Do you want to increase your OEM auto parts sales in North America? If so, you might tear a page from the playbook of Volkswagen Spain.
The Spanish affiliate of the world’s biggest car maker was losing OEM sales to independent aftermarket suppliers (or IAMs).
The problem was that IAMs could deliver non-OEM parts faster and more reliably. They also had a price advantage.
This is the story of how VW Spain pioneered a way to grow their lucrative OEM parts business by increasing sales to independent repair shops.
They did so through a supply chain initiative that improved service to all of VW’s customers in Spain. And they achieved their goals without cutting VW dealers out of the picture.
OEMs face similar market dynamics in North America and Europe
How relevant is VW Spain’s solution for North America? We think it’s right on the nose. But judge for yourself.
The growth of new cars is forecast to be negative in Western Europe and North America in 2018.
Several sources predict North American car sales have reached their peak in the growth cycle following the Great Recession. For many reasons, these sources say, sales of new cars may be headed for a multiyear decline.
Yet on-the-road car densities are expected stay at about the same level. That means the average age of cars will increase in both Western Europe and North America.
Rising age of cars causes sales of OEM aftermarket parts to slide
In the past, the rising age of vehicles on the road has been good news for IAMs but bad news for OEMs.
Vehicle owners are likely to buy fewer OEM parts as vehicle ages extend beyond two years.
For passenger cars less than two years old, the OEM dealer network provides service more than 50% of the time. The dealers’ share of service then declines to about 15% for vehicles older than eight years.
High prices, customers’ need for fast delivery slow OEM parts sales
In addition, OEM parts manufacturers face these challenges in selling their parts for older cars:
How can OEMs sell more parts to IAMs, without bypassing dealers?
In engineering a way to sell more OEM parts, VW Spain faced two challenges:
Supply chain initiative defines a new way forward
Volkswagen Spain decided to fight back through a creative logistics initiative.
Its goal IS to make Volkswagen OEM parts available to independent shops anywhere in Spain on two hours notice, sometimes with multiple deliveries a day.
And they committed to do so with zero defects in order fulfillment.
It was a big task.
Spain is about the size of Texas. VW Spain figured they needed more than 40 distribution centers to achieve their goals.
So how could Volkswagen Spain set up an efficient distribution network fast, without the cost of setting up and operating its own facilities?
Company commits to on-time, same-day deliveries with zero errors
To reverse the erosion, VW Spain set an aggressive goal for a new program to provide zero errors in customer orders and on-time deliveries.
They call the program PRO Service.
Supply chain gets an overhaul
To achieve the ambitious goals for the PRO Service program, Volkswagen needed massive changes in their parts distribution model. They also needed new information systems to manage their supply chain and warehouses.
Volkswagen chose Generix Group to provide the warehouse management (WM) and supply chain software for 41 distribution centers.
The Generix software enables Volkswagen to deliver any of 845,000 vehicle parts to any repair shop in Spain in two hours or less.
Volkswagen can deliver to some shops even faster, depending on the route. Individual shops may receive deliveries up to four times a day.
How did VW establish so many new distribution centers so fast?
They didn’t. They enlisted their distribution partners to provide warehouse facilities and labor.
In preparing for the PRO Service program, VW issued a tender. They invited authorized, independent VW dealers to bid on providing 3PL services under contract to VW.
The winning bidders now comprise VW’s distribution and logistics network for OEM parts in Spain.
Volkswagen also plans to pay for the services of 400 auto technicians who work for the authorized dealers. The technicians, including 15 automotive engineers, will provide advice to repair shops.
VW chooses Generix for its broad experience, innovation, and reputation for reliability
Generix has proven the robustness and reliability of its warehouse management system in more than 1,100 warehouses in 30 countries.
In setting up the PRO Service program, Generix helped VW Spain design and optimize warehouse flows for various products and customers.
Generix warehouse systems integrate to SAP ERP through middleware
The Generix WM securely integrates with VW's SAP Enterprise Resource Planning (ERP) system through middleware designed for the auto industry.
The middleware, called Quiter, enables authorized dealers to manage orders and billing outside of SAP. It then exchanges financial and order data with SAP.
A Generix Group integration platform enables VW to supervise the exchange of data between their ERP system and the WM system.
Distribution centers view accurate inventory in real time
This connectivity enables Volkswagen to receive real-time confirmation of both buy and sell orders. Each DC sees accurate, real-time on-hand inventory counts.
When warehouses make adjustments, the system immediately updates on-hand quantities.
The system has improved stock availability by enabling efficient stock transfers among locations.
It further improves availability by identifying appropriate repair parts for each vehicle frame number. It can recommend substitute or replacement parts without error.
Shipments and receipts become visible across the network
The WM provides full product traceability. DCs know exactly where each product is, where it came from, and where and when it’s delivered.
The new system provides the below added benefits for VW Spain and its logistics partners:
DCs optimize processes, space and labor
Use of the WM system enables VW Spain and its logistics partners to optimize warehouse use in these ways:
New warehouses come online in 3 to 5 days
VW Spain has simplified and standardized communications and processes across the network of warehouses. By doing so, they greatly accelerated the deployment of new warehouses. They can implement the Generix WM in a new location in just three to five days.
VW eliminates reasons not to buy OEM parts
With all these improvements in supply chain execution, VW Spain helps service shops ensure they can keep their promises to their customers. Their OEM service and repair parts now compete on the strength of VW’s logistics execution.
By adding so much value through logistics, VW Spain is erasing several big reasons why some repair shops don’t buy OEM parts.
Dig in: Resources and suggested reading
Bekker, Henk. “2018 International: Worldwide Car Sales Prediction.” BestSellingCars.com. December 12, 2017. The author cites predictions from the German Association of the Automotive Industry (VDA).
Boudette, Neal E. “Car Sales End a 7-Year Upswing, With More Challenges Ahead.” January 3, 2018. New York Times.
Breitschwerdt, Dirk. Cornet Sebastian Kempf, Andreas. Michor Martin Schmidt, Lucas. “The Changing Aftermarket Game – And How Automotive Suppliers Can Benefit from Arising Opportunities.” McKinsey PFD. June 2017.
Winton, Neil. “U.S. Car Sales Will Slip in 2018, But Things Could Get Grim After That.” Neil Winton. Forbes. December 28, 2017.