2qYEARS | EXPERT VIEWS SERVICE PARTS
Aftermarket operations
and network
How have performance metrics, such as facing fill or
network fill rates, developed over the past two decades?
There is little question that service levels have increased
significantly for OEM parts distribution. As such, carmakers
set performance objectives that are today much higher than 20
years ago. For example, most carmakers in the US consider the
benchmark ‘facing fill rate’ – the percentage of dealer orders
that can be served by standard order from its nearest regional
parts centre – to be around 95%. For ‘system fill’, which is the
ratio of orders that can be filled from across a given network
(including rush orders), the ratio is now around 98%.
Kai Rabe says IT systems and more synchronised processes
have supported significant improvements in meeting ever
tougher service targets. Neil Swartz and Anu Goel also point
to continuous improvements, although Swartz says it has been
a challenge to increase such performance while integrating
more part numbers and varieties into the supply chain.
“The transition to dealers following a daily
order, daily delivery service in the late
1990s…allowed us to more accurately
measure our daily performance. With this change, we also
got network daily lead-time performance for every node in
our supply chain. For Toyota, that means kaizen
opportunities.” NEIL SWARTZ, TOYOTA
Now that service levels are so high, there is some debate
about the balance between availability and inventory. Anu
Goel, for example, says that he considers a 94% facing fill rate
to be a good level, even though some brands push this level
as high as 96%. For system fill, he considers anything above
98% attributable to “luck”. Goel thinks there can be too much
emphasis on increasing these numbers without consideration
for inventory impacts.
“You want the parts to be at the regional centre
to avoid expediting freight from other locations.
But the less the gap between system fill and
facing fill, the more inventory you are carrying and the
more potential obsolescence.” ANU GOEL, VOLKSWAGEN GROUP
With facing and system fill high enough to warrant debate
over incremental changes, some are looking more at other
indicators. David Carlisle says that these are typically based on
retail and end-customer experiences, such as the time it takes
to clear back orders, measuring lost sales at retail, repair order
2qYEARSAUTOMOTIVELOGISTICSqOCTOBER-DECEMBER17
Carmakers are increasingly focused on
improving order backlogs and repair orders
fill rates and ‘fix it right the first time’ rates at dealers.
Swartz says Toyota is working on enhancing the accuracy
of its estimated delivery times order by order. Goel says there
is a key effort to clear backlogs that could go back months or
longer.
Have you expanded delivery service and frequency
further, or will you?
Some carmakers have taken a lead in expanding multiple
daily deliveries – although in truth such services are only
just catching up to the frequency levels common for many
independent parts distributors and retailers.
In the US, BMW and Toyota have added same-day services
over the past few years – services for which they also charge
dealers a monthly fee. Others, such as Ford, are encouraging
larger dealers and distributors to develop same-day logistics
capabilities, for example by holding inventory for smaller
service centres or garages. Up to now, however, the carmaker
has not moved to same-day deliveries to dealers directly.
In Europe, carmakers such as BMW, Mercedes-Benz and
Volkswagen offer same-day services to select regions or
countries, such as the UK and Germany. At Opel, Kai Rabe
says that local distribution centres in Germany, Switzerland
and part of Austria support same-day deliveries. Baumann
confirms that BMW has also added same-day service to its
densest markets in China.
In the US, Volkswagen Group is among those who have not
yet implemented same-day service, though Goel recognises
it could play an important role over the next decade. Short of
large investments in new warehouses, he sees issues in how to
offer such services only to a part of the network, for example
by drawing maximum limits from a distribution centre. 
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How do you explain to a dealer that same-day
service is available to the store a few miles
away, but not to him? We could reach 47% of
the population from our existing centres, but more would
require substantial investments that would result in service
differentials between dealers, which in future they may
need to accept.” ANU GOEL, VOLKSWAGEN GROUP
Other brands and their dealers do accept this differential.
BMW, which started same-day service in Europe and the
US in 2010, has opened five local distribution centres that
offer same-day delivery to around half of the US market, says
Baumann. Toyota, which started in the US in 2011, covers
a similar proportion. In both cases, delivery levels have
increased in popularity and will play an important role in the
company’s future delivery strategies.
“We now offer same-day service in 37
sub-markets, representing more than 54% of
our units in operations, and it has steadily
become more popular. Our dealers didn’t ask for it…but
like many breakthrough successes, now that they have it,
I’m pretty sure we can never take it away!”
NEIL SWARTZ, TOYOTA
How much change has there been in the overall
warehouse and distribution centre footprint and how
might it develop further?
The past two decades have included notable investments in
distribution centres for many carmakers, both in their central
parts distribution centres and in regional warehouses. At
BMW, growth in part numbers and global variety prompted
the carmaker to build the ZTA in Dingolfing in 2005, with
restructuring initiated in 2015 to improve efficiency further.
Volkswagen Group has invested further in the OTC in Kassel,
Carmakers are cautious
about adding new
warehouse space to
avoid increasing their
fixed costs
80 2qYEARSAUTOMOTIVELOGISTICSqOCTOBER-DECEMBER17
adding a number of new buildings and expanding space over
the past decade.
Carmakers have expanded their presence in emerging
markets over the past two decades, with many new
distribution centres added in China, India and South America.
BMW, as part of its global network restructuring, has recently
opened new distribution centres in countries that include
Malaysia, China, South Korea and South Africa.
In North America and Europe, carmakers have generally
been careful about new warehouse space. However, the move
towards shorter lead times and more frequent deliveries
has led to an expansion in most OEM footprints. Anu Goel
observes that Ford’s transition to overnight service led it to
expand from 10 distribution centres in North America to 26
over several years. When Volkswagen Group made the switch
several years ago, it increased from five to eight regional
centres in around three years.
The move towards same-day service has again required
investments in warehousing. BMW added five smaller, ‘dealer
metro distribution centres’ (DMDCs) to support its six other
parts and distribution centres in the US. Even Toyota, which
had put most of its ‘two-tier’ network in place in the US by the
1990s and early 2000s, including its two main parts centres in
California and Kentucky, saw a need to revisit its network as
an opportunity to expand same-day service.
“Our regional parts distribution centre
physical network for the US was completed
decades ago…or so we thought. In 2015, we
strategically added two smaller parts distribution centres
in Atlanta and Orlando to support Lexus dealer growth in
the south-east. We are always evaluating options,
especially where we can improve customer service.”
NEIL SWARTZ, TOYOTA
Current plans for new warehouses among OEMs are
limited. For inbound supply to warehouses, BMW plans to
add a China ConDC for inbound, and the North American
ConDC will expand in phases over the next several years.
However, Baumann says that BMW has finished its main
distribution restructuring. And despite the recent spate of
new distribution centres at the carmaker, many of these
represent consolidation or changes from existing facilities. In
the last two years, BMW has only added one net additional
regional centre globally, and four since 2005 (excluding
DMDCs). Opel, meanwhile, has built a large new parts
distribution centre in Bochum, Germany. However, this is at
the site of an assembly plant that it closed in recent years.
Anu Goel points out that adding fixed costs holds
Volkswagen and others back from adding same-day services;
he estimates that three new facilities to support such delivery
would require part sales in excess of $75m per year in the US.
Further in the future, David Carlisle thinks it is even harder
to guess what will happen with the distribution network, as
developments in the shared economy and 3D printing, for
example, may alter OEM footprints entirely. For now, however,
it is too early to tell.

