Automotive Aftermarket: Firing on all Cylinders
The popularity of classic auto restoration revs up an extensive multi-channel logistics network to meet the needs of enthusiasts. Buckle up, let's go for a ride.
Two decades ago , original equipment manufacturers (OEMs) in the automotive industry thought they had mastered the spare parts distribution market. Then, along came a new wave of specialty automotive parts distributors and wholesalers who added a whole new dimension to the automotive supply chain. Today's spare parts market now consists of more than just carburetors and catalytic converters on traditional automobiles. As Americans' fondness for trucks and automobiles continues to grow, specialized parts represent the fastest growing subset of the automotive aftermarket.
The emerging specialized parts sector of the automotive supply chain is vast and complex, growing at 8 percent per year, according to the Specialty Equipment Market Association (SEMA), a California-based trade and advocacy group for the specialty automotive industry. To facilitate this growth, SEMA hosts an annual international show in Las Vegas, drawing more than 100,000 buyers, exhibitors, and industry leaders. The November 2016 show featured 2,500-plus new accessories, parts, tools, and auto components.
The automotive parts revolution started decades ago with showcase wheel rims and hubcaps, and then evolved into specialty lights, bumpers, and window shields. With the popularity of light trucks for daily transportation, some pick-up and off-road enthusiasts—as well as sedan and SUV owners—have discovered the power of the "lift." While usually associated with pick-up trucks and 4 x 4s, a typical suspension lift raises a vehicle's shocks and leaf springs by 4 to 6 inches. The higher clearance increases the elevation of the wheel-well, accommodating larger tires for off-road and aesthetic purposes.
Today, a whole cottage industry has emerged to serve the specialized parts and accessory aftermarket in the auto, off-road, and light truck supply chain. One specialty manufacturer that has captured the demand for spare parts and accessories is Omix-ADA. The metro Atlanta-based manufacturer provides specialty parts for the Jeep aftermarket—from LED light mounts to pink winches for both modern and vintage Jeeps— and warehouses more than 25,000 SKUs.
The spare parts auto aftermarket represents a $39-billion industry, according to SEMA. While specialty parts represent the emerging sector of the automotive aftermarket, auto accessories and specialized parts have been around for 50 years. For example, Auto Ventshade was founded in Jacksonville, Fla., in 1935 as a manufacturer of protective window and roof shields. The company was eventually acquired by Lund International, a conglomerate of nine specialty auto parts manufacturers that cover brand-name accessories from floor liners to fender flares.
Restore and Accessorize
Specialized distributors make up a separate industry sector within the automotive aftermarket. Manufacturers and distributors within the specialty aftermarket focus on individual makes, models, or eras of autos—from antiques, restorations, accessories, and specialized parts for showmanship or practicality. A prime example of a specialty manufacturer aligned to a specific era of automobiles is Auto Metal Direct (AMD).
The company is a wholesaler of sheet metal products for muscle cars. With its automotive parts manufactured exclusively in Taiwan, AMD specializes in restoration parts for high-performance Mopar, GM, Dodge, and Plymouth models produced in the muscle car era—1958 to 1977. While seemingly narrowly focused, AMD's emphasis on muscle cars represents an exclusive sector of American-made auto enthusiasts who restore vintage-era autos known for speed, style, and performance.
"We often wonder if one day the music might stop after every muscle car in the world has been restored," jokes Mark Headrick, president of Auto Metal Direct, referring to the perceived limited number of high-performance muscle cars still on the road today. "But fortunately our business continues to grow each year."
Driving retail Channels
Wholesalers such as Omix-ADA and Auto Metal Direct sell to a host of distributors and retailers including Summit Racing, an Ohio-based retailer founded more than four decades ago. Retailers such as Summit sell online to the general public or through three regional superstores located in Ohio, Nevada, and Georgia. The brick-and-mortar locations also serve as distribution centers to service Summit's substantial online and call center sales volumes.
Restoring vintage autos and trucks has been a popular pastime for decades, but as America's iconic vehicles—Mustangs, muscle cars, Jeeps, and light trucks—have come more in vogue, restoring older classic models requires remanufactured parts and an accompaniment of accessories. With the popularity of classic auto restoration, an extensive multi-channel distribution network has emerged to meet the needs of restoration enthusiasts, encompassing e-tail and brick-and-mortar retailers.
