I describe why automotive service parts networks are in such a terrible state. However, I was recently forwarded an article that described one service part network that appeared to be functional. It is with an auto company that was willing to try new ways of business, something that many other auto manufacturers and dealers have not been willing to do. As described in the article at Knowledge at Wharton..
GM dealers have always had to compete not just with other brands like Ford or Toyota, but also with one another. The competition created a boiler-room environment of price-haggling, which turned off many customers but thrilled others. Saturn, on the other hand, had a “no haggling” policy that it backed up with what may have been its most significant innovation: exclusive market areas for dealers. “That was the huge difference,” says Lokey. In a Saturn store, the sticker price was the final price. And Saturn retailers could confidently adhere to the policy because they knew the customer wasn’t going to find the same new car for $100 less a few blocks or miles away. The exclusive market areas combined with the efficient parts supply chain also allowed Saturn dealers to pay the same price for repair parts. Other GM dealers had to compete with one another to keep their supply bins full, and they often had to buy parts from their rivals. At Saturn, the bins were almost always stocked thanks to a computerized system that automatically sent orders to a distribution center. What this indicates is that beyond creating a multi-echelon system (where stocking decisions are shared using true multi-echelon software) a number of other factors such as how dealers are placed into competition with one another is also important. However, the system relied upon inventory pooling between dealers and the automotive company regional warehouse. This lead to a service part turn-over of on average more than 7 times year (which is quite high for service parts).
The design of the system is explained below from the article in the Sloan Management Review
Saturn’s Supply Chain Innovation: High Value in After Sales Service
Retailers review Saturn target level recommendations at the end of each day, then Saturn automatically replenishes to the agreed on target level. Replenishment orders are received at the central distribution center and are shipped out according to the delivery schedule, leading to a three a shorter response time if the ordered part is in stock at the DC. Otherwise the part is either put on back order or sourced from the production inventory stock. Note that a pull system such as Saturn’s is based on target levels. Using one for one replenishment means that Saturn does not position inventory in advance based upon forecast consumption. The shipped part also is replaced automatically within 3 days (assuming availability at the DC). Saturn essentially tells retailers what to stock. If a part does not sell after nine months, Saturn takes it back and repays the retailer. Each retailer (dealer) inventory system is linked directly to Saturn management system. What is happening here is what few automotive companies use, a centralized service parts planning system. However as described by this article from Sloan Management. Although central inventory resources can be shared, companies often make planning decisions for retail locations independently, looking at forecasts of local demand and lead times from the central depot orsuppliers. Unfortunately, this parts system, which was recommended by Morris Cohen and Hau Lee, is at risk as Saturn is looking for a buyer, and their possible arrangement with Penske has fallen through.
Saturn owners will now be serviced by GM dealerships, which is definitely not what Saturn owners bargained for when they purchased a Saturn. They will now have to work with a considerably lower capability service network. It unfortunate because the Saturn system, if it persisted, could be extensively studied and perhaps copied. Currently, this is not very much written on the Saturn system, and if Saturn dies or dissipates, there will be less opportunity to gain insight into what they did that made them so different.
After this article was written Saturn did in fact go out of business. It is unfortunate that one of the best service parts systems went away with Saturn ceasing to exist. It does not appear as if GM took any of the key learnings from the work described above, as GM still scores poorly in service parts management. Saturn is now only an aftermarket business which will continue until Saturn cars fall out of use.