Aftermarket demands forcing more production to North America
Inventory management and just-in-time management carry their own set of constraints, says David Illes, automotive and heavy-duty aftermarket sales executive of Standard Motor Products. Consider the different product availability requirements between operating an oversized truck and servicing lighter vehicles. Aftermarket Business World asks Illes more about the evolving supply chain segment and the fast-approaching electrification era.
Now that the pandemic is officially in full remission, what key best practices for inventory management and logistics impressed you the most?
As for “lessons learned” concerning inventory management and logistics, it has become abundantly clear that we must have clear and consistent communication with our customer’s planning teams. The unexpected has become the expected in this current environment. And the better insights we can feed to our operations and planning teams, the more tremendous success we will have at fulfilling our customer’s expectations related to service levels.
Are we over-reliant on just-in-time (JIT) manufacturing that carries the risk of stockouts?
JIT has made a bigger impact on the OEM side of the business during the pandemic. From an aftermarket perspective, the issue is more about the reliance upon global supply chains that impact finished goods and components needed for North American production. During the pandemic, the real impact was the need for many companies to preserve cash by maximizing inventories — creating a JIT environment for the aftermarket early in the crisis. However, as the market quickly recovered in mid-2020, these lowered inventory levels impacted global production and availability to the extent that the 2021 impacts — high demand mixed with logistical challenges — are leading to the need to focus on near-shoring and moving production from Asia to North America, specifically Mexico.
How is the heavy truck aftermarket unique in its inventory management requirements compared to cars and light-duty trucks?
Heavy-duty inventory management is different because of the need to have the part positioned to address an emergency breakdown quickly and efficiently. Whereas consumers drive a car or light truck, you can mitigate the potential personal costs of a breakdown by working from home or ride-sharing to get to work. There is a financial risk, but options are available, including “bumming” a ride from a relative or friend. On the other hand, a breakdown in the heavy-duty market can have serious financial impacts. We see a need to have a deeper product assortment downstream that creates a higher level of availability but conversely that increases inventory carrying costs. Lastly, the inventory needs to be not only on the distributors’ shelves, but the heavy-duty service provider also carries a more extensive inventory not commonly required by an automotive provider.
What do you foresee in the future of delivery services?
Electrification will come to the heavy-duty market more quickly than to the car and light truck aftermarket. There remains some debate on the practicality of trading freight carrying capabilities with the higher weight ratio of today’s battery units. Coupled with developing charging infrastructure, there remain many challenges within the long-tail segment of the heavy-duty industry. We will see last-mile delivery experience electrification more readily as the range and carrying capacity is more flexible to accommodate the needs of local deliveries. There is still some debate if hydrogen or fuel cells can provide a more accommodating environment for long-haul uses. But infrastructure will challenge us. As we’ve seen with many other technologies lately, technology and cost are converging. Perhaps so, the bulk and cost of today’s batteries will provide efficiencies that will lead to rapid adoption.
Given intense discussion around the final-mile delivery, ease and convenience, explain what your customers want you to know.
Customers want to know how they can play in the final-mile market. It is incredibly diverse, as it offers an opportunity to both automotive and heavy-duty distributors. There is diversity, as you have owner-operators who have the flexibility to service their vehicles where they choose. In addition, it is not necessarily a dealer-driven business. The applications place them in the class 2-5 vehicle environment. The game changer here is the speed at where electrification overtakes internal combustion engine technology. Many of the largest fleets, from Amazon to the US Postal Service, have placed bets on new electrical vehicle deliveries coming in the next three to five years. This will have a large impact on the replacement cycle of parts needed. Our customers want and need to know how they will service this new breed of fleet vehicles. Training will be a key component. The winners will be those who leverage their engineering expertise in becoming first-to-market suppliers and offer product and technical training needed for these novel technologies.
