As we gear up to exhibit at the Automotive Aftermarket Product Expo (AAPEX) two weeks from today, we wanted to talk a little bit about some of the top automotive aftermarket trends, as well as some supply chain trends those in the automotive aftermarket are experiencing in a time that can only be described as an industry in transformation (like most industries, and especially manufacturing). In tomorrow’s post we will then expand from automotive aftermarket trends & the importance of using a 3PL company to make those in the automotive aftermarket more competitive.
3 Big Automotive Aftermarket Trends Facing the Industry Now and in the Near Future
A Chinese proverb says: “When the winds of change blow, some people build walls and others build windmills.” If you are working in an industry like the automotive aftermarket sector, where you can feel a constant breeze of innovation, you will have to develop an intuition for boundaries and opportunities, or in other words – set up your windmill when the moment is right.
The online retail market for the automotive aftermarket parts industry and accessories continues to emerge as a tremendous growth opportunity for the aftermarket parts industry. While estimated sales volumes of the online parts industry vary, assessments range from $2 billion to $4 billion annually.
In its March 2014 report, “Digital Disruption: e-Tailing in the Automotive Aftermarket,” AASA reported that aftermarket e-tailing has grown dramatically, with an estimated 60 percent of growth occurring in the past four years. Because of that, Booz & Company estimated that by 2018, e-tailing market size could reach 7.3 percent of market penetration. Aftermarket suppliers must have an effective presence online in the purchase process to capitalize on the opportunities in DIY and DIFM.
Over the last several years, the automotive aftermarket has adapted to and profited from the overall trends in the automotive sector. Like the previous years, 2014 will again mark a peak in the production of cars and the corresponding supplier industry. The high demand for spare parts is connected to the old age of vehicles in the US (ca. 11 years). Also, strong growth in emerging markets provides the automotive industry with a significant amount of upward potential.
From the aftermarket industry’s point of view, the continuity of this development depends on the companies’ ability to further adapt to the upcoming automotive aftermarket trends. The main driver behind these trends is technological change.
In the course of this particular initiative, spare parts management is subject to an efficiency analysis in each particular aspect. This calls for new ways of thinking and abets digital solutions.
Those in the automotive aftermarket industry are therefore required to keep a keen eye on industry developments. As there are tight connections with several customers in the automotive industry, these 3 automotive aftermarket trends will play a major role in the future:
1. Equalization of service levels in emerging markets
In the past, a service level of between 90 and 95 percent was the benchmark in the automotive aftermarket. Today – partly as a consequence of higher requirements in the digital age – a service level of 95 to 99 percent is the new standard in developed markets. In emerging markets, like China or India, most of the time, the service level does not climb higher than 80 percent. Increasing this value is the avowed goal of spare parts management in the coming years. The most important challenge regarding this matter is bridging the infrastructure gap in emerging markets. Even though ERP systems are now widely available, the potential of these systems is limited. This fact will promote further trends regarding inventory optimization strategies, in order to achieve higher service levels.
E-commerce is a business model which has thrust itself into various business sectors. Today, the transaction of relationships and sales processes between customers and providers via the internet is the absolute standard in B2C business. This trend has now affected spare parts management as well. In the US, the revenue in the online area of spare parts vendors is estimated to amount to more than 5 billion dollars. In this specific area, e-commerce shows a double-digit rate of increase – something the traditional brick-and-mortar businesses can only dream of. But this shift comes with a price, because the expectations of online customers are very high. (BONUS: See our Special Report on “E-Commerce Reverse Logistics Framework Strategy for The Automotive Aftermarket Industry” on the Automotive Aftermarket Supplier’s Association Website.)
Today, online mail-order advertises the concept of same-day-delivery, which implies the arrival of goods only a few short hours after the order was made. In order to meet these promises, a service level of 99 percent should be a standard. However, high stock levels cause high storage costs and bind capital which could be used in more sensible ways. Companies should monitor both their service and stock levels and try to keep the latter as low as possible. In this context, the balance of stock levels between the web shop and the stationary retailers will play an important role in the future. The coordination of these two poles, in terms of a multi-channel strategy, is one big challenge the automotive aftermarket will face when implementing an e-commerce business model.
3. 3D printing
Aside from the demands of rigorous E-commerce delivery times, 3D printing also represents a new trend in spare parts management. With 3D printing, companies found a way to shift the production of spare parts from a central production facility to local, previously non-productive subsidiaries. If a certain spare part is currently out of stock, it can quickly be made available by printing it on-site. The most important thing about this process is to have detailed specifications of the required objects. Because of its complexity and data sensitivity, the procurement of this information is a massive roadblock on the way to adopting this technology. While this currently prevents widespread usage, the first companies, like Ford, are already moving in this direction.
It is safe to say that the spare parts market shows a more than average growth. With the equalization of service levels in emerging markets, e-commerce and 3D printing, a fresh breeze of innovation is blowing in the automotive aftermarket. The future will show which companies set up their windmills at the right time.
What are some Automotive Aftermarket Trends in the Supply chain?
One ongoing development of automotive aftermarket trends is suppliers are increasing their ship-direct activity. They are shipping parts directly to the dealer, or they may ship to a primary distribution center or field DC, bypassing the national distribution center.
This approach benefits the shipper during a surge in demand, because the inventory is available throughout the network, so the supplier can quickly distribute it where it is needed.
Another supply chain trend in the automotive aftermarket is same-day delivery. Traditionally, dealers place their orders late in the afternoon on the day before delivery. But today, suppliers place high-velocity parts in various select locations, allowing them to ship to dealers in multiple daily deliveries. Dealerships can then provide much faster service to their customers—repairs that once took two or three days, for example, can now be completed within 24 hours. This strategy is prevalent in premium auto brands, but is spreading to more mainline brands as well.
Establishing high-velocity distribution centers represents a third auto aftermarket trend. High-velocity DCs ship original equipment manufacturer (OEM) parts every day to most or all of the automaker’s dealerships. Some smaller auto brands ship less frequently, typically delivering service parts two or three times weekly to the dealer.
Using high-velocity centers—either their own facilities, or ones operated by third parties—allows companies that once delivered two or three times weekly to serve customers five times per week. This approach could raise the level of inventory on hand, but if companies strategically focus on turns and inventory placement, they may not have to increase the amount of inventory in the system—they can just place it closer to customers.
What Automotive Aftermarket Trends are Driving Complexity and Posing Challenges?
It’s easy to focus on assembly plant needs, but dealer needs are just as critical. Making more frequent deliveries to keep up with service demands raises the challenges of determining where to place the inventory, and managing the associated transportation costs, including identifying opportunities to reduce them.
Sharing the network can help. In many cities, most of the car dealerships are located in the same area. There’s often opportunity for suppliers to share distribution networks and improve service to dealers—as well as keep their transportation costs in check. OEMs generate about half of their profit from aftermarket service parts, so serving these dealers is vital. Being able to deliver faster than the competition makes all the difference.
What does the Relationship Look like Between OEMS and Those Automotive Aftermarket Companies Looking to Gain a Competitive Advantage?
In addition to transportation management capabilities, inventory and order management are crucial. The right logistics service provider can help suppliers identify service goals and determine what it will take to achieve them, as well as decide how much inventory to hold, where to locate it, and what fill rates should be.
What automotive aftermarket trends are you seeing? Let us know in the comments below!