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