AMBW Q&A: Pete Kornafel shares his vision on the state of the aftermarket
Pete Kornafel encourages collaboration, because he believes that close trading partnerships between the merchant and the supplier will benefit both parties further than a mistrustful one. Earlier this year, he published Inventory Management Volume 2, which reinforces that aspiration. Most of his ideas, Kornafel says, come from conversations and sometimes from trade publications. With a long history with CARQUEST Corporation and the University of the Aftermarket Foundation, this management advisor has seen an evolving industry since the 1960s. Kornafel fields our questions about his book and what the theme suggests for the 2020s.
What inspired you to write Inventory Management Volume 2, and what did you expect to achieve?
The state of the aftermarket, particularly in using external data to forecast demand for aftermarket stock keeping units (SKU), has advanced considerably in the 15 years since I wrote my initial book, Inventory Management and Purchasing. The availability of far more data has greatly improved part type “lifecycle” charts and the availability of robust cloud computing horsepower has enabled much larger databases.
One large project I observed did weekly computations to “score” more than 30 million SKU-specific combinations to find the best items to recommend for addition and removal at specific stores. That took a good chunk of one Saturday on a large Oracle database processor. And with all the unexpected changes from COVID-19, it seemed appropriate to try to do some observations about short and longer-term trends for the aftermarket.
Inventory management must work hand-in-glove with logistics and supply chain. Explain how you incorporate this approach.
I feel that the task of assortment planning — what to stock in each location — is a critical skill needed at the store level, as almost all SKU unit-of-measures are stocked by “each” or “one per car quantity.” With daily replenishment, stock depth is not a big issue at stores.
However, at the distribution center level, forecasting and purchasing computing and placing purchase orders is more critical. These tasks require distinct and different data and skills, even though they are combined with one person or a department in smaller companies. I tried, probably not very successfully, to make these points in my book.
What challenges or trends do you see in solving inefficiencies that the industry is not picking up on?
There’s an incredible lack of collaboration between suppliers and distributors. Some of it is due to a lack of trust and unwillingness to share confidential data.
But I’ve consulted suppliers who have access to the Big Four and program group data warehouses and still don’t use that data or try to work collaboratively with major customers.
COVID-19 caused several minor disruptions to supply. No one knew how to respond. In many cases, some companies overreacted, fearing a much more significant drop off in sales than what occurred. So, in some ways, we became our own worst enemies and made the situation worse.
There has also been a huge deficiency in supply chain risk assessment and risk management. In my past life, I kept a calendar with the union contract expiration dates of every major supplier. We often purchased extra quantity ahead of that to mitigate any risk there would be a strike.
Now with a broader global supply base, the risks are much more expansive. Regional conflicts have screwed up suppliers in Turkey. There have been big disruptions from the whole political situation in China. There have been occasional shortage of containers or container ships. I’m unaware of anyone in the aftermarket who is really an expert in diagnosing and planning for these kinds of potential disruptions.
What are the major themes in conversations with industry leaders these days?
Conversations about the lasting effects of COVID-19, for example, have prompted some to ask how long it will take for miles driven to recover and resume a long-term growth trend.
2020 saw a slight, and possibly temporary, mix shift to the do-it-yourselfer (DIY). One example is that more vehicle owners preferred to do their oil changes rather than have a stranger touching everything in their car at a Jiffy Lube.
That helped AutoZone and O’Reilly much more than NAPA and all privately held distributors who have a large mix of the do-it-for-me (DIFM) segment. It might take a while for this dip to get erased and return to a long-term steady shift from DIY toward DIFM.
Are you on the lookout for better technologies?
Always. It will be interesting to see if we can learn what AutoZone will do with their new relationship with Relex to expand and improve their assortment planning and inventory replenishment processes. And it will be interesting to see if they continue to expand daily replenishment to more of their stores and build hubs and super hubs, both to increase their DIFM mix.
Most suppliers still offer “new store” deals and discounts, so O’Reilly, AutoZone and Advance can make a profit on greenfield new store openings.
It also helps their “same-store sales” as they count a store in its 13th month. The 13th month versus month one is usually a big upward bump in same-store sales. Having 100 more new stores each year might contribute a one-half point or so to their comp sales number. I’m not sure what the maximum number of stores might be for those majors. It’s frustrating to see small towns of 6,000 to 8,000 people with a half-dozen parts stores.
