Show Me the Money

Reflecting on 2020, and looking to 2021 and beyond, we have a very serious availability problem. Aftersales part availability is on a steep decline, and a major driver is a lack of labor. While some of this may be COVID-19 related and therefore transient, much of this labor challenge is permanent because our supply base had been priced out of the market by Amazon. To put it bluntly, Amazon is snagging our people, and this problem is not going away unless we take dramatic action. I know how to solve this challenge, but you are not going to like my recommendations because it is going to cost you money in the near-term. But hear me out – there is a method to my madness. What OEMs need to do is raise wages, and provide more attractive benefits packages, to better attract and retain their supply chain labor forces. While costly in the short-term, these higher costs will translate into fewer OEM lost sales and expedites, higher dealer profits, loyal customers, and ultimately, improvements in brand equity.

What’s the extent of the availability issue?

Due to COVID-19, availability is down in the second half of 2020 from historical levels. In Carlisle’s October 2020 Automotive Parts Manager Survey, we see that on average, over 10,000 dealer Parts Managers told us their satisfaction with availability is down over 10 percentage points from the prior couple of years.

Virtually all brands have seen declines. Related, many of our automotive and heavy equipment clients shared their October facing fill and system fill metrics with us, and they are down between 0.5 and 5.0 percentage points from pre-COVID levels. By the way, backorder durations are longer, too. This is a real problem because lower availability means lower customer uptime and satisfaction. In short, we are damaging our brand reputations.

Why is availability down?

There are many tails to each of these supply chain disruptions, but the biggest issue is lack of labor. That’s right. Even though unemployment peaked at over 15% in April and was at just under 7% in December, our suppliers, carriers, third party packagers, and in some cases our own PDCs cannot find hourly people to manufacture, distribute, and fulfill parts. Ask your poorest performing supply chain partners about their labor turnover this year. I bet it is over 50%. And who’s to blame? The harsh truth is that the supply base has been priced out of the market by Amazon.

To shed some light, let me share with you some quotes from a September 2020 Amazon press release:

  • “Amazon hiring 100,000 new full- and part-time employees across the US and Canada”
  • “The 100,000 Operations network jobs include industry leading pay of $15 per hour and benefits [health, vision, dental, 401K match, tuition reimbursement] from day one, sign-on bonuses of up to $1,000 in select cities …”
  • “Amazon to open 100 new Operations buildings in September alone across fulfillment centers, delivery stations, sorting centers and other sites …”

And, this is on top of the 327,000 employees Amazon already added globally between January and October 2020; mostly in operations!

So, now what?

In 2021, OEMs need to pay higher prices for parts, packaging, distribution, and transportation so your suppliers can hire and retain good, ambitious people with strong attendance. By and large, supplier margins are too thin to expect them to take this action without your financial support. Your purchasing organizations can no longer simply say “no” when your suppliers say “show me the money”. The business case is there – the future of our brands may depend on it.