Autocar Accessories Company: The Pay-on-Scan Decision
22 Pages Posted: 30 May 2017
Abstract
In January 2003, AutoZone, the largest automotive aftermarket retailer in the United States, announced that all of its vendors would have to convert to a new "Pay-on-Scan" (POS) reimbursement program. The program would transfer all existing inventory from AutoZone's balance sheet back to the vendors, who would own their inventory until it was sold to a customer at an AutoZone store. AutoZone's initiative was closely observed by its major competitor, which has signaled its own vendors—including Autocar Accessories Company (AAC), a family-owned supplier of replacement parts—that it intended to copy AutoZone. AAC management must quickly understand the AutoZone POS concept and estimate its potential benefits, costs, and overall effect on AAC.
Excerpt
UVA-OM-1098
Rev. Jan. 7, 2014
Autocar Accessories Company: The Pay-On-Scan Decision
As the owners and managers of the Autocar Accessories Company (AAC) gathered for their quarterly board meeting in late March 2003, they wondered how they would respond to their largest customer's latest demands. Forward Auto Parts & Accessories (FAPA), an aftermarket retailer of automotive parts and accessories, represented more than 50% of their total revenue and had just issued an ultimatum: all vendors would convert to the new “Pay-on-Scan” (POS) initiative, or FAPA would find vendors that would.
AutoZone, the largest aftermarket auto-parts retailer and competitor to FAPA, announced the introduction of their POS program in January, and the entire aftermarket industry followed the announcement closely. The program would transfer all existing inventory from AutoZone's balance sheet back to the vendors. Each vendor would first buy back all inventory items currently in AutoZone's warehouses, distribution centers, and more than 3,100 retail stores, and then continue to feed new inventory into AutoZone's distribution-and-sales network. The payment cycle, instead of starting upon delivery of product to AutoZone warehouses, would not begin until AutoZone actually sold (scanned) the product to the end customer. AutoZone would essentially defer payment to its vendors until it had sold the units to its customers.
Although AAC sold no parts to AutoZone, its owners became concerned when other retailers indicated their intention to emulate the market leader. For example, the CEO of O'Reilly Auto Parts, another AutoZone competitor, commented in an industry magazine about AutoZone's aggressive introduction of POS: “Obviously, if this goes anywhere, if it goes to first base, second base, or however far it gets, we're going to want to be there too. We're no different than anybody else. In fact, we'll insist that we be there to remain competitive.”
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Keywords: business-to-business marketing, manufacturing operations, supply chain, channel strategy
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