AUTOMOTIVE FOCUS GROUPS:

Transcription

1 AUTOMOTIVE FOCUS GROUPS: COLLABORATIVE PROCESSING TO DRIVE A WIN-WIN IN SUPPLY CHAIN AND PERFORMANCE ANALYTICS: LASTING, IMPACTFUL CHANGE FOR AUTOMOTIVE SUPPLY CHAIN Mike Cole VP, Supply Chain Solutions / Inmar Jeff Johnson Supply Chain Performance Analytics, Auto Team Lead/ Inmar

2 The impact: 97.5 percent of warranty returns are NOT QUALITY RELATED Total warranty at wholesale $3.53B in 2013 Source: AASA 2.5% Percent attributed to actual quality/defect 117.7M Parts returned annually *If the average cost per item is $30 Estimated 2.9M Are more than likely actually quality driven The variance in alleged defect and actual quality returns is near 114.8M units Source: Industry assumption cost per item for hard part at $3.53 billion Source: million parts x 97.5% preventable 2

3 The impact: Transportation cost and sustainability For 114.8M parts returned annually Extra 57,400 hauls transporting product that could be on a retail shelf or newly installed in a vehicle. 2,000 parts per truckload # of Hauls 57,400 Est. Fuel Consumption (MPG) 6 Avg. Miles/Haul 300 Carbon/US Gal of Diesel (KG) 2.77 Miles/MPG x 2.77KG per gallon Industry Carbon Footprint for "Non Quality" Alleged Defect Returns 7,949,900 KG 17,526,529 Lbs Source: Equivalent to a 100-passenger commercial flight traveling from earth to nearly 40,000 miles past the moon Source: Industry standard 2,000 parts per truck against million parts 3

4 The strain of warranty returns Suppliers and distribution partners are identical Transportation Storage Handling / quality review / labor Sales time Credit issued / warranty not paid Customer service Disputes Training / marketing Lost profit Cost of goods SUPPLIER DISTRIBUTOR / RETAILER Source: AASA Special Summit on Warranty 4

5 Visibility into retail channel partner s warranty burden Total net sales from four of the big five 2013 $23,899, $22,634,998 To topline revenue *in Thousands Warranty reserves % $149, % $141,166 Source: AAP, AZO, ORLY, PBY 2012 & 2013 Annual Reports Source: AAP, AZO, ORLY, PBY 2012 & k Reports Warranty reserves Over the past two years, for every $1 at the register retailers are missing out on nearly 2/3 of a penny % $23,749, % $22,493,832 Warehouse distributors segment reserves could total $315,000,000. Source: 2014 AASA Vision Conference 5

6 Visibility into retail channel partner s warranty burden Assumed retailer/wd reverse logistics costs for warranty hard parts returns Retail/WD segment $15M DC costs $6.3M transportation $3.2M other costs $24.5M * Excluding costs associated with destroy-in-field policies Source: Inmar independent research RETAIL/WD TOTAL WARRANTY COST $490 Million 6

7 Not my problem: Why should you care? If you re thinking The warranty rate is low. It may be consumer or bottled products. Off-invoice warranty rates cover costs. The product is inexpensive with little or no labor claims. You should consider the possibilities Reducing/understanding. HIDDEN/admin costs. Finding asset recovery potential. Analyzing product condition and root cause of returns to intelligently support your built-in costs. You may actually be overpaying! Improving supply chain handling practices. Source: AASA 7

8 What does collaboration look like? Auto parts Retailers/Shops Auto parts or WD DC Return to stock SCAN Dispose/scrap Auto parts retailer corporate Retailer or 3 rd party reverse supply chain Supply chain performance analytics Data Recall Return Data Auto parts manufacturer corporate Return To Vendor (RTV) - Remanufacture RTV-validate and xcrap RTV-MFR inspection and disposition 8

9 Collaboration elevates financial performance for the entire industry Collaborative processing advantage Overall cost reduction to process Distributors/Shops Increased category margins Improved trading terms More transparent reporting Expedited cycle time with active period processing Data-driven improvements Suppliers Increased category margins Confidence and peace of mind Better business decisions Customer satisfaction 9

10 Prior to collaborative processing Gates returns were scrapped through the retailer s reclamation process. Gates credited channel partner based on agreed upon terms and policies. After six months of collaborative processing Gates has realized opportunities to recover 4 percent of returns as eligible for return to stock. For every $1 Gates invested into the current collaborative processing model they have generated $1.20 in return in 6 months. Gates has used data analytics to implement process improvement changes to product manufacturing and packaging. Gates refined understanding of their warranty returns has impressed their collaborative trading partner; the two channel partners continue to adjust their partnership policies for everyone s best interest. 10

11 Top offenders: What parts are driving your return rates? Gates now has this level of visibility into activity with specific parts and categories. 11 Source: Gates Corporation

