Partnering on Service Parts Management for Auto Industry

Reynolds and Reynolds to offer Servigistics solution to help auto manufacturers, retailers automate service parts operations

Reynolds and Reynolds to offer Servigistics solution to help auto manufacturers, retailers automate service parts operations

Dayton, OH  November 21, 2003  Auto industry solutions provider Reynolds and Reynolds is partnering with service parts management software provider Servigistics to offer a solution designed to help automotive original equipment manufacturers (OEMs) and retailers better collaborate and automate service parts operations.

Reynolds offers a variety of solutions targeted at automotive OEMs and retailers, including retail and enterprise management systems, Web and customer relationship management solutions, data management and integration services. The company's 20,000-plus customers comprise nearly 90 percent of the automotive retailers and virtually all OEMs doing business in North America.

Under the agreement, Reynolds will "private label" Servigistics' Service Parts Management Platform, offering the solution to its own customers as a way of reducing inventory cost, increasing service revenue and improving customer service levels by streamlining the complex service parts network in automotive and adjacent markets. The offering will be branded the Reynolds and Reynolds Service Parts Networking system, "powered by Servigistics."

In an interview, Mike Kapolka, director of OEM solutions for Reynolds, said that his company has been actively working with Servigistics to develop customers for the solution. Reynolds will market the solution not only to automobile manufacturers but to OEMs in the power sports, marine, recreational vehicle and commercial vehicle industries, Kapolka added.

The Service Parts Challenge...

In the automotive space, service parts management can be critical to the bottom line at both OEMs and dealers. Industry data show that service parts can drive up to 10 percent of OEM revenues and 30 percent of profits, while at the average dealership, parts and service accounts for 12 percent of the revenue and 48 percent of profits.

Those figures are not surprising considering that of the 220 million vehicles on the road on the United States, 167 million are out of warranty, and the average vehicle age is eight-and-a-half years. Those figures add up to a lot of repair visits every year.

And yet technology consultancy Aberdeen Group's Service Parts Management Benchmark Study found that, on average, service parts operations suffer an on-time delivery performance of just 89 percent and first-time fill rates of 82 percent.

"This finding means that nearly one in 10 parts delivery is late, and nearly two in every 10 are not fulfilled correctly the first time," according to Tim Minahan, vice president for supply chain research at Aberdeen. "The typical automotive company reported 216 stockouts per year. Such underperformance can negatively impact customer satisfaction and overall profitability."

...and Risk...

Alan Chakra, vice president of OEM solutions at Reynolds, agreed that every automotive service visit represents an opportunity for the OEM and retailer to demonstrate the high service levels and parts availability that consumers want, but also a risk if the retailer fails to have the right part needed to service a consumer's car. "In this case, the consumer typically takes the car elsewhere for the repair, thus causing the retailer to lose service revenue and an opportunity to enhance customer loyalty," Chakra said.

That risk extends to the OEM, too, as evidenced in industry research showing that 68 percent of consumers that switched brand of automobile did so because of poor service.

Part of the reason that many companies in the automate space continue to suffer this risk is that they frequently do not have adequate processes and systems in place for managing their service parts, according to Kapolka. "There are a number of people using spreadsheets or just guestimation approaches," he said.

...and Opportunity

Retailers and OEMs can cost-effectively minimize the risk of losing customers by adopting a solution, like the Servigistics offering, that can help them increase service parts fill rates while reducing inventory and driving higher customer loyalty, asserted Chakra.

For his part, Minahan, writing in a research alert on the Reynolds-Servigistics deal, pointed to data from Aberdeen's benchmark study suggesting that a high level of service parts automation can indeed produce significant results.

"Companies using discrete service parts management systems  such as Servigistics  reported a 22 percent reduction in service parts inventories; 42 percent more inventory turns; a 10 percent improvement in first-time fill rates; and 16 percent fewer stockouts than companies conducting service parts management activities manually or with only marginal levels of automation," the analyst wrote.

Servigistics' Gary Brooks, the provider's executive vice president for marketing and alliances, notes that Subaru of New England, which has been using the Servigistics service parts management solution, has been able to reduce its inventory by 60 percent while increasing its revenues by 12 percent. "That's because they had the part, they were able to sell it, and they were able to perform the service that went along with that part," Brooks said.

Brooks added that this type of solution is most applicable to companies that have upwards of $20 million invested in service parts, "which really makes this work for just about any company in automotive." And Kapolka said that the solution would be applicable to the OEMs and suppliers in the commercial automotive market, as well as the large fleet organizations.

Benefits for All Sides

Kapolka said that Reynolds partnered with Servigistics in this area, at least in part, because of Servigistics' success in the high tech industry. "We see great opportunity in leveraging a technology that has proven itself [in high tech]," he said.

In addition to the Servigistics solution, Reynolds will also be offering consulting services around service parts management, according to Kapolka. "It's part of a portfolio of solutions that we're starting to look at to address what we would describe as the service lifecycle of the vehicle," he said. "There are other things in the pipeline as well, but this is a great first start."

For Servigistics, this deal provides much broader access to potential customers in the automotive industry, where the solution provider to date has counted Subaru of New England as its only customer. "Reynolds and Reynolds has a large sales force that sells into the manufacturers and the dealers, so it significantly enhances our sales reach," Brooks said. "This is the fast lane into automotive for us. It's allowing us to accelerate our penetration in this market by a couple years."

Brooks added that Servigistics is not pursuing additional relationships of this nature in the automotive vertical, although the provider is looking to extend its reach into additional industry verticals.

For more information on solutions for the service and support chain, see the articles "In the Field and All Grown Up," the Net Best Thing column in the June/July 2002 issue of iSource Business, and "Time to Prove It," the Net Best Thing column in the April/May 2003 issue of iSource Business.