Gear up for automotive aftermarket – The ins and outs of the supply chain

  • March 19, 2022
  • Blog

The automotive aftermarket is the industry dealing into the automotive products and services that are availed by the customers after the purchase of a vehicle. These products range from the equipment to accessories to various automotive components used for the maintenance and repair of a vehicle. The automotive aftermarket could expand with a CAGR of 3.8% p.a. from 2021 to 2028 as per the grand view research report.

Different selling models

Aiming at providing the right products at the right place and time, the industry is witnessing various sales models in its supply chain in order to overcome the challenges and deliver efficiently. The original equipment manufacturers (OEMs) are trying to strengthen their distribution networks. Some automotive companies choose to sell directly to individual consumers while others primarily focus on service stations. Manufacturers and automotive companies are being served by other firms for catering to “doit-yourself” as well as “do-it-for-me” markets but very recently automotive companies have also started moving towards wholesale professional installer markets to increase their revenue.

Burgeoning number of SKUs

With the technological advancements and shifting needs of customers, the aftermarket supply chain is being challenged at every level. The number of stock keeping units that are to be made available has grown tremendously in past few years. This can be subjected to the increasing number of options for auto models in the market and the updated technologies like electric and gas vehicles. The automotive companies that are catering to the professional
installers need to provide a wide assortment that can fulfil the varied demand. Also, maintaining the right inventory for the auto parts becomes tricky as different SKUs turn over at different pace.

Efficient Distribution network

Timely delivery becomes another major challenge. In most of the cases, the professionals need the auto spare parts on urgent basis within a limited time period. Automotive companies could also use this to their advantage. Providing the auto parts faster than others in the market can give a competitive advantage to the automotive companies. To achieve this, some automotive companies maintain stock for local requirements in self-owned warehouses. Also, for slow moving parts they are either sourcing them directly from auto manufacturers or are
making on-demand supplies through hub and spoke model.

Distribution networks that are developed by the auto makers include regional distribution centres (RDCs) and parts distribution centres (PDCs). These centres are owned and operated by them. Dealerships majorly depend on these distribution networks. The branded parts are delivered to these RDCs which then move through networks of PDCs. A 3PL service is used to deliver the parts from PDCs to the dealers that have placed the orders. Cut-off timings help
them meet on-demand orders and next-day deliveries. To prevent customers from going for alternatives, is has become crucial for OEMs to meet time requirements. They are emphasising on better inventory management in order to avoid dead stock and returns.

Collaboration – a necessity

The market is becoming more and more competitive with each passing day which has created a pressure for reduction in costs as well. This is forcing the suppliers to opt for unconventional methods like sharing spaces at warehouses and logistics. This can also be taken care of by involving a 3PL that can carry products from different manufacturers shipping to same locations which reduces the cost of shipment. Here, 3PL service providers can club products from suppliers of different industries that are to be shipped to dealers in one location. Hence,
overcoming the resistance towards sharing shipments with competitors. This concept of sharing spaces in the warehouses by 3PL has been very promising in terms of saving fixed costs for the automakers.

Moreover, creating differentiation in the marketplace could keep away the threat from inexpensive knock-offs. To distinguish themselves, manufacturers need to offer more than the products to lure their customers. Value – added services could help in creating that extra edge to the offerings by manufacturers. Also, enhancing their production and inventory management through demand forecasting could help them in preparing for orders in a far efficient manner. The manufacturers could use category management to accomplish better supply chain management. Automotive aftermarket has shown considerable growth with a market size of $390.10 billion in 2020. With the increase in the technological advancements, connectivity and different upcoming renewable concepts in automotive industry, the average life of vehicle is increasing and maintenance has become a necessity.