CHAPTER 4 EVALUATION OF SMITHS 102
4.6 Evaluation of Smiths Aftermarket' Internal Environment
Both the value chain analysis and value model illustrate how Smiths Aftermarket adds value for its customers. The main areas where Smiths Aftermarket benefits its customers in comparison to other aftermarket producers are noted below.
• Purchasing power through Smiths Manufacturing.
• Access to testing facilities to ensure that products are manufactured to the same quality as OE products.
• Extensive distribution system through Pro-Fit.
• Technical support provided through field technicians.
• Personnel both in JHB and Durban dedicated to providing service to the P&A outlets and fitment centres.
• Full warranty and technical service.
• Flexibility in manufacture.
• Dunair brand name assures quality for the fitment centres, through adherence to international quality ratings.
Graphs 4.6 (a) and (b) give a clearer indication as to the actual position of Smiths Aftermarket with 1998 used as the base year. Turnover for Smiths Aftermarket was decreasing in line with the shrinking market but forecasted turnover is expected to increase over turnover for 2002. Of more concern is the graph showing gross margin increases and decreases, which is on a downward trend and illustrates that although market share is being maintained there is a lot of pressure on the margins.
Implementation of cost-down programmes by the motor plants and pressure to keep price increases at or around inflation are adversely affecting margins.
Graph 4.6
(a) Smiths Aftermarket Turnover (b) Smiths Aftermarket Gross Margin
% INCREASE IN TURNOVER - TOTAL %INCREASE IN GROSS MARGIN
2001 2002
2000
30I---,-~---,
20 ~
10
o 0
""_10 -
·20 -30
-40 - - - ' 2002 2003 1999
30 :
I ..
20 I
10 ~ '--wo
(fl. -----7:--- i
o .
-10 i
-20 I
1998 1999 2000 2001
• Total-- Trend • %increase/decrease - Trend
Source: Figures suppliedbySmiths Manufacturing.
Smiths Aftermarket is also over-reliant on Toyota as a customer, which is a dangerous position to be in. Graph 4.7 (a) gives the breakdown of sales of kits by customers, including sales to the fitment centres via Pro-Fit. Graph 4.7 (b) focuses on the sales of kits by motor plants. In both instances the over-reliance on Toyota is evident, which could be deemed to be detrimental for Smiths Aftermarket.
Graph 4.7
(a) Segment SalesbyCustomer (b) Segment SalesbyMotor Plant
SEGMENT SALES BY CUSTOMERS 2002
SEGMENT SALES BY MOTOR PLANT 2002
aTOYOT4 .45.5,ft
CONUN[
12.25" CTOVOTA
Source: Figures suppliedbySmiths Aftermarket.
The majority of Smiths Aftermarket's business emanates from the sale of kits rather than parts (graph 4.8), even though the parts market is considered to have more growth than the kits market. If the parts market continues to grow and the air-conditioning kits market continues to shrink the emphasis in business for Smiths Aftermarket may also have to change.
Graph 4.8 Smiths Mtermarket Turnover - Air-conditioner Kits vs Parts
TURNOVER SPLIT BETWEEN AIRCONDITIONERS AND PARTS
• •
2001 2002 2003
•
__.
90
80 :;.::::;:~--"".
70 I
60 --'-:
.,e50 40 30 20 10
1998 1999 2000
• %Parts .• %Kits
Source: Figures suppliedbySmiths Aftermarket.
4.6.1 Review of SWOT Analysis of Smiths Aftermarket
Inchapter 2 the SWOT analysis was discussed to some degree and an impact analysis as an extension to the SWOT analysis was introduced. The SWOT factors listed were prioritised and are listed in the impact analysis in figure 4.1. The analysis shows that the biggest threat emanates from the approval by motor plants of alternative suppliers for their branded aftermarket air-conditioning kits. This is closely followed by the threat of competitors and improvements in their quality and product range. Both of these serve to erode the market share of Smiths Aftermarket. Although the market is in a mature phase Smiths Aftermarket does not see this as the greatest threat as it has succeeded in improving its turnover under adverse conditions and the decline in the market does not seem to be as rapid as initially expected.
Figure 4.1 Impact Analysis for Smiths Aftermarket
Motor Competitors Sale of Declining Fleet deals Motor Impact
plant (improved Crispair. and and govt. plant Score
approval quality and stagnant contracts. branded
of product markets. a'market
alternative range). kits.
suppliers Preferred
trading with -3 -2 0 0 -I +3 -3
Toyota.
R'ship with
Motor Plants -3 -2 +2 0 +2 +3 +2
Dunair -2 -3 +2 0 0 -4 -7
name.
Strong
parent 0 -I -2 -2 +2 +3 0
comoanv.
Poor 0 0 -I 0 -I 0 -2
availability.
R'ship with
fitment -4 -3 +2 -2 -2 0 -9
centres.
Pricing -3 -3 +2 -2 +3 +3 0
Total -13 -11 +3 -6 +3 +8
Branded kits developed for the motor plants are seen as offering the greatest opportunity.
The sale of Crispair also provides an opportunity in different ways. Smiths Aftermarket could consider purchasing Crispair itself reaping the benefits in this way or alternatively,
if another party were to purchase Crispair it would be difficult to maintain prices at their low levels due to investment required in the facilities.
The strengths and weaknesses are an area of concern for Smiths Aftermarket where overall each one weakens under the differing opportunities and threats, with the exception of the relationship with the motor plants, which could continue to strengthen.
It is not anticipated that the strength of the parent company would change. Overall, pricing would not be affected too greatly, although the declining market means that it might become keener and margins may be squeezed even more. As the relationship with the fitment centres is already a weakness with the emphasis of the opportunities centring around the motor plants it is likely that this relationship could continue to deteriorate.
The difficulty for Smiths Aftermarket is that it is competing against itself by having both the Dunair brand and the motor plant branded products.