Within any sector of the automotive spare parts business, tracking the number of SKUs is a constant challenge. In the specialty parts and accessory aftermarket, the SKU proliferation is equally as daunting as the original equipment manufacturers (OEM) sector. Omix-ADA manages a total SKU count of 25,000, but the wholesaler's targeted parts focus falls in the 15,000 range. On the OEM side, the SKU count is similar by comparison. At Porsche, for example, the spare parts SKU numbers fall in the 18,000 to 25,000 range, says Bob Semsch, manager of logistics and process improvements for Porsche Cars of North America.
The SKU count continues to expand in the parts aftermarket, as manufacturers design, produce, and reproduce accessories and specialty parts to accommodate customers following a particular brand or accessorizing an off-road or vintage vehicle.
"Ten percent of our employees are engineers," says Brandon Seadorf of Omix-ADA. "Our designers use auto-CAD and 3D printing to test-fit a new part or accessory prior to sending the design to our manufacturing partner for tooling, stamping, or processing."
fuel for growth
As demand for new products maintains its growth trajectory, manufacturers will continue to design and produce new lines of accessories for off-road vehicles and light trucks. To meet strong customer demand, Omix-ADA imports 45 ocean containers per month—mostly from China—to its 185,000-square-foot distribution facility in Suwanee, Ga.
To stay ahead of the competition and follow automotive industry trends, companies such as Omix are not just in the import and distribution business; they are also innovators.
"We design and produce as many as 50 new products every month," says Seadorf. "Some are small accessories, but to meet our customers' needs, several parts need to be adapted or upgraded over time."
Several specialty parts wholesalers have implemented a strategic approach to their distribution channels and network design, evaluating the optimal way to serve global distributors. While OEMs primarily service their dealer networks with one- to two-day deliveries from strategically located DCs, specialty aftermarket wholesalers have learned that their delivery platform is not as time critical.
"Our customers don't demand next-day service," says Rodney Willis, senior warehouse operations manager, Omix-ADA. With less pressure to meet time-definite delivery, specialty parts and accessory wholesaler providers have maintained a single-source DC solution that meets customers' cost, control, and service expectations.
OEMs are different, however. "An OEM can no longer serve its North American platform with only one or two centralized distribution centers," notes supply chain consultant Fred Kimball of Distribution Design, a New England-based advisor to the automotive industry.
In 2007, Omix-ADA rolled out a network distribution strategy to service its growing customer base in North America. Omix implemented a hybrid approach to a multi-location DC design by partnering with a national public warehouse to launch three U.S. locations. Working with its third-party logistics (3PL) partner, Omix opened strategically located DCs in Nevada, Kansas, and Virginia.
Eventually, Omix decided to consolidate the three DCs into one central location in Kansas City, but later changed its warehouse network, consolidating its North American distribution channel back to its primary DC in Suwanee.
"We found that our customer base didn't necessarily require one- and two-day deliveries," says Gonzalo Manotas, Omix-ADA's director of purchasing.
Later, Omix-ADA decided to insource its warehousing and distribution, discontinuing the relationship with its 3PL after the regional warehouse concept didn't yield the increase in sales the company had projected. "We thought a faster delivery model to our customers would result in more sales, but it didn't move the needle enough to justify the added expense," Manotas says.
Other specialty parts distributors and manufacturers have contemplated a hub-and-spoke distribution model, particularly after assessing the shipping distance from key customers.
"With our strong customer base in California, we considered a West Coast warehouse a few years ago," says Headrick. "But it came down to control and staffing. We can offer two- to three-day shipping to our West Coast customers, so the cost to set up a second warehouse in Nevada or California would not have yielded the payback we projected."
Cost is also a major factor in commissioning a new DC. "Freight savings are typically the main driver in deciding where to locate a DC," notes Anu Goel, executive vice president of aftermarket and services with Volkswagen Group of America.
Despite the potential freight cost savings, opening a DC in a new market can be costly. "Volkswagen's approximate cost to open a new full-scale distribution facility is several million dollars," Goel notes.
With most specialty parts wholesalers embracing a central distribution location strategy, outbound distribution is critical. Both Omix-ADA and Auto Metal Direct operate only one major warehouse in North America, citing better operating control and customers satisfied with delivery times.
