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Cutting Costs vs. Selling More by Dan Jondron
The editors of SEMA News were reminded of the classic Miller Lite "tastes great/less filling" debate when, at a recent SEMA Business Technology Committee meeting, a similar discussion broke out about the benefits of implementing supply-chain standards and technology. Two of our leading technology observers seemed to be on opposite sides of the benefits that technology can deliver.
On one hand, Dan Jondron, the president of Advanced Digital Strategies, stressed the ability of technology to help aftermarket companies increase sales. On the other side, Bob Moore, president of Bob Moore & Partners, an aftermarket consulting firm, touted the cost savings that new technology can bring. The argument was so lively that we thought it might make for some interesting reading, so we asked Bob and Dan to engage in a sort of point/counterpoint debate on the subject. Each agreed to make his case in writing. The following are their respective thoughts.
Sell More Stuff! Dan Jondron,[link widoczny dla zalogowanych], President, Advanced Digital Strategies
Efficiency is for MBA wimps, not hard charging SEMA companies. Everybody in the supply chain wants to increase sales. We hear it all the time. And there are a number of ways that technology helps increase sales.
An observation from Scott O'Toole at Motorstate Distributing makes the point. O'Toole said, "I guarantee every one of my manufacturers that if they get their data cleaned up,[link widoczny dla zalogowanych], their sales will go up by at least 10%. With reliable data in our system, no one has to fumble for a price sheet. Our salespeople and our jobbers develop a habit of going to those lines first. It actually creates a brand preference. On the other hand, I see how our salespeople react to lines whose product information isn't easy to access. When it's work to find even a part number or a price, they tend to redirect customers to a different product line. "
Let me share a few examples of how technology can be employed to power up your selling efforts:
Wants vs. Needs-The time lag involved in getting information on new products to the marketplace is robbing our marketplace of too many sales. According to Jim Spoonhower, SEMA's research guru, a consumer will spend an average of $1, 500 accessorizing a new pickup within the first six months of purchase. Thanks to SEMA's Technology Transfer program and OE Measuring Sessions, it's possible for participants to have product data at the counter before the vehicle leaves the factory floor, which is an average of about six months sooner than for those who don't use those services. Neither dealership salesmen nor jobbers can sell products they don't know exist or aren't sure they can get. Keep in mind that accessory products are for consumers who love their new cars and want to personalize them. They are wants, not needs. If these products are not available at the time the want occurs, consumers will spend the money on something else that makes them feel good, and that accessory sale might be lost forever.
Access to New Outlets-I don't mean to pile on, Bob, but there is another way that better technology can help create opportunities for increased sales. At the last Aftermarket eForum in Chicago, I asked the representatives of NAPA, CarQuest, AutoZone and the like what their vision was for performance and accessory parts sales in the coming years. Each spoke about the shrinking sales and the shrinking margins they were seeing with replacement parts. They all spoke enthusiastically about the opportunities that exist for increases in the performance and accessories segment. They like the additional volume that the category offers, and they love the margins. Let's face it, folks, not only are the margins slimmer on replacement parts than ever before, but we're also not replacing water pumps, sparkplugs and alternators like we used to. But they also made it clear that the fast way (and, in some cases, the only way) that they would be selling performance and accessory products was if they were easy to add to their systems. That means that the products are accompanied by standards-compliant data. The big retailers see big opportunities for performance and accessory parts. But they need the suppliers of those products to provide data the same way as their replacement part suppliers.
Many WDs use systems that allocate space for items based on their size. When dimensions are wrong the system allocates too much or too little space based on the error. Neither is good. Similar problems result with retailer store operators.
