Transportation Analysis and the Supply Chain

In this discussion, I will use a notional scenario to demonstrate how logistics is intrinsically linked to the supply chain and can support expansion of the transportation network and subsequently, the supply chain. In this notional sneak peek, an fictional small business: Bartz Motorsport Parts and Accessories (BMPA) reaches a point where standard market drivers intersect with logistics drivers and the small business is presented with overwhelming evidence in support of expansion. Any market analysis should always be eclectic and fluid with inclusion of a transportation optimization plan (as applicable) along with supply chain enhancements. This notional example reveals how BMPA learned a lot about how it manages its operations and at least one aspect of its supply chain. Having a complete understanding of transportation management at the macro level is helpful in the design of an optimization plan that will likely have second and third order effects. For the purpose of this notional exercise, it is important to build out the profile of the company, it’s background, and relevant market analysis as the driver for optimization.

The point of this notional exercise is to demonstrate that the transportation plan is a dynamic and integral part of the supply chain that should always be included in the business plan. A complete analysis of your organization’s transportation network can best serve your business needs and help you to optimize what should be a living component of the business plan. There are always opportunities for optimization and improvement and sometimes an improved plan can lead to expansion and growth.

Company Information and Background:

Bartz Motorsport Parts & Accessories (BMPA)
Established: June 15, 2015
Location: Retail Store: 1423 Las Tablas Road, Las Cruces, NM.
Storage Annex: 3780 Alta Vista Drive, Las Cruces, NM.
Description: BMPA provides the greater Las Cruces and Southern New Mexico region with same day availability of motocross and dual sport parts and accessories. BMPA prides itself on its ability to provide same day availability seven (7) days a week for all motocross and dual sport parts and accessories. BMPA partners with a major parts distributor (Dallas, TX) and two 3PL organizations (El Paso, TX, Albuquerque, NM) operating throughout the Southwest and West Texas to ensure this promise. BMPA operates one retail store in the expanding East Las Cruces area and maintains one 10K sq. ft. parts annex on the South side of town. BMPA employs 10 people expanding to 16 with temp hires during trials week and holidays. It’s 2018 earnings reached $1.4M before interest, taxes, depreciation, and amortization ($1.4M EBITDA).
Specialization: OEM and aftermarket parts and accessories for Honda, Yamaha and Kawasaki 125cc, 250cc, 450cc dirt bikes and Kawasaki series KLR 250 and 650 Dual Sport Featured Products: big bore kits, camshafts, CDI boxes, master links, 4-stroke exhausts, 2-stroke exhausts, fork adjusters, fork and shock springs, front tires, rear tires, brake pads, brake lines, axle pulls, bearings, chain and sprocket kits, batteries, lights and electrical, fuel tanks, fuel control, brake pedals, caliper guards, axle blocks, seats, graphic kits, trim decals, helmets, gloves, rider apparel + much more.
Public Relations: BMPA is the most respected off-road parts distributorship in Southern New Mexico and is well known for its customer centric attitude and commitment to quality. BMPA maintains a positive relationship with both powersports dealerships and sponsors one little league baseball team and one pop warner football team.
Expansion and Growth: BMPA is ready to expand as it has the capital reserve and VC commitment to add an additional retail facility. An initial assessment reveals an underutilized market is awaiting in neighboring El Paso. Local powersports dealerships in Las Cruces are underutilized as BMPA currently has no strategic partnerships.

Market Analysis

Demand is outstripping the capability of dealerships and larger distributorships to supply the local economies with motocross parts throughout North America. This enables small scale retail sales in communities across North America and especially the desert Southwest. Regionally, Southern New Mexico has seen unprecedented growth in this market with transient sales from Mexico up 20% and transient sales from Texas up 25%, largely due to the lower tax rate that New Mexico offers and the availability of stock versus larger markets such as El Paso. A 2022 Q3 study revealed that 60% of sales within the Las Cruces, NM area were special order kits, mostly parts for special modification jobs and some special-order accessories. Lean jet kits topped the list followed closely by carbon fiber brake systems and finally double strength master links, all of which included very specific manufacturer instructions. BMPA is one of the primary sources for highly specialized parts and special-order kits in the Las Cruces area. It is strongly recommended that BMPA continue and further invest in an expansion of this capability. There is a growing motocross competition circuit in the region that will continue to drive the growing requirement for specialized parts and special-order kits. BPMA is the only provider that can guarantee 24-hour delivery of an estimated 50% of special-order kits and 40% of specialized parts. The first part of any expansion must include a revitalized and optimized transportation plan that will accommodate increased inbound throughput.

