Supply Chain Efficiency: Packaging for the Automotive E-Commerce Era
According to the Automotive Aftermarket Suppliers Association (AASA), the e-commerce automotive aftermarket sector is currently growing at a rate of $1 billion annually, and is expected to rise to $15 billion by 2020.
For the most part, the sector is focused on two primary customers: those seeking accessories for upgrades and those interested in purchasing older model vehicle parts.
In 2016, Amazon launched an automotive research site that allows users to access aftermarket parts for specific makes and models. Though Amazon had been selling auto parts for 10 years up to that point, the new site (geared towards purchasers’ individual requests) has proven automotive e-commerce to be just as viable as any other kind of e-commerce.
Automotive E-Commerce Market Revs Up
Roughly 85 million vehicles in the United States are currently in a repair sweet spot—six to 12 years of age—according to the AASA. Most of these owners are now choosing to buy parts online because of the lower prices and convenience that e-commerce provides. The same trends also apply to owners of newer vehicles, who are mainly interested in online shopping experiences, as they seek accessories for their vehicles’ aesthetics.
Yet, despite the significant rise in the sector’s popularity, automotive OEMs have yet to notice a considerable rise in their bottom lines.
In fact, according to PwC, the nation’s top 10 automotive OEMs have only had a 4-percent return on capital, compared to the average of 8 to 9 percent earned by OEMs in other industries. To improve these figures and take advantage of the e-commerce automotive aftermarket sector’s rising popularity, OEMs should focus on the role packaging plays in supply chain efficiency.
Packaging is critical. Far too often, packaging is viewed as a commodity. But it’s also a critical component of OEMs’ supply chains, as it determines how much space is necessary in warehouses, how much damage products will experience during shipments and, as a result of e-commerce, how valued customers feel when they open the box in which the auto part was delivered. The value of packaging—and its impact on OEMs’ marketability and supply chain efficiency—must not be overlooked.
Concentrate on the 85 percent. Typically, package delivery costs are comprised of freight (60 percent), labor (20 percent), packaging materials—corrugated and dunnage (15 percent), and damage (5 percent). But companies tend to focus only on reducing packaging material costs, even though they can acquire more significant savings by concentrating on the other 85 percent of costs instead. To do this, OEM stakeholders should conduct a value analysis to determine the true savings (regarding finances and supply chain efficiency) that can occur if each type of cost is reduced.
A four-pillar approach. To ensure automotive OEMs find the right balance between packaging speed and protection, a four-pillar approach to packages should be considered. By implementing lean principles into packaging operations, the pillars—minimizing damage, maximizing packaging productivity, right-sizing boxes, and ensuring unboxing is as easy as possible—can increase OEM productivity by up to 30 percent. This uptick in productivity can, in turn, lead to a trickle-down effect, as OEMs will typically require 15 percent to 20 percent less labor per package, figures that will directly influence their bottom lines.
Use space adequately. As freight costs continue to rise because of limited trucking capacity (mainly resulting from driver shortages), OEMs must ensure that all packages feature more products than air (box cube minus product cube) before they enter pallets or trucks. After all, only 65 percent of trucks and pallets—if filled with OEMs’ packages—are utilized, as 35 percent of each box is comprised of unfilled space. To improve that figure and increase profits in the e-commerce era, a partnership with a packaging solutions provider that’s focused on OEMs’ unique needs—and will test packages until correct sizes are determined—is more important now than ever before.