12 Condition analysis insights = opportunity Timing kits Water pumps 100% 50% 0% 100% 80% 60% 40% 20% 0% 97% 21% Parts missing Film Broken Parts Missing 98% 3% 1% Contaminated OEM Gasket Missing Gates used Inmar s analytics to help quantify warranty abuse and provide insights to show that original assumptions were incorrect. Tensioners 100% 50% 0% 99% 4% 0.2% Contaminated OEM Gasket Missing SOURCE: Inmar Analytics 12

13 OE / competitive brand water pumps and tensioners contribute 3 percent of YTD warranty spend $ spent on other makers parts returned to Gates Water Pump Tensioner 3% of YTD warranty spend $0 $5,000 $10,000 $15,000 $20,000 $25,000 Other product makers experience as high as 22% - 30% 13

14 Asset recovery distribution Dispositions % of total volume % of total part type Volume return to client 4% 96% Destroy Return to Client client 10% 8% 6% 4% 2% 0% Tensioner 1% Timing Kit 9% Water Pump 2% Tensioner Timing Kit Water Pump YTD trends indicate that 4% of returns are recovered as eligible for return to stock Timing kits seem to be 6x more likely to be returned in new/uninstalled Source: Inmar/Gates six month business review condition than tensioners and water pumps 14

15 Let s explore what s missing We are not alone other industries face these challenges What they do: Metrics in place to quantify results/losses Industry benchmarks for competitive comparison Agreement on policy related to costs of returns for both sides Collaboration between channel partners Source: AASA You are here 15

16 Learning from another industry Consumer Product Goods manufacturers have had great success utilizing supply chain performance analytics to develop returns policy: Manufacturers have been successful in reducing their overall industry unsaleables rate by nearly half over the past 10 years by negotiating policy terms. Source: Inmar Supply Chain Performance Analytics studies 16

17 The key to success is that both trading partners understand that there is shared responsibility when it comes to returns. 17

18 Data drives successful benchmarking 750,000+ shipping containers assessed consumer units reviewed 500,000, ,000, , ,000,000+ consumer units included in benchmark application 70,000+ retail store studies unit loads analyzed 2,000+ retail distribution center studies 10,000+ Source: Inmar Supply Chain Performance Analytics studies 18

19 What a benchmark initiative should include: Access to data from thousands of audits Information on unit load conditions, shipper conditions and consumer unit damaged and expired Aggregated industry data for direct comparison benchmarking Drill-down data analysis Year-over-year trending Exportable, high-impact graphics Nested data analysis to tie together data points Geographic specificity of issues Visibility to industry adjustable rates Historical performance of package type by channel or season Theoretical rates are available for setting adjustable rates 19

20 What a rigorous benchmark initiative gets you: Access to timely data Convenient snapshots of important data Insights to improve forecasting and budgeting Directional data 20

21 CPG Unsaleables: client retail shelf trends have decreased 50% nearly The Automotive Aftermarket can begin to evaluate policy strategies that derive from insights into characteristics of warranty product returned. For example, more insight into: % OE product % Non-brand product % New, not-mounted parts Can all drive improved allowance/credit rates for suppliers and will challenge retailers and WDs to work to improve their handling performance. Source: Inmar Supply Chain Performance Analytics studies Source: Inmar Supply Chain Data

22 What s possible for your industry On product inspection alone: 117.7M parts returned each year 4% * volume return to stock 4.7M eligible for RTS ($30 per part average) $141M gain to the industry *Many manufacturers have much higher unrealized RTS rates If current warranty spend Is: $ 5M $10M $20M Industry ($3.53B) Return to stock (4%) $200,000 $400,000 $800,000 $141M Not my part (15%) $750,000 $1,500,000 $3,000,000 $530M Warranty Reduction (17.5%) Supply Chain Improvements (17.5%) $875,000 $1,750,000 $3,500,000 $617M $875,000 $1,750,000 $3,500,000 $617M Potential Future Picture $2,300,000 $4,600,000 $9,200,000 $1.624B 22

23 The key: Collaboration with trading partners for a win-win Bring industry partners together Adapt process flows Data visibility initiatives Returned product handling Warranty reduction initiatives Develop best practices 23

24 Mike Cole

25 Click the survey button found on the session page. 25

26

27 AUTOMOTIVE FOCUS GROUPS: COLLABORATIVE PROCESSING TO DRIVE A WIN-WIN IN SUPPLY CHAIN AND PERFORMANCE ANALYTICS: LASTING, IMPACTFUL CHANGE FOR AUTOMOTIVE SUPPLY CHAIN Mike Cole VP, Supply Chain Solutions / Inmar Jeff Johnson Supply Chain Performance Analytics, Auto Team Lead/ Inmar

28 Our Mission Mission: Create a plan to leverage performance analytics to yield significant improvements in the auto industry across the supplierretailer value chain MOMs Top three issues facing the auto value-chain identified All threats and resources identified A high-level plan of how performance analytics can help drive improvements within the issues facing the industry 28

29 Mike Cole

30 Click the survey button found on the session page.

31