Clues about efficient inventory models inside the aftermarket lay scattered across the text. It seems to Pete Kornafel that as new items jump into the marketplace, it takes years for the older units to exit. Or, as sketched out, the product life cycle resembles a turtle's shape.
What students of the automotive aftermarket can anticipate in his second book, Inventory Management Volume 2, is a refreshed outlook promising "new best practice techniques that have been developed or envisioned in the past 15 years."
Kornafel, a celebrated industry insider with varied business interests and a zest for quantitative analysis, has tirelessly harmonized the science of the optimal product mix to align with the local car park. If assorted properly, declares the industry credo, the buyer should locate the part at the right place at the right quality at the right price.
Yet when confronted by stock-outs and longer lead times, perceptions change attitudes. The author, who once planned models at Ford Motor Company, managed CARQUEST before the Advance Auto Parts buyout and then ran a computer software company, lays bare the financial impacts between a well or poorly organized merchandise assortment.
Inventory Management Volume 2 dangles an implicit contract for the reader. Category managers, supply chain directors, or even investors analyzing this trade who read it through will be grandly rewarded. Because of that reason, his candor makes a delightful payday for those who willingly undertake a lesson in calculating goods through the supply chain. Kornafel's commentary from e-commerce to vehicle telematics to shared mobility spares nobody, including a shot at Tesla Motors.
But don't be fooled by this 182-page volume as a leisurely read.
Part one unloads heavy detail on demand forecasting, product assortment creation and ideal purchasing situations to enhance profits and reduce overstock. Further along, we learn why the monetary stakes are high in one of the few deadline-driven trades where the repair shop requires 30-minute delivery lead times. Compare this to broken household appliances, service appointments and parts deliveries can take weeks. What bedevils Kornafel about the moving inventory target is that on average, 33 percent of a store's inventory is off the mark. He attributes this phenomenon to poor visibility into real-time evidence.
Managers who compute internal unit sales history to decide what to stock are working against themselves. To stay apace with the data-fueled retailers, external inputs shouldn't be overlooked, advises Kornafel. This is hardly groundbreaking news. Most of Kornafel's advice appeared earlier in his first book, Inventory Management and Purchasing, in 2004. Today it is common practice for registered vehicles by age, replacement rates, and network product usage streams to be aggregated onto a server. Epicore, a software provider that Kornafel credits, has been selling its package for years. Smaller firms like Aftermarket Analytics promote inventory optimization queries to bridge the gap between the supplier and the repairer segment right down to the ZIP code.
What's new about the external data circulating in a universe of millions of part numbers is what to trust. A small store can accommodate about 25,000 SKUs to attain 75 percent market coverage. Yet, in a world of predictive analytics, Kornafel metaphorically yearns for a set of binoculars to peer inside the service bay. "I always wished I could access and correctly aggregate the actual work order data from our repair shop customers. It would offer a wealth of intelligent detail. It would show parts installed — to be counted as actual demand. It could be used to diagnose parts sold on one job — for a ‘market basket’ approach to make sure we stocked all parts necessary for a job."
Keeping proactivity in mind, he introduces several calculations to add, remove, and rank product categories. The formulations are complex and occasionally daunting when he expands the weighted measures to neutralize bias in the selection process. A proper computation from there, he hints at, could lead a software programmer to replicate the template to larger stores or hub-like geographies.
However, prioritizing items by unit movement in annual batch resets doesn't always yield profitable returns. Broken into two concepts, Kornafel suggests a practical solution by first pegging each product to operating income. Overlooking handling and carrying costs from the forecast is uneconomical. A $2 unit takes equal effort to transact and replenish as a $200 item does. They require additional "weights" that the classic gross margin return calculus excludes from its equation.
Secondly, perpetually adding and removing products in smaller batches daily instead of annual resets reduces the laborious activity of manhandling extensive inventories. Summed up in Kornafel's opinion on operating profit, "using OPROI will achieve maximum profit for the stores and still give service levels that achieve customer satisfaction."
How intriguing, if not generous, that Kornafel offers grist for the next generation of entrepreneurs amid soaring e-commerce sales. AutoZone and their big-box peers have an edge in the merchandise space to untap sophisticated technologies. Relex Solutions, a retail optimization software provider, signed up the $12.6 billion moneymaker in 2019 to provide them with a continual product planning model that has placed them in a league of its own.
Is he teasing aspiring software designers to merge disparate analytics with big data to aid the smaller brick-and-mortar stores that cannot stand up to a 5,000-outlet company or fulfillment platforms operated by Rock Auto, eBay, and the like?
Approaching the final stretch, gratification arrives. Notably are Kornafel's insights on industry tailwinds generated in part by the rise in aging production models. However, the longer-term future presents an unresolved conflict: the maturing vehicle-to-vehicle connectivity that has transformed the car into a rolling smartphone. "The aftermarket really needs to win the legal battle underway now to make sure the car owner can connect his vehicle to any service provider he or she chooses," he notes.
Interestingly, Kornafel expresses puzzlement over Tesla Motors' outsized market capitalization in a tiny electric vehicle segment. EVs that make two percent of 280 million autos nationwide have raised skepticism about adopting this technology. He questions how the dealership will overcome concerns about high battery replacement costs when they inevitably expire. Or that a vehicle will encounter drastic range reduction in extreme temperatures. He wonders who will own our cars and trucks if shared mobility reaches critical mass. Those worries spur more significant unknowns about the magnitude of the potential free-fall in revenue in the service segment.
Now in Kornafel's current act as a partner at the Schwartz Advisors, a consultancy, he assures his audience that the aftermarket is not facing its final curtain call. Perhaps for the remaining 2020s, as the industry plugs along, Kornafel might produce sharper opinions as this group defends its rightful place in the car park.
