Friday, November 18, 2011

Dream 3PL Checklist for Farming Out Your Supply Chain

In the old days, an automotive service-parts third party logistics (3PL) provider looked a lot like public warehousing that the rest of the world was using. They provided a network of bricks n’ mortar warehouses with labor. Your suppliers shipped to them and they shipped to your customers. The business case compared your bricks n’ mortar to theirs and your labor costs to theirs. If they saved you enough money, well, then you might “outsource.” Some companies have specialized in outbound transportation, where they have great DDS route-building algorithms. They have site managers who take on the day-to-day carrier coordination. They have teams who negotiate carrier rates and break-bulk costs. Lately these companies have been offering collaborative savings to multiple OEMs. Other 3PLs offer IT solutions and process control solutions. Kit building, receiving inspection and consolidation, small parcel management are a bunch of other add-on solutions.

The landscape is very 1950’s. Lots of players, lots of redundancy, lots of bits and pieces to manage. It is very sub-optimal. So were those 8 mpg gas-guzzlers in the 1960s. 3PLs must evolve, and when they do there are some serious costs to be saved by all their customers. Here’s my evolutionary checklist:
  1. Not My IT. Putting in new enterprise supply chain systems costs tens of millions of dollars and takes years. You do a comprehensive requirements definition and supplier selection process and then buy an SAP variant that doesn’t work very well and costs a fortune more than the fortune you budgeted to integrate it all. Why not use a 3PL that bought that Cadillac SAP system for all their customers to use? Why not use it on their mainframe? Why not use mostly their people to run it? Why not use our own people just for the mission critical stuff like lifecycle planning and forecast parameter setting? Why not depend on the 3PL to hire the integrators – on the cheap – to build the interfaces to the sources of our data? There’s a 20% return on sales business here for the integrators that smells a heck of a lot better to the OEMs than typical software value-creation pricing policies.
  2. Not My Lean. Who cares about process classification when it’s really all about cost and quality? Too many do, who shouldn’t. Lean really is all about lean costs and robust quality. So, I really don’t care about those process control boards, Taekwondo cards, and “no fear” existential slogans. Why can’t I just go out and buy this stuff and harvest the benefits in less than a lifetime.
  3. Not My Depot. Who cares about dedicated warehouses and dedicated bins for “my” parts? If Vintage Parts can be world class with hundreds of thousands of commingled part numbers, then so can a mainstream 3PL. We need to focus on cost and quality rather than the accouterments of where each part dwells. Damage, cycle time, fill rates, and cost as a percent of sales.
  4. Not My Carrier. Who cares if DDS routes have multiple OEMs on them? When I go to my Chevy dealer for service I could care less about the truck that showed up at 2AM to drop off fresh parts. Nobody cares. Collaborated, consolidated, customer delivery is not a nice-to-have, it should be a basic requirement. The same goes for inbound. By the way, who really cares about logos on trucks? Get rid of them.
  5. Not My Break-Bulk. Who cares if these collaborated consolidated customer deliveries originate from a collaborative and consolidated break-bulk facility? Nobody. These facilities should, also, be receiving consolidated supplier drop-ship orders for the DDS routes, as well as referrals … and small parcel orders for criticals where we can still make the OTD work.
  6. Not My Returns Processing. Who cares if everybody’s dirty warranty returns and obsolescence returns share the same aisle? Nobody should.
  7. Not My Follow-up and Expediting. If we can use a third party to process our invoices and charge our suppliers a ridiculous line-item charge for this, well, why can’t we farm out all of our post-ordering activities to make sure the stuff arrives in time for the customer order?
  8. Not My Export Packing and Freight Forwarding. The best we’ve seen here is Volvo out of Sweden. However, this is an area where few others shine. Why can’t 3PLs offer a blanket supply chain service that wraps around some areas of distinctive incompetence? Why is this an afterthought?
  9. Not My Reman. Why can’t 3PLs offer an integrated service for all the stuff that aftersales is supposed to be doing well. Why can’t we get a 3PL to understand that reman is big money and represents low-hanging fruit? Why haven’t we seen a credible “LRP” – Lead Reman Provider – come in and knock our socks off?
  10. Yes, My Metrics! Why do 3PLs constantly play 3-card Monte with the metrics? Why can’t they simply adopt NAPB metrics and report their performance in the universal language of motor vehicle supply chain? Why not use a consistent report card that spans all players in the market?