Are you running or considering more omnichannel
distribution and logistics, such as home deliveries
or deliveries to sites other than a dealership?
With e-commerce players moving into the aftermarket and
distributors offering more flexible, low-cost or even digital
services, carmakers are starting to explore delivering parts
outside of traditional channels. Ford, PSA and others have
expanded more into ‘all makes’ parts, for example, in efforts to
gain business with independent garages. Others are pursuing
e-commerce platforms and apps that could give customers
options. David Carlisle thinks that Amazon will force
everyone in the industry to look in this direction.
Such services can be complicated, especially as OEMs make
efforts to keep their dealers at the centre of any transaction.
Nevertheless, there are signs of change. Toyota, for example,
is currently piloting a common e-commerce system through
dealers with successful results, according to Neil Swartz, who
says the company is studying how to include direct shipments
to customers that might include car owners, repair shops
or smaller garages – although sales will still be processed
through dealers.
“Whatever we may eventually do in logistics
and delivery with e-commerce, our business
model has our dealers on the front end of the
transaction and the sale.” NEIL SWARTZ, TOYOTA
“Our dealerships are providing a good local
service to our customers. Nevertheless, we
need to consider changing market conditions
such as e-commerce.” KAI RABE, OPEL/VAUXHALL
Anu Goel says Volkswagen already does specific shipments
that go to locations outside dealerships, though still based on
what dealers want. He predicts that for e-commerce platforms
to grow for OEMs, however, dealers will have to accept
changes to current sales terms and conditions – something he
predicts many will resist.
What has been the biggest change in IT and software
for service parts logistics?
In terms of aftermarket logistics IT, executives point to
developments on the supply side, such as transport and
inventory management systems, and those focused more on
demand, such as ordering and inventory management. Both
have seen improvements, though executives think the biggest
developments are yet to come.
Kai Rabe recalls that, 20 years ago, most IT solutions
were separate, split between supply chain, warehousing and
transport, with relatively little integration. Today, systems
run across entire enterprises and can help OEMs to optimise
entire supply chains. However, he still thinks there is more to
be done to connect systems, especially for transport.
Executives see scope in particular for cloud-based systems
to support system integration and visibility.
2qYEARSAUTOMOTIVELOGISTICSqOCTOBER-DECEMBER17
2qYEARS | EXPERT VIEWS SERVICE PARTS
Large-scale parts
automation has been rare
outside of major parts
centres like Volkswagen’s
OTC in Kassel (pictured)
“The cloud will be the most important
development. It enables a single platform
and support infrastructure with global reach.”
DAVID CARLISLE, CARLISLE & CO.
Carlisle also thinks that the spread of retail inventory
management (RIM) systems has been important. In the 1990s
in the US, GM’s now-defunct Saturn brand was a leader in
this area, using RIM to manage dealer parts inventory. This
used to be considered a “greenfield-only process” for relatively
new brands like Saturn, says Carlisle, but today many
carmakers use it or are considering it.
Anu Goel at Volkswagen thinks RIM has a lot of potential.
However one stumbling block in the US is in connecting such
systems to the large variety of dealer management systems
(DMS), he says. In the US, Volkswagen Group dealerships
alone have 17 DMS, although two systems account for 80%
of dealers. Goel thinks breakthroughs will happen once these
systems are better integrated. Some carmakers are moving
in this direction: Wolfgang Baumann says BMW is working
on a global DMS to support dealer ordering and stock
management.
Have you seen an increase, decrease or no change in
the level of automation in your service parts logistics?
While large global parts distribution centres like the OTC
or ZTA make use of sophisticated high-rack shelving,
automated load-carrier warehouses and other types of
logistics automation, the levels in regional distribution centre
operations remain relatively low. Indeed, carmakers have
generally retreated from earlier efforts at automation – such as
large ‘carousels’ to move containers – in favour of the flexibility 
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that human labour allows. Baumann says maintaining this

