CHAPTER 3 CASE STUDY 67
3.4 Automotive Aftermarket Air-conditioning and Replacement 75
3.6.1 Value Chain Analysis for Smiths Aftermarket 80
Figure 3.4 Value Chain Analysis For Smiths Aftermarket
1
Support Aclivllies
j
Smiths Aftermarket has an advantage over other aftermarket manufacturers as it benefits from Smiths Manufacturing's purchasing power. It is able to negotiate better prices on sub-components and can leverage the purchasing power Smiths Manufacturing possesses.
Extra value is offered in its operations through the testing facilities it has access to as it shares Smiths Manufacturing's facilities. Fitment manuals are developed for all kits and are available on the Smiths Aftermarket website, giving fitment centres and P&A outlets up-to-date instructions. Further value is offered through the employee who provides support to the P&A outlets. Back-up service is provided by field technicians based both in Durban and Johannesburg who assist with technical difficulties being experienced.
A common buzzword today is that of 'value-adding' activities and products and these days consumers expect more for their money. This is true of the P&A outlets, fitment
centres and the end-consumer in relation to aftermarket air-conditioners and replacement parts. Figure 3.5 gives the breakdown of the value model for Smiths Aftermarket.
Figure 3.5 Value Model For Smiths Aftermarket' Products
VALUE PRICE
BENEFITS (to motor plant P&A COSTS PRICE REDUCTIONS
outlet and fitment centre)
Low volume manufacturer can Distribution costs (related to motor Value analysisIvalue engineering- support a niche market. whilst plants only). price reductions
providing a wide product range.
Flexibility for consumer when Packaging costs of branded boxes. Resourcing of materials purchasing vehicle if they only
want aircon as accessory. DE models with aircon usually more expensive than adding aircon to lower spec. model.
Established company with learning Reworks when necessary. Better supply chain management.
curve experience and technical expertise.
Brand name of Dunair • which is Imported technology and related Economic batch quantities.
applicable to fitment centres. costs
Increased safety through adherence Tooling costs and related In-house R&D.
to quality ratings. depreciation
Dependability Over-reliance on imported materials PRICE SURCHARGES (price implications linked to Forex
movement)
Consumer is receiving OE product Related costs of Pro-Fit - Licence agreements and recovery of standard at aftermarket level. middleman for distribution to royalties (via Smiths
fitment centres. Manufacturing).
Superior Quality of product. Toolinl]; costs
Supplier secured for the life of the Filling capacity and overhead
vehicle recovery
Can give a vehicle competitive Testing costs
edge.
Motor plant approval Ad valorem tax on aircons.
Irecommendations and warranty.
The value model outlines the benefits to Smiths Aftermarket' consumers and the costs that are incurred. Benefits currently outweigh costs. Price reductions are possible, but there are supplementary costs, such as the recovery of royalties and ad valorem tax on air-conditioners, which are currently treated as a luxury items.
In South Africa approximately 90,000 vehicles are sold annually without an air- conditioner and are mainly entry level vehicles, such as Citi Golf and Tazz and light commercial vehicles. At initial purchase about 40% of owners fit an aftermarket air- conditioner and when a vehicle changes hands for the first time about 5% of customers fit an air-conditioner. It is concluded that the market's potential is 41,000 units per annum.
(Figures supplied by M J Perrie, 2001). The declining market means that value offered will become a stronger differentiating factor in the future. Smiths Aftermarket believes that these figures are now quite outdated. A recalculation of the figures will be done as part of the evaluation in chapter 4 to determine if the market is actually declining.
3.6.2 SWOT Analysis For Smiths Aftermarket
The SWOT analysis in table 3.3 is based upon SWOT analyses conducted during strategic planning in the last 5 years, which are applicable to the current situation.
Table 3.3 Smiths Aftermarket' SWOT
STRENGTHS WEAKNESSES
• Smiths' aftermarket has preferred trading with • Slow product introductions.
Toyota. • Poor availability of products - long manufacturing
• Dunair name. lead times.
• Knowledgeable technical staff and technical backup. • High product cost.
• Wide range of products. • Incorrect parts in kits.
• Motor Plant approval. • Relationship with fitment centres has deteriorated with
• Manufacturing flexibility. introduction of Pro-Fit as a distributor.
• Facilities and technology. • Unreliable supply line (in-plant preference given to
• Relationship with motor plants. OE business).
• Access to financial resources. • Lack of market intelligence.
• Warranty administration system.
•
Errors on product introductions• Numerous engineering changes
• Pricing
• Over-reliance on Toyota business (85/15 ratio)
OPPORTUNITIES THREATS
• Development of YW and Delta business. • Collaboration between Behr and Arcotemp to
• Potential business on heavy duty vehicles. distribute products under the National Panasonic
• Export of products. brand.
• Replacement parts for competitors' and OE products. • Motor plants under pressure from P&A outlets to
• Increasing fleet business and government contracts. approve alternative suppliers to Smiths.
• Motor plants are beginning to insist that their P&A • Lower cost imports from the East.
outlets fit only the motor plant's aftermarket brand of • Improvements by competitors on quality and product
parts (e.g. Aircare for Toyota). range.
• Potential sale of, or investment in Crispair by external parties.
• Declining and stagnant markets.
Smiths' aftermarket has had a contract with Pro-Fit since 2000, when Pro-Fit took over the responsibility of distributing Dunair products to fitment centres around the country.
Pro-Fit has four outlets; Johannesburg, Durban, Cape Town and Port Elizabeth. The relationship with Pro-Fit and its performance is evaluated in more detail in chapter 4, but the general consensus at Smiths Aftermarket is that Pro-Fit is fulfilling its contractual
obligations in terms of distribution, but is not fulfilling the marketing aspects expected of them. Whilst Smiths Aftermarket has numerous strengths, questions are raised regarding whether or not the division has maximised on those strengths. Threats from competitors will continue to grow in view of the shrinking market. Opportunities are mainly centred around gaining business on new vehicles and vehicle marques, developing international markets and working with the motor plants to further develop their aftermarket brands.
3.7 REVIEW OF THE STRATEGIC INTENT OF SMITHS' AFTERMARKET Smiths' Aftermarket has a clearly defined mission statement, business concept and vision for future business.
"MISSION STATEMENT
•
•
•
•
•
To supply our customer with a reliable, cost effective and easy to install car airconditioning system; support by an effective parts back-up distribution network.
To furnish up-to-date technical and marketing information to all our customers and provide ongoing training to ensure high quality and customer satisfaction.
To make available an after-sales service in support of our products to ensure the required quality and customer satisfaction at all times.
To create an environment for all our people to grow to their maximum potential and to assist them in their development through education and training.
To foster a uniform approach to Smiths Manufacturing mission and to encourage people to maximise their creativity within well defined controls, without stifling initiative.
DUNAIR'S BUSINESS CONCEPT
In a Product Driven mode, Dunair will improve its competitive advantage by cultivating excellence in product development/producer and service.
"Superior Car Airconditioning"
VISION FOR FUTURE BUSINESS
Dunair will infuture adopt a Product/Service concept-driven Strategy with the emphasis on Product and Process development in order to service our customers, market segments and user groups.
A Product/Service-driven business survives on the quality of its products and services.
"The Best Product Wins""
(Smiths Aftermarket strategic plan: 2002).
Strategic intent as a concept will be introduced during 2003. Although the word 'vision' is used above, it does not correlate with the usual Big Hairy Audacious Goal (BHAG), which typifies the vision of a company and does not answer the question "What do we want to become?" (David 1999:83).