A few weeks ago, Colin Masson of Microsoft’s Cloud Computing initiative called my attention to a rather innovative implementation story occurring in the automotive aftermarket parts sector, specifically related to GCommerce, a software-as-a-service provider catering to this sector. As some readers might speculate, I tend to get many of these alerts from technology vendors, but I must admit this was a special situation which is due a mention on the Supply Chain Matters blog. Too often, technology vendors tend to hype the technology vs. the more important factors that make a significant information technology initiative successful. That includes a sponsor who absolutely understands the needs, stakeholder interests and the associated economics related to the business problem at hand.
The $300 billion automotive aftermarket parts business presents its own unique supply chain challenges, but in many respects is similar to many wholesale or parts distribution networks. The severe economic downturn motivated many consumers to hang on to their older vehicles, thus creating increased demand for repair parts. There are currently over 350 million autos operating in the North American market, and the parts distribution network consists of over 1000 large commercial buyers interacting with upwards of 4000 suppliers and/or manufacturers. Since the mid-nineties, increased specialization within specific vehicles have driven up SKU counts nearly 400% and number anywhere from 6 to 9 million different part numbers. That is a formula for high overhead and inventory cost.
As with many supply chain frameworks, the 80/20 Pareto principle has strong applicability in this sector, 80% of the business is driven by 20% of products and suppliers. Intense industry-wide inventory pressures have driven many suppliers to cutback on overall stocking, opting instead for replenishment or direct drop-ship order processes between parts distributors and suppliers. These direct orders created havoc among participants since each supplier tends to mandate a different process or systems interface. The needs for greater efficiency, industry-wide standards and consistency in real-time inventory inquiry and procurement processes are an obvious business problem.
Within this business situation was the perfect storm of two players, GCommerce, which has deep industry process and distribution domain knowledge, and Microsoft, seeking opportunities to demonstrate the power of its collection of cloud computing technologies. Steve Smith, President and CEO of GCommerce, proudly states that he grew-up within the wholesale auto parts industry, and after interviewing Steve, I have no doubts to that claim. He founded GCommerce in 2000, just prior to the infamous dot.com era, where the promises of electronic procurement trading exchanges connecting multitudes of buyers and sellers were the rage. History tells the real story on how complex and expensive those approaches ended up to be, and industry participants can surely provide a history and account of Covisant, an exchange developed by the major automotive OEM’s.
GCommerce chose a more laser focus, targeting the aftermarket parts sector and building a backbone EDI-related infrastructure that would connect buyers, sellers and associated transactional networks. More importantly, the company built strong relationships with the key aftermarket industry stakeholders such as Gates, K&N, Lisle, Tenneco and others. The goal however remained a means to support a seamless inventory management, procurement and order fulfillment process without the huge expense of a centralized data warehouse and IT infrastructure. GCommerce also understood that their business model would not be successful if it included a high concentration of owned IT infrastructure.
Smith was fortuitous enough to challenge Microsoft, and specifically Rahul Auradkar, Director in the cloud computing group to help solve this problem. Rahul brought to the table his previous experience in that company’s Server and Tools business. Microsoft was challenged to come up with a solution in 90 days, and the end-result was a new platform termed the Virtual Inventory Cloud (VIC™). VIC™ is powered with a full relational database and leverages Microsoft’s Windows Azure and SQL Azure components, with the ability to ultimately handle millions of transactions. Parts buyers can login into the VIC ™ system to gather inventory status or send electronic drop-ship orders directly to individual parts supplier business systems.
Thus far, the company has amassed over 1000 suppliers and 200 major commercial buyers within VIC™. An incentive of a preferential yet simplistic pricing model has clearly helped. Steve coins this as a “Southwest model”, (reflecting that discount airline) with $25/$50/$100 flat-rate monthly transactional volume fees paid by suppliers, while distributors pay for a user license and one-time setup fee.
GCommerce and VIC™ are on the path toward providing a common business solution that is aligned with industry needs for an elegant and cost-affordable answer for automating the aftermarket drop-ship process. In this author’s view, it is also an effective demonstration of the applicability of a cloud computing platform strategy to solve a specific business problem need. VIC™ will surely grow its network and further scale in handling larger transactional volumes, and my sense is that this approach has potential applicability to other parts and inventory distribution fulfillment networks.