New Markets Through Existing Distribution-The opportunity for expanded sales is not limited to just selling directly to the national chains. Many of the leading specialty distributors have initiated supply agreements to be a special-order provider to some of the large chains and the national program groups. These unique new supply agreements are very different from the paper-catalog and phone-order programs of years gone by. These new supply hybrids are technology driven. In this new model, the specialty distributor is linking his computer system into that of the retailer. In this way,[link widoczny dla zalogowanych], the counterman can literally link into the specialty distributor's system, check availability and price, confirm shipping date and charges, place the order and make the sale all while the consumer is standing at the counter. These arrangements are all driven by industry standard data and communications, including PIES, ACES and the Internet Parts Ordering (IPO) communications standard
Online Stores-Despite the fact that a large number of early online stores didn't survive the dot-bomb bust of the late '90s, online retailers are still moving a lot of parts and account for a large percentage of the performance and accessory products sold. Just ask Summit Racing, J. C. Whitney, Amazon, Yahoo and Cardomain, to name just a few. These companies need (and are increasingly demanding) clean, complete, standards-based product data. An interesting study recently revealed that only one in eight online shoppers makes a purchase online. That means that seven out of eight are gathering facts, researching alternatives, making product and brand comparisons online, and then making their purchase at a retail store. If your data is not "out there" for them to review, your product is eliminated from consideration for purchase.
Growing the top line of your business is just plain fun and profitable (a lot more fun than "operating" your way to profitability, Bob). Your people get energized when you tap in to a new and growing account. It sends a wave of energy through your whole organization. Imagine if you could find the magic key that would open the door to a major national chain. That key just may be in data and technology.
The Case for Efficiency Bob Moore, President, Bob Moore & Partners
Okay, somehow I've been conned into this debate on the side of improved efficiency. Why do I feel like the guy given the assignment of pitching the virtues of celibacy to a bunch of high-school teenagers? The fact is, everybody loves selling more, and nobody (other than the bean counters) gets very excited about cutting cost. The fact is, technology does both; but while you may come to the party for the increased sales, you will stay for the improved efficiencies when you examine the details.
The primary benefit of technology is its ability to lift the burden of remedial and redundant tasks from people and assign those tasks to machines. Since machines can do that work faster and with greater accuracy, we invest in systems and we get back efficiency. We can reduce or redeploy head count, improve accuracy and generally improve our profitability. But to make technology work, we need clean data fuel. (See "Why Data Matters" for more about why data standards make technology work. )
The greatest money to be found is in cleaning up the data mess we have in our marketplace. I realize that most of you reading this are saying, "What data mess? " Most of you may be thinking, "I run my company efficiently. He must be talking about somebody else's data mess. " But I'm not. The greatest inefficiency that remains in our marketplace is in the gaps between us. We have reached a point in this industry where both our problems and opportunities can't be fully addressed by staying within our own boundaries. Manufacturers must work with resellers; resellers need to work with manufacturers; and everybody needs to do things that get product information in front of more of the people that buy our products. (Sorry, Dan, am I trespassing on your turf of selling more? )
Let me share a few examples of problems that can be cleared up when suppliers and distributors clean up their data and match it between one another. Both can find significant savings: Old Data Lingering in Distributor Systems-After a data-matching exercise between a distributor and one of his suppliers, the distributor discovered that there was significant duplication of part numbers in his system. It seems that his system allowed him to enter new part numbers at each of several branch locations. That had resulted in scores of part numbers being duplicated one or more times throughout the system. Those duplications had not been discovered because the part numbers were different and unique. Some differed only by an alpha prefix or suffix used to identify the vendor. In other cases, superseded numbers had not been purged. One part had actually been duplicated six times-two times as an "A" class number! That literally meant that the distributor was maintaining stock and safety stock on the same part six times over!
Missing or Incorrect Package Sizes-Missing or incorrect data impacts distributor operations when the actual size of a package varies from the data on file. Many WDs use systems that allocate space for items based on their size. When dimensions are wrong the system allocates too much or too little space based on the error. Neither is good. Similar problems result with retailer store operators. Planograms (store shelf layouts) are created based on package size. Inaccurate product size means that a product won't fit a display and results in lost sales until the data is fixed.
