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Parts and distribution: Availability key to supply

US-based Caterpillar Logistics (CAT) won a contract in 2002 to run the aftermarket parts business of a fading European carmaker. Thanks to that move, it is on the brink of one of the biggest challenges in the sector, but one with much international potential.

The carmaker, of course, is MG Rover, which is confident of an imminent joint venture and huge investment from Chinese-based Shanghai Automotive. CAT, which has logistics experience in Japan, could become responsible for the JV’s aftermarket parts supply around the world. Even now, CAT’s job is far from simple, for MG Rover still has the fifth largest car parc in the UK thanks to its past popularity, despite dwindling new car sales.

Fresh thinking is needed

For all manufacturers selling new cars in the UK, supplying components to the aftermarket is increasingly a job for logistics specialists.

Accurate part-picking and punctual delivery are as essential to the aftermarket (whose business and retail driver customers get ever more demanding) as it is to vehicle assemblers. The operation is important to a car brand’s reputation but cost-cutting dictates that parts stock levels are kept to a minimum, adding to the need for efficiency.

The UK’s highly fragmented aftermarket sector struggles with a fundamental flaw. Groups like CAT invest heavily in computerised systems but some independent repairers still prefer to order on the phone.

Fresh thinking is needed to solve some basic problems, such as a delay in having a car’s problem diagnosed, followed by a wait for a part not in stock.

There is friction between car manufacturers (reluctant to allow the return of cheaper parts, ordered in good faith to try to help a customer) and franchised dealers (hopeless at stock management, say some). Assessing which are the most effective distributors is difficult because companies that pay for research regard the results as commercially sensitive.

Availability is important

John Parkinson, executive chairman of MG Rover XPart, the CAT Logistics subsidiary which handles the carmaker’s aftermarket parts distribution, believes all parts supply chains can be improved.

The former Rover Cars sales and marketing director, who has turned XPart into an all-makes distributor, says the challenge of providing wholesalers and retailers speedily with the correct parts requires planning, commitment and investment.

“Much of the problem lies with dealers because they don’t regard parts sales as sexy or as important as car sales,” he says. “That’s odd, because aftermarket profits are important to franchised dealers.”

Parkinson and his team hone their competitive edge against Unipart, which used to be Rover’s aftermarket parts supplier and retains business XPart would like to win. XPart supplies to 90 UK wholesalers – many are larger MG Rover dealers – which feed parts to smaller dealerships and repairers.

“Availability is more important than the price of the part because customers will pay to have the job done quickly. We want to improve efficiency further, but we have 800 parts suppliers, and need fewer,” says Parkinson.

“Over the next five years, aftermarket distribution will become more and more efficient, with less stock held and a closer relationship between parts suppliers and distributors.”

First-time pick availability figures (providing parts when first ordered) are widely used as the benchmark and Lex Auto Logistics (part of the RAC group of companies) claims a 96%-plus first-pick for Hyundai Car UK, and its other clients including LDV.

Not everyone in the sector agrees that this is necessarily the most important factor. David Lansdowne, a former Rover Cars parts director who earlier worked for Unipart, is sceptical about the significance of first-pick and critical of the way franchised dealers run their parts departments.

Too much emphasis on first pick Lansdowne and former Unipart executive Peter Woodward are partners in Aftermarket Solutions which analyses the efficiency of manufacturers and dealers in parts management for subscribers including Ford, Vauxhall, BMW and Toyota.

“There can be too much emphasis on first-pick,” says Lansdowne. “If a distributor supplies 95% of parts ordered by a retailer, that is regarded as good, but it isn’t if the dealer is left wondering when the other 5% will arrive. A 92% first pick, with the other 8% delivered the following day, might be better, and we look at how long it takes to clear back orders.”

Ashdowne believes most carmakers give a good service, and that it’s dealers who need to improve. He does though criticise manufacturers that do not allow dealers to return parts (some carmakers only take back a part if it costs, say, £150 or more).

Aftersales can make more money

“This means that a repair can be delayed because a dealer will not order a part on the probability that it will be the correct one,” says Ashdowne. “Some dealers manage their stock appallingly, and the battleground in parts distribution has moved from what manufacturers can do to the efficiency of retailers.”

Aftermarket Solutions surveyed 175 dealerships, with a total of nine franchises, over a number of years, and found their stock management was poor.

“Dealership parts departments are not glamorous and have been neglected for a long time,” says Ashdowne.

“Often there is no effective performance measure, as there is on profit from car sales. That’s odd, because aftersales can make more money. Too many dealer principals are not at all parts-aware – a lot haven’t a clue whether their parts department is working well or not. It needs people to concentrate on chance to the profit and cost-cutting opportunity.

“ It’s about thinking smarter, not stocking more. Most parts departments overstock because of indifference – no one is interested,” Ashdowne adds.

Chris Wright, managing director of Skillweb, which develops and installs computer systems for transport companies, believes the challenge for improving distribution lies heavily on the shoulders of third-party logistics companies.

“Historically, their contracts have been inflexible and driven by price, with no profit incentive to provide more than a straightforward service,” says Wright.

“A customer-centric approach is the way forward, whereby both supplier and logistics provider have an open partnership, with common targets and total visibility. From the outset, both need to agree that the delivery promise is paramount.”

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