Distributors are willing to stay with a U.S. brand, but the manufacturer needs to remain loyal to the brand’s value in order for this to happen, according to the “Distribution leaders panel” at the Global Symposium.
Panelists vow they will remain loyal to domestic product lines, as long as suppliers do not devalue or commoditize their brands. If manufacturers decide to outsource to Asia, however, distributors say they will follow that route as well.
“If our U.S. suppliers today would come in and say, ‘we want all your business. We’re going to do this, and we’re going to keep you competitive, and if you need a price line, we will do that,’ we’d sign up tomorrow,” says Panelist Mike Schultz, co-president of Federated Auto Parts. “The case and the reality is it hasn’t happened yet.
“I think as distributors, the market drives us where we’re going to buy things from,” Schultz says, adding the quality of offshore-sourced product is becoming more acceptable. “We’re all for the suppliers developing more product in Asia and I think we’re all set up and willing to buy from that.”
Suppliers who just focus on price will commoditize their brand to the point of obscurity, say some of the panelists.
“There have been some beautiful brands you don’t hear about anymore or very little about,” says Rollie Olson, CEO of Parts Depot.
He adds: “We prefer to sell the higher margin good branded products.”
On the flip side, drivers of older vehicles are less likely to prefer the higher branded products, says Olson.
Though global sourcing is not a “panacea,” says Robert Blair, president of CARQUEST, “We have to be aware of it; and we have to understand how to manage it if we’re going to attain the true benefits of global sourcing.”
There are global suppliers who are effective and there are some who are marginalized because they may have “backed the wrong pony,” says Blair, who’s also executive vice president of product for General Parts. “We’re the closest to the end point of sale and we’re going to be responding inevitably to the pressures that they feel.” Who’s to blame?
An interesting question was posed to distributors: How much are they to blame for supplier problems such as margin erosion, Chapter 11 bankruptcy and liquidations?
Many manufacturers are suffering from self-inflicted wounds, responds Olson. However, “We are very concerned about the health of our suppliers.”
Though distributors are concerned about their suppliers, Schultz says, “In most cases, I don’t think we’re ready to take the blame.”
Distributors, he says, are driven by the market, and suppliers need to work closer with them. High rates of product returns still plague distributors (and manufacturers), and for Schultz, he often experiences what he refers to as the “REO” plan, which is “returns early and often.” AFTERTHOUGHTS | Quality has its price
“I think the majority of distributors would go on record and say as long as the U.S. manufacturers could answer our needs and do it at a competitive price, we’d much rather deal with them,” says Mike Schultz, co-president of Federated Auto Parts, in a follow-up interview. Unfortunately, he adds, marketing, sales and other forces drive up the prices with reputable brands. And these same drivers are things the low-cost suppliers can do without. “It’s the irony of the whole thing,” he says. “We have to have something low cost to support premium parts.”
Maintaining a brand’s value is not an easy or linear process.
“Every brand has its particular, peculiar and idiosyncratic attributes,” says CARQUEST President Robert Blair, when contacted after the Symposium. “They have to be defined and you have to stay true to that. If you don’t, then you risk erosion of your brand equity and you risk confusing the purchaser (about) what it stands for.”
Another panel topic was cutting back on returns and better managing inventory.
The way North America orders product in itself contributes to high returns, says Blair.
“You sell it out, and you bring it back as part of the business process. In most places, you buy it, you own it.” This environment where nobody has to take ownership is a dragon that must be slain, but it’s also a beast the industry has created, he adds.
Schultz says it’s a wonderful idea to have a system that shows where the inventory’s at and who has it, but the aftermarket doesn’t have a good history of sharing information. “The people with the best systems have a tendency to win.”
Additionally, inventory control varies with part price: “It’s amazing how well they control their inventory for a $300 or $400 part.” |
Blair says lowering a company’s return rates can be accomplished. It just requires accurate data, much better inventory planning systems, better availability of product, and accurate and synchronized data.
“A lot of this excess merchandise is created through acquisition and consolidation,” says Olson. Also, “the data that we deal with is not very accurate.”
Along with proper inventory planning, distributors must also shore up on information technology, says Blair.
“The inventory planning part of our business is going to become increasingly complex,” he says. “Our industry is not very up to date — we’re not, by any stretch of the imagination, on the leading edge. We could be described as being on the trailing edge in terms of the sophistication of what we do.”
“I think our industry is certainly at the early stage of IT when it comes to managing parts, when it comes to managing inventory, when it comes to managing warehouses,” says Jacques Landreville, president and CEO of Uni-Select and another panelist at the event.
The road ahead is bound to be challenging for both manufacturers and
distributors.
Says Landreville: “At the end of the day, I think each manufacturer has to assess on his own merit the ability to differentiate themselves.”
The panelists were also asked which manufacturer services they could live without if push came to shove.
“Cataloging is certainly something that we cannot do without,” says Landreville, who adds he also cannot do without warranties and a sales force.
And what can distributors do to help their service dealer partners?
One solution stressed by panelists is better management training. While technical training is abundant, the industry in general seems to be more in need of business management skills.
“We’ve got to get the shop owners out of the bays and into the office, not just sitting in the office, but understanding what it is that it takes to make money in this business,” says Olson. “I view that as our responsibility as a distributor.”
“We never have a problem filling up clinics for the technical end of the business,” agrees Schultz. “Unfortunately, the people who sign up and show up (for business management training) are the ones that really don’t need it.” |
