Volume 13, Issue 4 - July-August 2011

Supply Chain Dynamics
inside distribution

“On-Demand” Service Issues
by Dino Lanno

Running a supply chain is a costly endeavor in today’s auto glass replacement market. The American public has increased its demand for service not only from a quality perspective, but more importantly, a time perspective. But with more than 8,000 actively sold glass parts to service the vehicles driving around on American roads, having the right part in the right place at the right time can be tricky. In fact, delivering any vehicle glass part at a moment’s notice and having it in the hands of a technician in a matter of hours to resolve a customer’s broken or damaged vehicle is quite an accomplishment.

This “on-demand” or immediate shipping to service customers’ needs requires on-shelf availability, but unfortunately that comes with a cost. The way the auto glass replacement business suffers from high returns causes additional costs pressures.

Rising Returns
Consider for a moment the cost implications of returns on the supply chain. By the time a technician is ready to install glass, the supply chain has invested the maximum amount of expense to get the glass to that point. Unfortunately, jobs are canceled for a variety of reasons, in which case the product must be returned. Those returns can add up to 20 percent of additional supply chain costs.

The most common reason for a return is a mis-specified part. Frequently customers provide the wrong vehicle information when making the appointment; this happens now more than ever considering the many amenities available, including rain sensors, heating strips and so on.

A typical situation is that there has been a breakdown between customer and retailer or retailer and distributor that is not known until the vehicle shows up at the shop, and the problem is identified and “on-demand” service is required. While some simply see it as a cost of doing business, the reality is that in today’s competitive marketplace, this waste erodes profit margins quickly for distributors who rely heavily on efficient supply chains to make a profit.

“By the time a technician is ready to install glass, the supply chain has invested the maximum amount of expense to get the glass to that point.”

Additional Expense
Let’s examine the root of those additional expenses. First, distributor supply chains have to be larger to handle return percentages. There are markets in the United States that operate at 20 percent returns and some that operate at one percent. If a distributor sells 100,000 units in a market that has an average of 20 percent, it needs to size its staff and physical inventory and space to handle 120,000 outshipment units. That is a lot of wasted fuel, warehouse rent and utilities, and driving labor hours, as well as internal picking receiving and storing labor hours.

Another hidden cost in the auto glass supply chain includes defects and broken glass. Every time laminated glass is handled manually, you lose about a half of a percentage point in breakage as a rule of thumb. So when a glass part leaves a distributor and is loaded onto a truck, delivered and unloaded, and then a return happens, that increases the risk. The return causes three additional touch points that add breakage and scrap—pick up, transport and restock.

Reducing Issues
Amidst all these issues, there are ways to reduce mis-specified parts and returns. For instance, shops can identify common mis-specified parts and add qualifying questions for the customer to confirm the right part is selected. For example, on the aforementioned Honda Odyssey, you could ask the car owner if his mirror dims automatically when bright headlamps approach the vehicle from the rear.

In our business, the supply chain has a multitude of customers that include car owners, shop owners, and technicians. Along the value chain, customers’ behaviors and actions can add costs in an impactful way. In the spirit of efficiency and value-added service, there is increasing pressure on today’s auto glass supply chain to operate effectively and
profitably. As customers’ demands evolve, so must the auto glass supply chain of tomorrow.

Dino Lanno is senior vice president of supply chain and manufacturing for the Safelite Group in Columbus, Ohio.

 


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