of visibility, the integration of supply chains also requires a firm commitment from the highest level of management," Littlefield says.
UPS’s study also reveals that online auto parts purchasers use ship-to-store 55 percent of the time, a 14-percent upturn compared to 2014’s figures. So, while physical store locations are significant, a consistently reliable online presence is even more important.
If online purchasers cannot find their auto parts domestically, they will shop internationally as well. In fact, 29 percent of the study’s respondents completed international purchases in 2015.
"Manufacturers, retailers, and distributors must become incredibly nimble to provide an even higher level of service," Littlefield explains. "Product availability is vital and should become even more important as barriers to trade are reduced through agreements such as the Trans-Pacific Partnership."
With this nimbleness in mind, aftermarket manufacturers must also be willing to ship their products the same day or within a few hours, as the omni-channel experience has resulted in "always on, always available" expectations.
"Manufacturers are faced with the struggle of balancing inventory with where—and how—it should be stored to serve customers quickly," says Brian Neuwirth, vice president of sales and marketing for UNEX Manufacturing Inc., an order picking solutions provider based in Lakewood Township, N.J. "They must increase their fulfillment speed to move the product out of the warehouse or distribution center and ship it to the end user as quickly as possible."
As a manufacturer and supplier of LED lights and lighting products, Madison, Ind.-based Grote Industries has experienced a decline in its distribution customers’ inventory capacities; some are even asking Grote to maintain inventory and ship small orders within one or two days. Consequently, the company had to shorten its transit time.
"We have to monitor our shipments from beginning to end so we know exactly where they are—both inbound to us and outbound to our customers," says Debbie Sherman, logistics and transportation manager for Grote Industries. "It is essential that we know about transit disruptions or delays."
"The end-to-end knowledge of our products’ physical location is crucial because customer expectations are increasing," adds John Grote, vice president of sales and marketing, Grote Industries. "We rely on logistics service providers to let customers know where their products are at all times, and when they will be delivered."
To meet customers’ ever-increasing expectations, Spec-D Tuning, a City of Industry, Calif.-based online auto accessory provider specializing in headlights and taillights, offers customers same-day shipping if they complete their orders before 3 p.m. Pacific Time. The company has also established distribution centers on both coasts so that customers receive their items in two or three days.
"We offer free shipping, phone support, and online chat before customers purchase their accessories," says Jacky Lau, executive director of Spec-D Tuning. "We also provide detailed product descriptions, images of the products from different angles, and instructional videos so that customers can install the products themselves."
Mexico Shifts Into High Gear
In 2007, roughly 65 percent of all cars in the United States were built north of Ohio, according to Steve Rand, senior vice president, automotive of Hub Group, a freight transportation management company based in Downers Grove, Ill. By 2017, however, Rand expects that figure to decline to 30 percent as assembly locations continue to migrate out of Michigan and the Ohio Valley.
"The majority of plants are moving to the southeast United States—South Carolina (BMW), Alabama (Mercedes), Georgia (Kia), Mississippi (Toyota), and Tennessee (Nissan)—and most of those companies have plants in Mexico as well," he says. "This has significant implications for the supply chain as all the action is moving into the U.S. Southeast-to-Mexico corridor for Tier 1, Tier 2, and original equipment manufacturer (OEM) shippers."
As a result of Mexico’s emergence as an automotive industry powerhouse, many companies now identify the ideal methods for moving products into and out of the market so they can successfully capitalize on the region’s economic output and potential; $1.3 billion of goods currently cross the U.S.-Mexico border every day (roughly $1 million per minute), according to UPS’s Littlefield.
Automakers and automotive parts suppliers that increase their cross-border shipping capacities should consider implementing integrated, contractual services that offer customs clearance and door-to-door visibility.
"Contractual, expedited cross-border services offer an affordable, fast, and reliable alternative to conventional ground or air freight," says Littlefield. "The ability to tighten delivery time, often by two to three days, and the efficiency associated with that, is tremendous. And logistics service providers have visibility into the entire supply chain, so automakers and auto parts suppliers know the location of all their parts at any given time, regardless of the service offering they choose."
Considering all these factors—with only one end-to-end solution provider and one point of contact—the services are a win-win for all supply chain partners, especially if they increase efficiency. Shortening delivery time by hours, or even days, produces bottom-line benefits.
