New Information

In a previous post we wrote about the inefficiency of automotive service parts networks.

http://spplan.wordpress.com/2009/05/15/auto-service-part-networks-are-a-mess/

The line of reasoning of the article was that manufacturers were unnecessarily outsourcing the management of service parts too low in the supply chain – at the dealer level and the auto service parts could be greatly improved in their management through a national and regional system of service parts management. Furthermore, that dealers were incapable of creating effective service parts websites and that this function should be centralized as well.

Structure of Auto Industry

What we learned from the book Who Really Made Your Car, by Thomas H Klier and James Rubenstein, is the following:

• 70% of the parts of automobiles are made by suppliers
• Manufacturers are actually now primarily assemblers
• Much of the intellectual property and complex component manufacturing is owned and provided by the supplier / component manufacturers

Suppliers Actually “Make” the Car

Suppliers are producing most of the car and providing many different manufacturers with similar items. This is explained in the graphic below which provides a great insight into the many different places that the car’s major components are coming from. The sourcing pattern seems identical to, although far more complex than that of laptop manufacturers. (although laptop manufacturing is even more outsourced, with contract manufacturers producing HP and a number of other major brands out of the same factory and sometimes the same production line.

From Automotive Weekly

We took the example of one vendor called Dura. A visit to their website demonstrates that they make numerous automotive components, which they sell to many different manufacturers.

Dura’s Part Distribution Model

Dura does not sell parts directly to retail customers, but they do to dealers and independent shops. (however, dealers do have a stranglehold on the industry, and many parts are carried only by dealers) This is one of a number of areas where business are opposed to “free markets,” and instead select tying agreements and monopolistic competition.

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Why Doesn’t eBay Own the Auto Aftermarket?

eBay is the largest service parts database in the world. However, for some reason, eBay is not prominent in automotive service parts. The fact that automotive service parts are expensive, yet only a modest service part market has developed on eBay is an indication that there are significant restrictions to who can get access to parts, and that there are in all likely strong restrictions on part suppliers, as part of their agreements with manufacturers as to who they may sell parts to in the aftermarket. No such restriction exists for computer components, where anything can be found and purchased on eBay.

Even the most esoteric service parts for computers are available at low cost on eBay. For more on eBay and their success in service parts see the link below.

http://spplan.wordpress.com/2007/07/22/parts-databases-and-ebay/

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What This Means For Service Parts Network Design

What this means is that the dealer system for distribution is even less efficient then we originally thought. People are going to dealers to get parts they think are made by manufacturers (Honda, Toyota, etc.), that are actually made by suppliers. All of these middlemen could be eliminated from the system and actually should be. These suppliers are the creators of these components and they should not be controlled by manufacturers, much less have to go through dealers – so dealers or independent repair shops can add an extra markup with no value add – to service parts.

References

Who Really Made Your Car,Thomas H Klier and James Rubenstein, W. E. Upj0hn Institute, 2008

It is always amazing to come upon a technology that is so amazingly underutilized. This would be the case for service parts online databases.

The Story

We needed a door handle assembly part for a 1997 Honda Accord. First we started with eBay, which really had a pretty small inventory. We could only find the door handle assembly for a four door, not for a two door. This was a dealer only item. The trouble began when we started looking through dealer websites for the item. The experience began to get us thinking that the dealer value-add is seriously in question. Dealers are not necessary to buy cars (they could be bought online, but tested at a manufacturer sponsored center in a mall that had just a few models). The care could then be either transshipped from a different location, or simply build to order. However, instead of this we have this medieval auto dealer system that holds massive amounts of inventory so buyers will make impulse purchases “that day.”

Service Databases

When looking through the websites of dealers, it was absolutely maddening to try to navigate them. Most the sites are caught in a time warp and exhibit the worst of web navigation and design. Some of them ask for contact information so they can treat the desire to purchase parts as a “lead.”

San Francisco Honda, like 99% of the dealerships, seem to seriously misunderstand what the web can do, and how it can help automate transactions. Now we will be calling to the dealer, just like we would have back in 1940.

Why Has Online Parts Supply Demand Matching Been Decentralized to Dealers?

Why does Honda allow dealers, who lack the interest or size to develop competent transactional websites to sell auto-parts on-line? Why are Honda, and other major manufacturers, not managing this with a single website and a national network. It appears as if the dealer network (a way for manufacturers to sell franchises and not have to worry about retail, is interfering with the new realities and efficiencies of the web. Automobiles may have to be serviced locally, but there is no reason, with our fast shipping network, for parts to be managed at dealer locations. And especially when a customer wants to order a part, there is absolutely no reason they should have to a dealer to do so.

Its does not have to be this way. The fulfillment could be performed by dealers, but Honda could manage the front-end, much like Amazon.com.

Learning from Amazon.com

The lesson from Amazon is that the web based supply demand matching no longer needs to be performed by the same organization that performs fulfillment. See this article on Amazon.com and how they serve as a supply demand matcher.

http://sapplanning.wordpress.com/2009/05/07/gatp-atp-trees-and-amazon-com/

IT and Monitoring Competence and Fourth Party Logistics Providers

The concept of multi-partner coordination enabled by monitoring tools is a concept in logistics called fourth party logistics and is covered in this post.

http://fourthpartylogistics.wordpress.com/2009/05/23/fourth-party-logistics-providers/

It’s a sad fact that there is simply not a lot of thinking going on in the management of service parts.

Some History on Parts Databases

Back in the 2000 at the top of the tech boom, a company called Aspect Technology was purchased by supply chain software company i2 Technologies. Aspect Technology had developed an extensive parts database and the idea was that i2 would be able to leverage this database to power its supply chain software. The merger ended up being a bust, however it did highlight the importance of parts databases. However, a number of years after, industry does still not have the one-to-many concept of service parts tapped.

eBay the Underdog

One the other side is eBay. While eBay started off as simply an auction site. However, with its growth it has created something else. It is now the largest historical product database in human history. Amazingly, eBay did not have to pay for this database. Instead they were paid to create it. This is not the way service parts databases were supposed to have grown. The old (at the time the new) concept was that part databases would be developed by specialized companies with large hoards of consultants and meetings with tightly managed implementation schedules and so on.

What No One Predicted

No one thought that the most successful parts database would accumulate from transactions from an auction site. The database is an emergent property of the activities are large amounts of people who just wanted to sell their product. The database is no an asset for eBay. It is also an asset for users, but it would be a greater asset if eBay would open the search capability to previous sales that are older than 30 days old. eBay should do this as it would cost them very little and while they claim it at their intellectual property, in fact it cost them very little to develop this database and is most free work on the part of people who created listings with them.

eBay Great for Service Parts Markets That Are Competitive

Even the most esoteric parts are available on eBay…for some products such as computers. However, automobile parts are still limited, which we think is due to tying agreements imposed by auto manufacturers on suppliers. To read more about this, see this post.

http://spplan.wordpress.com/2009/05/23/the-reality-of-automotive-service-parts/