A panel of AASA member company executives discussed key findings from the new AASA/Booz special study, “Your Changing Role as a Supplier,” at the AASA Special Summit, “Steps to Improve Your Margin,” on Aug 26.
Moderated by Paul McCarthy, AASA vice president, panelists included Tim Corcoran, managing director of North America for ZF Services; Kevin Cramton, CEO, CARDONE, and David Overbeeke, president and CEO, Brake Parts Inc.
Overbeeke shared his list of eight things suppliers need to do differently, and talked about cycles in industries in terms of the willingness of channel partners to work collaboratively with their supply base. He predicted a continuation of the recent surge of supplier bankruptcies given the continued pressure for services and on margins.
Corcoran highlighted the tremendous role technology and generational change will have on the needs of the aftermarket’s end customers. He emphasized his belief that the pendulum has begun a slow swing back to suppliers. Suppliers can have stronger bargaining power – if they change how they act and the value proposition they offer.
Cramton addressed the impact of increased customer leverage on the role of the supplier. He noted the tremendous inefficiency of the aftermarket value chain compared to other industries in which he’s worked and the enormous profit opportunity for the industry in improving that.
Also on the Summit agenda was a presentation on the do’s and don’ts of retail price management by Brian Schneider, associate, Arent Fox, and a candid discussion of warranty in the aftermarket led by Bill Hanvey AASA vice president
Schneider noted that manufacturers have been using price management effectively to reduce channel conflict and promote the growth of their premium product sales. Retail price management includes minimum advertised pricing (MAP), manufacturer’s suggested retail price (MSRP), Unilateral/“Colgate” Plan, Resale Price Maintenance (RPM) Agreement and Agency/Consignment.
He explained that MAP pricing is difficult to manage for companies with thousands of SKUs in their product line but there are third party companies that specialize in managing it. MAP most effectively uses some type of incentive tied to co-op advertising, which encourages retailers to maintain pricing in order to receive the coop funds.
Other advantages of MAP are reduced intrabrand competition, particularly for price-cutting retailers, and the emphasis of product quality/promotion over price, Schneider said. However, MAP’s risks may include: implied agreement, the facilitation of agreement among manufacturers, facilitation of agreement among resellers, loss of price-sensitive customers and the cost of monitoring and enforcement.
Hanvey gave an impassioned plea for industry collaboration and cooperation in his presentation, “Alleged Defective Warranty Returns: Turning Waste into Margin.” He noted that the recent AASA Pulse survey showed that the average warranty rate for suppliers was 2.6 of sales which equates to $3.5 billion at retail. According to the survey, 97.5 percent of the $3.5 billion is not due to product quality – meaning it is preventable.
Warranty has been an issue for hard part aftermarket suppliers and, despite individual and industry efforts to combat it, warranty continues to rise, Hanvey said. Each chain in the aftermarket is affected by warranty and it is up to the suppliers to provide a solution for collaboration. He provided different examples of efforts in other industries and by aftermarket suppliers to educate and train end consumers, ranging from better instruction sheets to the purchase of an extended warranty.
Hanvey announced the establishment of a new AASA supplier task force to address warranty. Several member companies have volunteered to participate. If you are interested in joining the AASA Warranty Task Force, contact Bill Hanvey.
AASA Webinar: Your Changing Role as a Supplier
The AASA / Booz report, “Your Changing Role as a Supplier” will be discussed in a Webinar open to all AASA members in early October. More details will be announced soon. Summit presentations also will be available to all members after the Webinar.
AASA offers a related special report that can aid members in effectively translating new strategies from “Your Changing Role as a Supplier” into execution. The AASA exclusive Special Report from Essential Action Group, “Agile Execution: Driving Strategic Results in a Changing Aftermarket,” analyzes the gap between formulating strategic plans and carrying them out successfully. To view the “Agile Execution” executive summary, click here.
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