Aside from an increase in cross-border shipping, the automotive industry’s growth in Mexico also provides Americas-based parts manufacturers the opportunity to expand globally.
"Because of Mexico’s geographic and economic standing, as well as its free trade agreements with so many countries, especially European nations, automotive parts manufacturers are well positioned to supply the global automotive industry," Littlefield adds.
TPP Removes Trade Roadblocks
After nearly 10 years of negotiations, on Oct. 5, 2015, an agreement was finally reached on the Trans-Pacific Partnership (TPP), the largest regional trade pact in history. Currently representing 12 countries, including the United States, Canada, and Mexico, the TPP is expected to connect 800 million consumers across the Americas and Asia-Pacific, accounting for approximately 40 percent of the global economy.
Not only will the TPP deepen the economic ties of each of the 12 participating countries, it will also have a considerable impact on the automotive aftermarket.
"As barriers to trade are reduced, automotive aftermarket companies and consumers in the countries involved with the TPP should have significantly more opportunities to conduct business together," Littlefield says.
In addition to an increase in market access, the TPP will reduce or eliminate 18,000 tariffs, expedite customs procedures, and support private companies that compete against government-owned facilities. It will also improve U.S. trade capabilities.
"More than 70 percent of the world’s purchasing power—and more than 80 percent of anticipated growth in the world’s purchasing power—is currently located outside the United States," says Littlefield. "The TPP will help level the playing field.
"As a result, many small and mid-sized businesses, including automotive aftermarket companies, will grow through exporting," he adds.
Putting the Pedal to the Metal
As their services and product offerings continue to expand throughout the world, automakers and automotive parts suppliers of all sizes are considering utilizing various types of technologies, particularly 3D printing, carton flow racks, and event management visibility tools. These tools not only save time and money, but they also streamline the automotive aftermarket supply chain, thereby improving efficiency for the long term.
By reducing the time it takes to manufacture prototypes, for example, 3D printing can simplify the entire product development process.
"Depending on the number of design revisions a new product goes through, 3D printing can shave months of time and tens of thousands of dollars from the development schedule," says Littlefield. "And, best of all, automotive companies can upload their 3D print-ready files to 3D printing companies’ websites and receive their parts as early as the next business morning."
In addition, UNEX Manufacturing’s Neuwirth advises automakers and automotive parts suppliers to implement carton flow racks. While creating flexible, modular, and portable storage, the flow racks can increase space utilization by 50 percent—flexibility that is critical whenever companies encounter line and process changes.
"In the automotive industry, things can change at a moment’s notice, as customers are always reconfiguring, adding new products, and updating standards. To keep up and stay competitive, plants must be flexible and efficient," Neuwirth says. "Carton flow racks help plants improve productivity and efficiency because production demand changes will not disrupt their business operations. Because the carton flow racks are easy to move and adjust, plants can respond to abrupt changes without hesitation."
To retain visibility of packages and shipments across multiple transportation modes, Grote Industries’ Sherman also advises automakers and auto parts suppliers to use event management and visibility tools. By entering a shipment-related number into an event management and visibility website, companies can access all information related to international shipments that are transferred via air freight or ocean container.
"After entering their house bill or airway bill number on the website, shippers can view packing lists, the transit and delivery of any shipment, and even the release from U.S. Customs and Border Protection," she says. "The process is simple."
Material costs will steadily rise in the foreseeable future, according to Neuwirth. Omni-channel retailing also will continue to grow, thereby requiring manufacturers to reconfigure their distribution centers to speed fulfillment. And regulations will continue to affect the industry in some capacity.
The solution? Automotive aftermarket suppliers need state-of-the-art distribution centers equipped with technology that improves and speeds the order picking process.
John Grote agrees with Neuwirth, adding that the North American aftermarket needs to service customers better than direct sources overseas, or else it simply won’t be able to compete.
"Information and speed will be critical for success in the future," he says. "Both those components differentiate us from the competition."
Furthermore, Littlefield advises automotive aftermarket suppliers to prepare for the future by implementing new, scalable supply chains, rather than adding solutions to existing platforms—another method of competitive differentiation.
"All too often, companies layer new or additional supply chain solutions onto their current platforms because it’s the quickest and least expensive path to servicing their customers," he explains. "Eventually, companies spend more time managing their supply chains than they would if they had originally implemented a new solution. The earlier a company can design and implement a scalable supply chain the better, regardless of how quickly or how large they grow in the coming years."