Subaru's Smart Parts ProcessSubaru's Smart Parts Process

Bryan Klugh grew up in the automotive-parts business. By age 6, he was accompanying his dad to work at a parts store. Today, Klugh is the VP of fixed operations at Subaru of New England, an arm of the automotive company that supplies parts to more than 60 franchised dealerships. What Klugh has always known is that customers aren't very patient when it comes to getting their cars fixed--and that dealer franchisees hate to keep too much auto-parts stock on hand, for fear of inventory obsolescence.

What he has figured out is that the best way to keep both customers and dealers happy is to automate and integrate the parts forecasting and planning process for Subaru's 11,000 unique parts for 32 car models. So Subaru of New England is expanding the use of a service-parts management system that enables dealers to have the right parts in the right place at the right time, without overstocking and then having to return unused parts to the manufacturer at a loss.

It's simply good business to be able to meet customers' needs immediately. "If you go to the auto dealer and they tell you your muffler is rusted and they can get you a new one in two days, you might come back in two days, but you might go to a Midas shop," Klugh says. "I lose the opportunity for the sale and I lose the Subaru branding of the customer."

Today, 28 of the 60 dealers that Subaru of New England serves are using a service-parts management system from Servigistics Inc., and 15 others are in the process of installing the software to help them eliminate overstocking and stock-expediting charges. Franchisees don't have to use the software, but the growing adoption rate speaks to the savings and revenue generation it's helping produce. For instance, Klugh says there's been a more than 16% sales growth in parts so far this year.

Subaru of New England serves as a central stocking location, using the software to track all the parts as they travel through the supply chain and to make educated decisions about telling dealers what they should order. Every night, data on each dealer's transactions is delivered via File Transfer Protocol to Subaru of New England, and the Servigistics software automatically posts an order to the dealer the next morning based on its previous day's sales.

Since deploying the software, dealers return less than 1% of inventory to the manufacturer, meaning that an impressive 99% of what Subaru of New England tells them to buy gets sold. "We're treating the dealer like a replenishment location," Klugh says. "We can do inventory based on actual sales and see all the way to the end user."

The software can accommodate manual overrides, to protect against ordering parts that may only seem as if they're in high demand. Klugh also can monitor spikes in demand from specific dealers or in aggregate, to see if there are any trends that might indicate a problem with a certain part.

Among other improvements: Inventory costs have dropped from $14 million to $5 million, and productivity has increased threefold. But the upswing in sales for the supplier is one of the biggest benefits. "We saw double-digit sales growth in 2001, 15% growth in 2002, and 16.6% growth this year," Klugh says. "Somebody told us there's a recession, but we're not seeing it."

AMR Research says most companies should pay closer attention to their "aftermarket" businesses. It issued a report on service life-cycle management that notes that divisions of manufacturing companies that provide parts, maintenance, and other services to customers after the original product sale generate 40% to 50% of the company's profits and 25% of its revenue annually. Yet, on average, companies spend less on IT to support their services businesses than they do on their product businesses. That translates into losing, in the latter part of the product life cycle, 50% to 70% of potential revenue.