"From our Suwanee warehouse, we can service most of our delivery channels within two days," says Manotas. "Unless it's a backorder or rush shipment, our standard delivery times meet the needs of our distributors."
Like Omix-ADA, Auto Metal Direct has elected to maintain a single DC in its delivery service model. But as its parts demand expanded, discussions emerged about a West Coast delivery depot.
"With our strong customer base in California, the company looked intensely at the viability of a West Coast warehouse," explains Headrick. "But after surveying customers, we found the three-day delivery target to be adequate from their perspective."
Like Omix, AMD considered the services of a 3PL to kickstart its West Coast distribution. "We looked at integrating with a 3PL initially, but a West Coast DC never materialized, so today we still operate and ship from our one U.S. warehouse," Headrick adds. "This single distribution point currently meets our distributor and retail delivery expectations."
Wholesalers in the aftermarket parts industry depend on a network of distributors and retailers that specializes in automotive parts and accessories. One well-known multi-channel distributor in the specialty auto parts industry is Summit Racing, which has been selling aftermarket specialty parts since 1968.
To better understand the automotive aftermarket supply chain for specialty spare parts, distributors such as Summit also function as retailers. As manufacturers in the supply chain, Omix-ADA, Auto Metal Direct, and Lund supply to Summit Racing. All three manufacturers rely on their respective dealer networks through key distributors/retailers such as Summit.
Another retail distribution channel for specialty automotive parts is the brick-and-mortar stores including O'Reilly Auto Parts, AutoZone, and NAPA. "When considering our sales network, we have a broad reach," Manotas says.
The reach of the specialty parts and accessories market extends beyond the household names in the traditional retail stores. "Omix-ADA is in 44 Amazon warehouses," says Manotas. "We've met with Amazon's senior logistics staff in Seattle, and they understand the automotive specialty parts business. Amazon is an important partner in our retail network."
The broad retail approach can be summed up in one word: brand. For automotive enthusiasts in the off-road, muscle car, or truck restoration sectors, popular brands sell parts and particularly accessories. Retailers and consumers seek popular wholesale brand names, such as Omix-ADA's Rugged Ridge line. Similarly, AMD relies on brand loyalty among muscle car restoration enthusiasts.
Shipping and parts storage have always been top challenges for the automotive industry. Auto parts are typically larger, requiring a greater warehouse footprint than other distribution-related industries. Additionally, many automotive parts are bulky, and difficult to package and ship. Consider a car bumper, for example. It requires specialized packaging due to its size, configuration, and need for protection during shipping.
"With 100 LTL shipments weekly, we can fill two to three trailers every day on outbound deliveries," says Rodney Willis, senior operations manager at Omix-ADA.
Well, Isn't That Special
With the rising popularity of restoring and accessorizing vintage autos—including trucks and off-road vehicles—specialization has become the focus. Particularly with the high SKU count among auto wholesalers, most specialty aftermarket parts distributors have stayed within the confines of their core competency: Mustangs Unlimited focuses on vintage Ford Mustangs, Auto Metal Direct's market is strictly muscle cars, and Omix-ADA's primary emphasis is the Jeep aftermarket.
Other manufacturers gravitate toward specific specialty parts. For example, Fullerton, Calif.-based Discounted Wheel Warehouse sells only wheels and rims for all makes, models, and vintage eras.
Omix-ADA sells almost exclusively Jeep parts and accessories. The company designs, produces, and ships to a global distributor network that sells to Jeep enthusiasts—along with a host of other OEM brands in the off-road submarket. "With our emphasis on 'all things Jeep,' our market is broad due to the SKUs we carry, but our coverage is two inches deep," says Seadorf. Still, specialization and brand loyalty drive the market.
For most employees in the specialty parts aftermarket, working in the automotive parts industry is more than just a job or a paycheck. Car and light truck enthusiasts infiltrate the automotive aftermarket supply chain workforce. "Our long-term employees have typically been people who like to tinker with cars," says AMD's Headrick.
It's the same story at Omix-ADA. "Look at our employee parking lot and you'll see mostly Jeeps," says Manotas. "We love the brand, which makes the job that much more fun."