News

Controlling spare part costs and ensuring availability for
repairs are just a few of the most challenging aspects of maintaining a strong
aftermarket supply chain.  With long lead
times from overseas suppliers and component pricing that can make repairs
unfeasible, most manufacturers and distributors have had to implement repair
programs to help sustain parts supply by adding a core value to those parts that
are repairable. 

The concept of cores has been a mainstay in the automotive
and consumer electronics industries for many years. Certain high-demand service
parts that can be rebuilt and reinserted into the supply chain are designated
“cores” and carry a core charge or “deposit” based on a percentage of the
initial part price.

When a servicer replaces a core part in the field, the core
charge is credited back once the defective part is returned to the manufacturer
or parts distributor within a certain time period – similar to soda bottle
deposits of the past. Printed circuit boards are the most common core parts,
but a core can be any high-value part that is able to be salvaged and repaired,
such as Icemakers, Control Boards and Motors. There is also just as much value
in repairing new, defective parts by eliminating operations costs and the laborious
process of returning these parts, obtaining replacements and issuing credits.

Manufacturers not currently engaged in the core recovery and
repair model are missing a significant opportunity to realize a host of
benefits. Beyond simply extending the lifecycle of a particular service part
and lowering warranty costs, the process can also minimize last time buys and
the eminent risk of obsolescence.  Instead of having to predict a product’s unknown
failure points and stock up on parts accordingly, manufacturers/distributors
can assess what parts are repairable and procure a lesser quantity that can be
recycled indefinitely to supplement the supply chain and enhance manufacturer
brand loyalty.    

Core recovery and repair is also the only way to quickly get
an out-of-stock part back to the marketplace. Plus, a coordinated core recovery
program between a manufacturer and distributor helps combat the gray market
–  or at least increase pricing in the
gray market and close the gap as now those unauthorized channels must compete
for the cores and at a higher price.  People
are opportunistic when it comes to business survival; nothing creates more
uniqueness and creativity than adversity, which drives this channel.

As a multi-vertical, multi-line parts distributor, Encompass
supports core recovery and repair for numerous manufacturers, providing full
visibility and control over the parts repair process – along with providing a
revenue source (albeit minor) through core breakage that they would not
otherwise attain.  In addition to the
recovery and repair process, Encompass can also provide valuable details about
failure points that can be passed down to the manufacturer and ultimately the
design engineers to help avoid such failures on future builds.

To reinforce a healthy aftermarket supply chain, it is
incumbent upon distributors to improve their value proposition to the market
and the manufacturers they represent.  Core
and high run rate part repair programs are a key factor in driving that value.

Parts distributors in years
past could succeed by supplying just a handful of profitable parts in one or
two product categories. To remain competitive today, distributors must offer a
wide variety of parts, along with value-added services.

It wasn’t that long ago that our operations
were run with DOS-based computer systems and manual inventory checks.  Years ago we didn’t need much more than a
phone, fax, warehouse and firm handshake to make it in this business. 

But times have
changed.  In the current market
environment, any parts supplier that hasn’t diversified their product offerings
(especially in the consumer electronics sector), and isn’t providing value
beyond distribution, is likely no longer in business or is quickly becoming obsolete.

With some manufacturers still
expecting their own in-house parts operations to improve their bottom line, savvy
parts distributors know that to remain relevant, they have to offer a strong
value proposition and services that enhance the customer experience and exceed
the capabilities of the manufacturers they represent.

The most forward-thinking
manufacturers know that parts distributors are crucial to creating a variable
parts supply chain cost structure, while protecting their brand equity at the
same time.  If consumers can’t get their
products fixed fast because replacement parts aren’t readily available – and
affordable – how likely are they to repurchase that brand? In a day when
word-of-mouth spreads like wildfire over the Internet and social media, it’s
more important than ever to provide superior aftermarket support for their
products.

Many manufacturers realize
that parts are really far more of a drain on their limited resources than they
are a profit center.  When I first got
into the parts business, nearly every manufacturer managed an internal Parts P&L.  At that time, product prices were higher so
consumers typically chose to repair their products rather than replace
them.  And healthy parts margins more
than offset parts infrastructure costs.  Today
we know that’s no longer the case.

Diversification is another key way
distributors can improve their value. At one time, Encompass was strictly a CE
Parts Distributor.  However, we knew that
to survive – and more importantly thrive – in this business, we would have to
change our model, infrastructure, and overall way of thinking. Just because it
had worked for dozens of years, doesn’t mean it would work going forward, and
we had to provide products and services that our customers and prospects
actually needed. As a result, we started adding new product categories to
diversify the vertical markets we serve. This has included expansion into Large
and Small Appliances, HVAC, Computers, Imaging, Health & Wellness, Security
and many other products to serve new customer segments.

To keep costs down and supplement the
parts supply chain with hard to find parts, many distributors are harvesting
key components from products that may otherwise be unrepairable and/or not cost
effective to repair. This not only helps control costs, it greatly reduces the
amount of environmental waste that may ultimately end-up in landfills.  Customers like reclaimed parts because
they’re less expensive than OEM Parts, and OEMs are beginning to view them as
an option for parts that would otherwise be no longer available.

Effective warehouse
management is one of the most important areas that have evolved to help
distributors deliver top notch customer service.  You’ve got to be able to quickly and
efficiently receive incoming inventory, ship parts orders and process returns.
Encompass has implemented the latest automation tools available in the distribution
space, and we’ve made changes to our warehouse layout configuration to maximize
efficiency. Our goal is to move a larger volume of orders each day to get them
in the hands of our customers as fast as possible.

Consumer expectations have taken off in
recent years as technology has increased their awareness of the overall service
experience. Technology has also helped innovative
distributors improve the parts service experience.  Encompass, for example, provides
sophisticated, real-time inventory access, intuitive ordering processes, comprehensive
data, and email/chat/social media solutions.

We have also integrated our
technology systems with third-party administrators and service management companies
to help servicers get the parts they need quickly and efficiently to expedite
consumer repairs, while also simplifying the claims filing and validation
process.  Perhaps the greatest
integration benefit is that everyone involved has complete visibility
throughout the entire service experience.

While technology has been critical to
improving the customer experience, good old-fashioned people skills are still
just as important to attracting and retaining customers as they were 60 years
ago. Ensuring staff has both parts knowledge and customer rapport is key. 

As long as there are products to
support, distributors must continue to look for ways to further improve our
operations and change the way we do things to provide the best possible service
to all our customers. If we take our eye off the customer experience and fail to
make changes, we will not survive in this market.