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 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.
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) and in Europe (ca. 9 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 trends. The main driver behind these trends is technological change. For example, in the EU automotive industry, this change is currently also enforced by legislation, as in the case of the strict regulation of CO2 emissions. 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.
Spare parts distributors are therefore required to keep a keen eye on industry developments. As we have tight connections with several customers in the automotive industry, I know these 3 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, where trends for Europe are often set, 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.
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.
Can you think of other trends in spare parts management within the automotive aftermarket?