Parts Stockage

BMPA conducts two daily milk runs from El Paso, TX to the retail store and annex in Las Cruces, NM. This is sufficient to maintain a 40% stockage rate for depth but not always sufficient to maintain a good breadth of kits and parts. The breadth aspect is concerning because as the market grows, so do new innovations and new technologies in motorsport engineering. BMPA will want to stay well ahead of the technology curve by ensuring that it always has the greatest range of parts, kits and accessories for it’s customer base. It is further advised that BMPA implement the use of a formal authorized stockage list (ASL) that is reviewed quarterly and updated to ensure market relevance. There are tools available in most warehouse management systems (WMS) to accommodate and help manage inventories with highly variable demand parameters. Most importantly, a quarterly ASL review should be conducted and bounced off of market research quarterlies, internal sales trends, and dollar cost banding (DCB) parameters. It is important to note that increasing breadth by adding small, inexpensive items is beneficial in markets that rely heavily upon special parts and kits and have larger geographical considerations to measure.

Expand and Optimize Concurrently

Las Cruces does not have an airport, the El Paso International Airport is the primary inbound shipment point for BMPA’s parts flow and special orders along with fast turn fulfillments. The two daily milk runs are sufficient to meet demand but there are inefficiencies inherent in the random drop ships that are becoming more and more frequent. BMPA’s prime vendor has a distributorship in Dallas, TX that ships twice daily at 0500CST and 0800 concurrently with drop ships usually between 1300 and 1400CST. At a distance of 67 miles from Las Cruces to El Paso, the milk runs are putting a minimum of 402 miles a day or 2,010 miles a week on the three box trucks owned by BMPA. This chase strategy of replenishment is wasteful and too variant for the growing company as it has the capital to expand. The company is ready to move to a hub and spoke model for parts distribution. With the capital available, BMPA may acquire a small supply annex (5-7K sq. ft.) with conservative retail space for El Paso customers to utilize. This will reduce the daily transportation requirement, distribute operations to facilitate growth, increase throughput, contribute to a healthier ASL, and reach the El Paso market directly as 40% of BMPAs customers have El Paso addresses. Half of BMPA’s small labor pool resides within the El Paso metropolitan area, incentivizing a transfer for employees that want to reduce their commute time to and from work. A separate analysis covers the cost benefits inherent in the decision along with location considerations, it’s important to discuss some factors for location in this analysis.

El Paso is the choice for an expansion location due to several key factors:

• Leverages a much larger market (El Paso population 700,000)
• Relieves BMPA of daily milk runs from Las Cruces (saves miles, hours, labor)
• Convenience and immediate delivery for 40% of it’s customer base
• Ensures that BMPA can maintain its same day promise on all parts (depth increase)
• Co-located with a major International Airport and USPS hub • Enables an optimized hub and spoke model for distribution of operations
• Officially enter West Texas market, largest motocross market outside of Arizona
• El Paso is second largest port of entry to Mexico (large motocross market in Chihuahua)
• Reduces the daily dependence on Dallas, TX distributorship
• Eliminate 3PL services required during surge periods (trials, holiday season)
• Leverages a vastly larger talent pool for temp hires, business development associates

Closing Comments

If this expansion proposal is chosen, a re-organized business plan must follow that addresses several fundamental operational changes. Initial planning should address the ability to strategically manage three locations with considerations for the plethora of considerations that follow establishing retail sites in dual municipalities. An operational transition to a hub and spoke model for distribution has multiple implications for staffing, overhead, retail, logistics, and of course supply chain management modifications. Another major planning effort would include the re-alignment of labor and staffing to transition from a chase strategy to a level strategy for resource allocation. A heuristic approach is the implied model to follow with managing this transition, smaller companies will likely not have the expertise and resources to address all aspects of their first expansion. Doubling up on planning means formulating a plan that rolls up market trends, logistics, SCM and centered on the customer.

It’s easy to get lost in the plan, the metrics and the deep analytics, start with the customer and work backwards.