Supply Chain Dynamics
“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
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.”
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.
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.
© Copyright 2011 Key Communications Inc. All rights reserved.
No reproduction of any type without expressed written permission.