We all get by with a little help from our friends, but in the quick lube industry, we get by with a little help from our warehouses and regional distributors. Think about it. Who did you learn about dexos or synthetic blends from? Who taught you what the acronym DEF stood for? A high percentage of operators would give the name of a sales rep from their distributor. In this industry, the middleman matters. As the connection between manufacturers and end users, warehouses remain the lifeblood of the industry. Aside from timely part and product deliveries, here are a few things to know about the partner that helps keep your operation running smoothly.
The Warehouse Industry has Changed Remarkably in the Past Five Years.
UPS loved logistics so much they, with the help of their advertising agency, wrote a little jingle about it in 2010. Warehouses and distributors find themselves humming a similar tune these days.
“It has been a trend in the last five years,” said Sten Kelman, head of Supply Chain at Western Marketing in Abilene, Texas. “There’s been a lot of emphasis on supply chain management and logistics. A lot of companies have recognized the absolute value supply chains and logistics have on their bottom lines. There’s been an emphasis in trying to attract those kinds of people and build that function into organizations.”
Every company is different. Therefore, one solution won’t solve every problem.
“You have to look at the nature of the industry and the operational objectives,” Kelman said. “Then, there are lots of different alternative decisions you can make about the structure of your supply chain.”
A Method to the Madness
You most likely have a system to keep your business on track. So does your warehouse.
“When you look at a company like Western Marketing, and you look at the different segments of market they operate in, you can make an argument that the supply chains are going to be somewhat different,” Kelman said.
From a lube shop standpoint, that means the bulk supply chain varies somewhat from the package supply chain.
“There is a long-term study underway at MIT,” Kelman said. “They looked at a triangle of operational objectives: responsiveness and customer service versus efficiency. I think you can add a third dimension: asset utilization.”
For example, an oil company would want to make sure their assets were being worked very hard. A consumer electronics company might centralize and focus more on efficiencies.
“An airline probably sits somewhere between the two,” Kelman explained. “It has capital-intensive assets that need to be moving all the time, but it has a great deal of customer-facing activities, as well.”
Depending on your business life cycle, products you offer and the market you are in, you probably have a combination of all three. A warehouse is no different.
“When we look at adding warehouses to get close to a market so we can be customer responsive, what we are also trying to do is minimize the transportation cost at the expense of adding facilities. We’re increasing those costs and buffering a much higher amount of inventory so we can be very responsive. The challenge for any industry is balancing customer responsiveness with efficiency, namely, inventory management.”
All of this is going on in the background, so operators can receive their parts and products when they need them at a competitive price.
“We’re driven by inventory management, carrying costs, inventory turns and making sure we understand where our fill rates are on the Perfect Order Index,” Kelman said. “Our slogan which is ‘service you deserve,’ and our operational objective is customer service.”
They Carry More Than Lubricants
In his career as a supply chain professional, a company Kelman once worked for had a motto: “We’re the name you don’t know behind all the ones you do.” You may rely on your warehouse for your bulk and packaged lubricants, but have you checked to see if they carry other items you use in the shop?
“We carry more than just lubricants,” said Mark Spaniol, head of sales and marketing for Western Marketing. “We carry more than 30 major brands, like WD-40, and stock over 5,000 SKUs.”
With multiple products in the market, how does a warehouse choose which to stock?
“It’s multi-faceted, one of which is the value of the brand,” Spaniol said. “If there is a brand that has marquee status and value in the marketplace, that’s one thing we look at. The other is the partnership the supplier or manufacturer can bring to us. We want companies that work with us and build business together. When we find that combination, those are the brands we choose to move forward with.”
Partnership is Key
The key to quick lube success lies in controlling inventory and labor costs. You need what you need, but you never want to have too much. When it comes to inventory management, a lot rides on the warehouse.
“It all depends on the particular location,” Spaniol said. “Some places like to run their inventories lean and want us to deliver on a regular basis. Some locations prefer to have a larger stock on a more infrequent basis.”
Often, this is directly correlated to the size of the business.
“A high-volume shop that has 50-60 cars moving through wants us to be there often,” Spaniol said. “A location that’s only doing 18 cars a day prefers we stop by monthly.”
The term for this kind of partnership is called supplier in-bound management.
“That supplier in-bound management and the conversation that takes place between the logistics groups, the demand planners and the buyers from both organizations is really critical to understand where your inventory needs to be buffered, what your delivery requirements and constraints are and how frequently you’re going to have to deliver,” Kelman said.
Despite technological advancements that allow product to move through the supply chain faster than ever, a conversation between both parties is the first crucial step.
“We deal with bulk, running tankers and packaged lubes. I think that is almost identical to any retail operation,” Kelman said. “Before you start chasing technology, develop a relationship with the key accounts and have a collaborative forecast planning and replenishment process you both develop some dependence and confidence in, prior to putting technology between two organizations.”
They Have “Ticket Averages” and “Car Counts.”
Quick lubes use ticket averages and car counts as a barometer for business. A warehouse also has metrics for success, namely the Perfect Order Index.
“The Perfect Order Index looks at on-time, in-full, fully-documented and defect-free shipments or deliveries to customers,” Kelman said. “That statistic drives our supply chain and is the dominant statistic that many organizations use.”
Training and Industry Involvement is as Important to Them as it is to You.
It’s a truth that transcends industry: well-trained employees help an operation perform optimally.
“When we plan at the beginning of the year, we set aside funds for the purpose of training employees,” Spaniol said. “In addition to the training that comes from our supply partners, we also budget in one off-site training per rep, per year. They have access to online training and training from suppliers. Outside of that, we ensure each of our sales reps has an opportunity to attend an in-residence training program.”
In addition to training, Western Marketing is engaged in industry organizations.
“We support our folks by maintaining active memberships in professional societies and associations such as the Society of Tribologists and Lubrication Engineers. They do a very good job of keeping us on the cutting edge of technology. We also participate in the American Petroleum Institute.”
The last five years may have taken a toll, but the quick lube industry knows how to survive. It’s time to innovate. Leveraging your relationship with your warehouse or regional distributor is a great place to start.