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3 Automotive Aftermarket Trends Driving

Changes & Best Practices in the Supply
Chain
Automotive Aftermarket Supply Chain Trends // Adam Robinson // October 20, 2014 // 2 comments

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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 proted 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 signicant amount of upward potential.
From the aftermarket industrys 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 efciency analysis in each
particular aspect. This calls for new ways of thinking and abets digital solutions.
Those in the automotive aftermarket industryare therefore required to keep a keen eye on industry
developments. As there aretight 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.

2. E-commerce
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 specic area, e-commerce shows a double-digit rate of increase something the traditional brickand-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 specications 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 rst 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 theSupply 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
eld DC, bypassing the national distribution center.

This approach benets 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 customersrepairs 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 centerseither their own facilities, or
ones operated by third partiesallows companies that once
delivered two or three times weekly to serve customers ve
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 systemthey can just place it closer to customers.

What Automotive Aftermarket Trends are Driving Complexity and

Posing Challenges?
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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 dealersas
well as keep their transportation costs in check. OEMs generate about half of their prot 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 ll rates should

be.
What automotive aftermarket trends are you seeing? Let us know in the comments below!
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