CHALLENGES IN TRANSPORTATION INDUSTRY SUPPLY CHAIN
Rapidly changing technologies, unstable markets, erratic demands, and changing demographics – these are just a few of the bumps automotive and transportation supply chains are facing. Over the last few weeks, we at Slimstock Canada have covered a few of the major pain points in the automotive aftermarket industry. We’ve discussed these because the demand for service and efficiency put on transportation supply chain workers are more extreme than ever.
With over 25 years of experience, Drive Products has established itself as one of Canada’s leading truck equipment suppliers. Their mission statement is, “Our company exists because of our customers, our employees, and our expertise,” and Drive Products has followed it to success. They are the country’s leading integrator for commercial vehicles. They also specialize in sourcing truck-mounted equipment and installation and repair services.
Riz Premji, VP- HR and Corporate Services at Drive Products Inc., was kind enough to share his expertise with us. We spoke with him about some of the challenges he’s faced in the transportation industry and some of his solutions to them. The conversation has been lightly edited for clarity and length.
Slimstock Canada (SSC) Q1: What are the biggest pain points for transportation industry supply chain today?
Vendor Stability (order fill rates): We need to work with vendors who can help us achieve quantity, quality, and precision. We customize OEM vehicles with equipment that reduces risk, improves human efficiency and increases productivity.
Tariffs: To ensure that our products offer exceptional value to our customers, we have to wisely select our vendors as several recent geopolitical changes have led to an increase in tariffs.
SSC Q2: What are some of the trends in the transportation supply chain?
Riz: The most talked about current trend is the shift towards online sales and self-management. Even though a majority of businesses are moving towards the Internet portal, at Drive Products, we still work very hard to keep the human touch with our customers. We value customer service with a combination of relationship management and technology.
SSC Q3What are a few of the challenges Drive Products faces when it comes to supply chain?
Riz: Because we are in different markets now – for example, snow and ice, infrastructure, and oil & gas – our sales are now year-long and not seasonal.
Taking oil and gas as an example; Alberta is very much an on-and-off province. If the price for crude goes up by 50 cents, then all of a sudden there is a massive spur in the activity. In this case, the ability to react is equivalent, which means our suppliers must provide products, which means they have to respond as well. If they can’t, that’s when we look at the carrying cost of additional inventory.
Drive Products has always been known for being an Inventory company. That’s what differentiates us from our competitors.
SSC Q4: What is Drive Products’ biggest challenge when it comes to forecasting demand, balancing inventory and purchasing products?
New product introduction – Understanding, customer demand, and staying dynamic as an organization. That includes people, processes and customer-centric culture.
Supplier ability to fill demand – Not only do we concentrate on lead times when choosing suppliers but also their ability to keep up with evolving demand without impacting the cost of production and customer expectations.
Inventory carrying costs – We have products which occupy considerable warehouse/storage space. It is not an easy task to manage the operational cost of storing SPVs such as snowplows, waste loaders and security vehicles.
SSC Q5: How do you balance the lower cost of faraway suppliers vs the unpredictability of demand? Do you see any need to source closer as the market shifts to higher customer expectations around delivery and availability?
Riz: Inventory availability is always a value proposition for Drive Products. If I am buying from a vendor in India or China, the decision to be made in many cases is “How many of those pieces will I carry to meet my customer’s demand?”
Drive Products and someone else can carry product A, but if I chose to have the product on the shelf for a more extended time, the customer would buy it from the one who has availability. It’s the fine art of buying according to the market, and the difference between the carrying costs vs. the cost of cash.
SSC Q6: How do a changing climate and a shift towards more electrical and sustainability affect your product portfolio? How do you make decisions regarding phasing in or out of new products?
Riz: The demand to go green has surely changed when it comes to the environment. We are now using different sources of technology, electrical vs. hydraulics, or a particular type of fuel.
Our truck world is a little slower to adapt to the changes compared to other industries. The traditional usage of fuel is still pretty prevalent in the trucks. Where the change is happening, though, is certain customers demand that their vehicle be lighter, which helps save fuel cost. If the vehicle has to be lighter, then Drive Products must source and supply truck equipment parts accordingly.
If we can supply products that are made of aluminum but still have the structural integrity of steel, and reduce the weight by a certain percentage, that translates into savings in fuel cost; that’s where we win. Some of the equipment we provide, like garbage trucks pumps, do the same job as before but with lesser noise.
At Drive Products, we continually do product rationalization as an ongoing process, so it meets the customer’s need here in Canada.
SSC Q7: Winter has a huge impact on the Canadian automotive market, and the start of the winter season is getting more and more erratic. Can you tell us how Drive Products deals with this problem from a; 1) Purchasing, 2) Storage and 3) Sales perspective? How do you balance these three areas?
Riz: Snow and Ice control is a portion of our business. Drive Products are the master distributor in Canada for two significant lines: Western Snow Plow and Snow Ex.
1) For purchasing, the software that we have in play helps us out tremendously. We look at pre-season ordering with vendors in April. Drive Products winter season is April to August. We offer to our sub-distributors first-order incentives. We also do field inventory with our customers, where we look at what is left from the previous years and get that shipped back to our Vendors in order to provide newer products.
We negotiate freight, pricing/discounts, and availability/production shipping slots. But to be able to negotiate a particular production window in advance, so the product gets here, we can then translate that into our sales with our sub-distributors.
Our actual bulk of sales of snowplows are between April and August. So, basically, it’s demand planning – planning when you sell. Our current software comes in handy to be able to review the forecast demand based on past years’ history. Then we look at the market demand. And it’s also somewhat rolling the dice, listening to your gut feeling.
2) Storage is a challenge. We recently invested in a 90,000 sq ft.- warehouse, primarily to store snow and ice equipment. Rather than investing in third-party logistics, we like to have it here, prepare it for the customer and get it out the door.
3) To manage sales with snow and ice, we provide early incentives with our sub-distributor base. By walking through their previous history, sales and forecasts, we offer new incentives to them. They are looking to have their orders filled at a very first stage of the season, so when they go sell to the retail market, they have all the products lined up.
Also, sales history analysis is critical for us, and the spikes, peaks, and valleys are also important. For example: If there is a snowstorm in December, when would you realize the business? We won’t until the order comes in next June for all the broken equipment over the year. We have a saying here in Drive Products, “We love snow and ice.”
The last variable is to wait for the Farmer’s Almanac. Listen to their prediction on what kind of winter we would have. (said with a smile)
Drive Products key to success is customer intimacy and ever-evolving products to meet customer needs. Having an agile supply chain provides Drive Products with a competitive edge and a second-to-no-one place in the transportation equipment industry.