The history of the automobile industry, though brief compared with that of many other industries, has exceptional interest because of its impact on the society. One of the outstanding contributions of the automotive industry is towards the technological advance that began with the introduction of assembly line. The case in point being Ford’s Black model Ts, which was named the most influential car of the 20th century in the 1999 Car of the century competition. The reason for the phenomenal success of this model was not because it was built on assembly line but because it addressed the limitation for the large segment of the society – it was able to provide inexpensive transportation on a massive scale that was not possible before.
Much has changed since then. The automobile of the current time is not ‘just’ a means of transportation. The consumers now expect their cars to be customised to their specific needs, leading to explosion of available variants available in the market. This in-turn caused exponential increase in the number of components to be kept available at the service locations to ensure satisfactory service. The key for the success of automobile repair industry is to find way to achieve significant high level of parts availability without blocking their working capital in the ageing inventory.
To run a successful auto repair business, one must ensure high service level. And given the high number of variants available in the market and high uncertainty in demand, to be able to provide high service level, one must keep very high inventory.
On the other hand, for a successful auto repair business, one must control cost. And given the fact that the maximum cost is tied up is in working capital for auto repair business, one must keep very low inventory.
The reason most automobile repair businesses are not able to come out of this problem is because they are still operating with the old paradigm of working based on forecast. This paradigm worked well, when the variants were less and demand was relatively predictable. However, with the explosion in number of automobile variants available in market and increased customer expectations of required service levels – working with forecasting is the biggest mistake.
‘Forecast’ is a great way to work when the variety of components and the level of uncertainty in demand is relatively less. This was true during the good old times of model T era. However, the current reality is very different – we have significantly high number of automobiles in the market and much higher number of components are required to be maintained in stock to meet customers expectations. If we do not change our mindset and continue to operate with forecasting as a way to manage the demand we will never come out of the twin problem of excess inventory blocking the working capital and shortage of inventory leading to poor service levels – both at the same time!
Theory Of Constraints (TOC) replenishment solution is a proven solution to come out of this conflict and achieve breakthrough business performance. I would invite the readers to explore this option and open the possibility of breakthrough business performance.
Akshat Agrawal
BE, Mba
Project Director
Trained & certified in thinking & application of Theory of Constraints (TOC)
Goldratt Group
