Merging businesses and their unique processes is a challenge of its own, and coping with potentially disparate IT infrastructures to achieve a reasonable TCO is another strife. The SAP Dealer Business Management (DBM) and the SAP Vehicle Management System (VMS), both based on SAP ERP, provide comprehensive functionality for key scenarios of retail and wholesale businesses. An often asked question is, whether both applications can operate together to support the more complex requirements of distributors and their owned or independent dealership channel.
Yes, they can. Read here more about the how and why we see more and more need for combined scenarios.
Business Background – Why Distributor and Dealer are under One Roof
Here are 3 drivers of the trend of automotive companies being both in wholesale and retail:
1) Ongoing consolidation of the dealer market is a trend which is apparent around the globe for many years. The current economic situation has significantly accelerated this trend and the role of resulting big dealer groups is evolving along with this. While many of them kept their retailing business to a few brands, some organizations now extend their market penetration by adding brands – and need to avoid internal competition between brands – but also by diversification to other channels like cooperation with independent dealers.
2) While some OEMs own the distribution network in their home markets (with the exception of the US where this is outlawed), they tend to operate overseas wholesale only by themselves when the markets are both attractive and entry barriers are low. If either condition is not met, OEMs usually entrust a local distributor to manage dealership collaboration on it’s behalf. Often these distributors are established automotive players with own retail operations. By following this strategy, the OEM reduces it’s need for investment and shares the risk at the same time.
3) In emerging markets, the challenge for the OEM is to rapidly build a business infrastructure that suits local requirements and culture aspects and scales to support growth. Knowing the market, established local dealer networks can more easily extend new brands and scale their business than a new player can in an unknown, perhaps economically unstable market.
So apparently reasons for organizations to be or become both wholesaler and retailer are many but what all such organizations have in common is the need to keep both businesses profitable. At the same time they need to use their ownership of a bigger part of the supply chain to their advantage. This is challenging with both types of business being different in nature and consequently having different requirements to an IT system as the following chart describes.
What challenges traditional DMS vendors is that their product capabilities are limited to retail functionalities and cannot scale up to address the needs of wholesale operations
It is not sufficient to support the traditional dealer’s retail scenarios for vehicle sales, workshop management and parts sales – maximum synergies can only be achieved by looking at the retail and wholesale business holistically.
Bridging the gap from wholesale to retail
Along with SAP’s initiatives for automotive retail, many automotive wholesale companies who own dealerships discuss best practice approaches about how to address both requirements on their business process platform. Prior to addressing how these synergies can best be realized, let’s look at what the requirements really are and what are similarities and differences of both types of business.
A classical wholesale company, typically being either independent importer or OEM owned national sales company, acts as an intermediary between OEMs and the end customer facing side, the dealers. The main pillars of wholesale business typically are sales, vehicle and parts distribution as well as assisting dealers in delivering on OEM or own warranty programs. Processing maximum volume with a minimum of resources by maintaining service level standards expected for a specific brand and required by the franchise agreement is key to any automotive wholesale business, particular in times of shrinking margins.
A typical dealership sells vehicles along with finance and leasing options to end customers, accepts trade-ins of used vehicles, sells vehicle repair services, parts and accessories. It is a completely end-customer focused organization ideally with all activities synchronized to meet and exceed their customer’s satisfaction. Challenges of a dealership are different: usually workshops tend to have higher turnover, therefore processes and tools must be as simple to understand as possible for new staff to quickly adapt into a new role.
The Business Overlap – finding synergies
One data source: Both „parties” trade vehicles and deal with their customers. The physical vehicle is always the same; what the distributor orders at the OEM, the OEM delivers, and the dealer sells and services is one individual object with data extensions earned from each prior process step. The OEM and distributor deliver fixed production and individual vehicle data, perhaps also information for the dealer related to service execution when the vehicle is on the road (e.g. technical campaigns). Changes are usual updates during production and delivery process, such as dates changes or documents legally required during the sales process, etc.
Once the vehicle is registered, neither the OEM nor the distributor will change vehicle data (with the exception of recalls and other legal influences). At the point that the vehicle handed over to the dealer and his customer, then it is in the hand of the dealer to apply changes to the vehicle data, based on the dealer business, what is sale, re-sale, warranty claims, transfers, service orders, service contracts, etc. The dealer then “owns” the vehicle in terms of data correctness. On the other hand, some OEMs generate data while the vehicle is on the road via telematics which is of use to the entire service chain. So it’s absolute valid to expect to have one data source for each individual vehicle master through wholesale and retail and this gives an unmatched transparency over the supply chain.
Distribution control: A distributor may have good reasons to treat it’s own and independent dealers equally, in case a distributor wishes to setup policies on selling popular models which may be scarce shortly after model launch through his own dealers first prior to selling them through his independent channels.
Customer data is another object to look at. The dealer is the customer of the distributor, he is the “sold-to” and “bill-to” party. From the dealer perspective, the end-customer is the ultimate customer, acting as “sold to” and “bill to” in dealer’s account receivables. For the OEM and distributor, end-customer data is used for market campaigns and for – considering data protection rules – recalls. Are both business separated, the independent dealer provides more or less just basic data to the distributor as he usually has an interest in owning “his” customer. For customer data he cannot secure through his own retail channels, he may depend on more “foggy” sources, but in any case costly. Merging these different types of customer data into one source for customer and market data, the 360° view can be established, and thus transparency is of great value for the company that owns this data of view of the vehicle and customer.
SAP for Automotive solution provides functionality for all businesses, retail and wholesale alike and aligning both areas makes sense. But how can this be done?
Multiple instance strategy – one for the distributor business and a separate one for the dealer may not be the most desired solution when implementing at both lines of business at the same time, however it gives a maximum of flexibility and control to both sides of the business. We would therefore only recommend this if both businesses are separate legal entities and work completely independent from each other. Process integration can be realized with NetWeaver XI to align vehicle distribution based on VMS and vehicle sales to end customer supported by DBM. The VMS action control on both sides makes sure that vehicle data is always in synch, e.g. when the dealer orders a car from the distributor for instance in dealer portal and triggers a sales order in the distributor’s system, a purchase order in his own system is automatically triggered.
Single Instance Strategy – It is undoubtedly preferable from TCO point of view to have both wholesale and retail business on the same instance, i.e. the same system and same client. The more integrated both businesses are (e.g. legally the same entity), the easier is the deployment. Again take vehicle sales as an example: being the same entity, vehicles would be bought by the distribution department and sold in the retail outlets – a scenario which can easily be managed with VMS and DBM. If distributor and dealer are different company codes, it is more tricky. The vehicle will have multiple procurement and multiple sales price tags . The VMS action control being used for DBM as well easily become complex, particularly when considering cancellation and change processes. Note 941633 (Using integrated scenarios with VMS and DBM) describes more details of this case.
There is unfortunately no out-of-the box solution suited for all corporations of this kind. Most important is to look at the organizational setup of the distributor and the dealer arm. Then it is key to describe the business processes as clearly as possible even in the preparation phase because this impacts solution mapping and the instance strategy.
This describes how we see the dynamics of many organizations in Automotive Sales & Service we discuss business and IT challenges with and hopefully also gives an insight into some aspects to consider when planning a deployment at a wholesale company with own retail operations.
Let me know if you would like to read further details.