Friday, November 4, 2011

Why I Don’t Believe AutoMD Can Claim a 57% Variance in Auto Repairs for the Same Service - by David Carlisle

I pulled this off the internet: "New auto repair quote service, AutoMD Negotiator, reveals that Minneapolis vehicle owners can overpay $341 on average for vehicle repair. … A new, national report by reveals that Minneapolis car owners are potentially overpaying by 57% on average on car repair" (

Ultimately this news plug was all about US Auto Parts Network, Inc., who owns AutoMD Negotiator, selling more parts. “57%” is awfully precise. Let’s take a look to see if they are worthy of this precision. Bottom line, they are not.

We have done extensive research on emerging digital service customers (EDSCs) over the past several years. About one third of all service customers are EDSCs – service customers who use the Internet to research motor vehicle service options – and about 40% of these switch service providers based on their research. They switch, but do not emerge more satisfied.

The reason for this is due to the low quality of the information they get from the Internet. Like Auto MD Negotiator. Let me explain.

The AutoMD Negotiator claims that their service is the solution to consumers’ price shopping quandary: “We call shops and negotiate for you, so you won’t overpay for auto repair.” In a nutshell, here’s how the Negotiator works: the user enters his vehicle and repair information, receives quotes to his inbox, selects one and schedules an appointment – all without picking up the phone. One of the charts in the AutoMD propaganda piece showed price quotes for a Saab in Minnesota – Saab is nearly bankrupt and primarily a Northeast niche specialty vehicle. To find out more, we went online and used AutoMD’s Negotiator. We submitted a wheel bearing replacement for a 2000 Hyundai Sonata. In a few hours, we received three quotes for the repair in our inbox, all from independent shops or chains, ranging from $450 to $611. As you can see in the chart, none of these quotes passed the laugh test. For more data points, we entered three more repairs. After receiving more quotes back from the Negotiator, we decided to call all the shops directly for quotes to see how they would compare. Three out of the eight quotes (37.5%) we received from the Negotiator were equivalent to the quotes we received when we called the shops directly – one of these three quotes was the same, but for 2 bearings instead of one. So far in our experiment they score two out of eight – 25%.

It appears that sometimes the Negotiator actually called the service provider directly (in the case of the chain franchise), but they never revealed that they were calling on behalf of AutoMD. Other times, it seems that they didn’t call at all, because surely they would have been told, as were we, that the shop didn’t perform those types of repairs. We called up AutoMD pretending to be a shop. We asked how we could sign up to be considered for the Negotiator. As it turns out, there are no fees or surcharges for service providers that want to be listed on AutoMD. Furthermore, there are no requirements for service providers who wish to be listed. Shops are asked to provide basic information, but there is no certification process, at least according to the person we spoke with.

When using the Negotiator, there are no selection criteria besides price – and sometimes the cheapest is the cheapest for a reason. When entering a repair request, the Negotiator doesn’t allow the user to restrict his search to certified providers or specify whether he would like genuine parts. There is no option to filter for providers that offer loaner vehicles or other conveniences, which are critical for those of us who only have one vehicle or who need Wi-Fi to check email when waiting for our vehicle during a workday.

The Negotiator claims to save users time and money, but without a robust process for collecting service provider information, how can the user be assured that the service provider selected by the Negotiator is a legitimate business? Based on our phone calls, the Negotiator also missed the boat on some crucial information; imagine a customer’s frustration if he showed up to an appointment scheduled through the Negotiator, only to find that the selected service provider can’t perform the needed repair. Or, if the user’s repair was performed by someone who is unqualified and/or puts a junk part in his car. At the end of the day, finding the lowest price is not the same as finding the best value, but it seems the Negotiator is not programmed to understand this distinction.

Bottom Line: AutoMD Negotiator is fatally flawed and should die from a thousand cuts. The first “cut” is from a meat cleaver – using a call center to call up service shops for a self-diagnosed repair is just plain silly. If the intent is to help customers find the best price for the service they want, you really need to start with what they want. Do they want cheap? Do they want quality? Do they want amenities? AutoMD Negotiator is like Nextag’s pricing of squirt guns. The price range is from $10 to $2,107. The “Miller 198130 Water Cooled MIG Gun” with quick disconnect represents a price variance of around 99.5%. Or, it might be a heck of a lot better squirt gun. Or, it might be a mistake and not a squirt gun at all. If you want to compare prices for automotive service, you need to do a lot more work than AutoMD does.