flexibility was one reason BMW did not move to significantly
more automation in its latest restructuring of the ZTA.

“Automation must be better than manual

processes – and for parts logistics, manual
has been winning these battles. The industry
uses automation surgically, with many pulling out
large-scale 1980s installations and celebrating with block
parties.” DAVID CARLISLE, CARLISLE & CO.

“Given our highly diverse parts portfolio, from

screws to pins, engines and complete body
panels, some processes are still more
efficient when done manually. The picker still walks or
drives to the bin, different parts are still consolidated
manually into containers, and loaded on trucks or vans to
be unloaded by drivers at the delivery point.”

Skills and
KAI RABE, OPEL/VAUXHALL

However, automation is still an important area of

service
development, whether in autonomous transport systems or
especially in logistics assistance, such as pick-by-voice and
handless scanning. BMW, for example is testing scanner

gloves for picking in Dingolfing, as well as AGVs in some
warehouses. In future, David Carlisle thinks there could be
artificial intelligence and e-enabled picking. Neil Swartz
says that Toyota has shifted its thinking from generally
focusing investments more on core processes. But he now
sees opportunities to improve safety, quality and reduce waste
through automation. Kai Rabe thinks further connectivity
will play a major role in automating processes further.
How might data collection directly from connected
vehicles change your service parts logistics in future?
Connected cars offer further scope to improve service parts
logistics. Already, carmakers are touting concepts whereby
dealer appointments could be made directly in vehicle
consoles or by apps, with the vehicles transmitting diagnostic
information to dealers in advance so that technicians can
review issues, prepare potential fixes and order the necessary
parts in advance. Meanwhile, the vast amounts of driver and
vehicle data that can be collected via vehicles also expands
the scope for analytics to better predict which parts are likely
to need replacements and when.
A number of carmakers are already quite advanced with
in-vehicle telematics systems, notably GM, BMW, Hyundai
Motors and others. However, many issues remain before this
vision becomes reality, not least issues over data privacy and
security. Anu Goel points out that many issues in a vehicle
still cannot be detected by remote diagnostic tests, and so
ordering parts early for one set of issues might not save
time if technicians uncover more once the vehicle physically
arrives. Other executives see potential, but are unwilling to
bet on when this connectivity might transform service parts
logistics, if at all.
providers
Have you changed your outsourcing strategy for
service parts operations?
As with other parts of the automotive supply chain,
outsourcing strategies tend to vary by OEM, region and
operation. Transport services, of course, remain outsourced,
although some carmakers – such as Toyota on the west coast
of the US or in Japan – do have their own fleets. For larger
regional parts and distribution centres, mixed models are in
place. A basic rule of thumb is that the larger the operation,
the more likely a carmaker is to keep it in-house.
“My view is that if you are a small company
with a low market share, you should use a
3PL to run your warehouse to help save on
fixed costs and investment. But as soon as you have
reached a certain size and volume, take it in-house.”
ANU GOEL, VOLKSWAGEN GROUP
Goel thinks that carmakers are simply more able to remain
customer focused and flexible if they run their own parts
centres. Before he joined Volkswagen Group of America,
four of the company’s then five warehouses were outsourced,
which Goel promptly took in-house over the course of 2013
– before adding three additional in-house centres. He says the
carmaker has since saved money and improved performance.
Neil Swartz says that Toyota is considering bringing back

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