Mismatched Minimum-Order Quantities-A recent data-synchronization exercise between a major filter supplier and a large distributor was very revealing. About 30% of the 3, 500 SKUs stocked by the distributor had a mismatch in the minimum-order quantity. That means the buyer was receiving more than he ordered or was ordering more than he needed nearly one third of the time. The buyer made the amusing observation that when he learned about the problem, he spent about a half an hour trying to decide which was worse: buying more than was required or being shipped more than ordered. The answer is: Both suck. In both cases, you probably end up with a disputed invoice (see below) that costs people time and energy. In the end, matching data files between the two will eliminate the problem.
Invoice Reconciliation and Adjustments-One of the great time bandits to trading partners is reconciling invoices and dealing with the deductions and adjustments that result. There are seemingly endless ways that mismatched data results in invoice errors. It might be the result of a part-number supercession that the distributor is unaware of. It may be that more was shipped than was ordered because the distributor was unaware of the correct minimum-order quantity. It may be failure to load a new part that has been special ordered. Talk to any rep or someone in the accounting department, and they will tell you that between 15% and 20% of their time is spent on the unproductive activity of straightening out these administrative nightmares. Again, when data is matched between trading partners, many if not most of these problems are eliminated.
Electronic-Ordering Problems-Perhaps one of the most disappointing aspects of so-called "electronic commerce" is the percentage of time that manufacturers must spend manually manipulating electronic orders they receive to correct bad data that has been transmitted to them. The whole idea of electronic ordering (electronic data interchange, or EDI) is to receive an order and transmit it to be picked without human intervention. Altogether too many suppliers must receive an EDI order, have someone check it for errors (such as those listed above), manually key the corrections and print the order for picking. That sort of defeats the purpose of using EDI.
Speed to Market-Bad data delays getting new items onto store shelves. One retailer reports that it takes him two weeks, three departments and a minimum of five people to add an item to his system. While his company provides vendors with Excel templates for data, most of what it gets still comes by telephone, e-mails, websites, paper catalogs and faxes. The data then must be reviewed for accuracy and completeness and re-keyed by his people.
Delays in Receiving-As absurd as it sounds, most distributors find out about new or changed part numbers at their receiving docks. As people check in merchandise, they routinely encounter a new or superceded part number. The new item has to be set aside until someone can determine what it is, what it is replacing (if applicable) and load the new product information into the system so it can be "received. " This delay prevents the distributor from being able to stock and sell the new product. This is a time-consuming and expensive way to learn about a new number and is completely avoidable if manufacturers get their data into standard formats and regularly share it with their distributors.
The bottom line is that the entire supply chain can benefit from the implementation of technology-not just manufacturers or distributors or jobbers or e-tailers but everyone. Too many of us are rekeying, redoing, reweighing, re-measuring, re-entering, mapping or translating more data than you can imagine. These redundancies are costing us all significantly. Any effort that attacks it and eliminates it is to the benefit of all. Because cost is like water: Regardless of where you take it out of the lake, the level drops everywhere. Taking costs out of the specialty-equipment market ultimately benefits everyone.
The Benefits Firsthand Ed Rammel, the VP of marketing at Dayco, knows firsthand that getting his data into the industry format has made Dayco a better company. He has gone so far as to say that even if he never shares his normalized data with a single customer, the company is better off. His point is that his internal operations have become smoother just by going through the process of becoming data compliant. Here are just a few of the benefits.? Regular audit reports show where data is different from the standard and provide the opportunity to correct problems before "corrupt" data gets in the system.? By establishing one place for entering all PIES data and then sending the standardized information from that point, Rammel assures that corrections or changes are made in only one place.? Communications with customers have dramatically improved on everything from new part introductions to consistency of information on invoices and packing slips, which eliminates many communications and invoice errors.? Internal reports are more accurate and easier to understand. Rammel loves to tell the story that, before data standardization,[link widoczny dla zalogowanych], his company had service items in its line (things that were bought out to complete a set or kit) that manufacturing described as an "aftermarket pass thru. " Those are now referred to by their PIES short description name, such as "light-duty pulleys. "? Common standards have brought the company's departments together and created a common language. It's no longer "your data" and "my data, " it's "our data. "
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