Increasing efficiency in the automotive aftermarket in India is the order of the day, states Manav Kapur, Executive Director, Steelbird International
The aftermarket community in India has traditionally been unorganised unlike its global counterparts. Conventionally, most of the manufacturers in India have focused on selling equipments as their core business while the aftermarket services remained as an ancillary business, mostly being transactional in nature. However, there has been a steady change in this business model due to the changing market conditions and the impact created by the pandemic. A gradual shift towards a relationship-based model from a transactional model has been underplaying now.
In such a case, manufacturers have been taking initiatives to build efficiencies in the aftermarket. Most of the manufacturers work with stand-alone distributors or regional distributors to a large extent. State-level distributors are far and few in this sector and especially since there is not a systematic model due to the informal economies clouding this sector, manufacturers need to focus on building the return on investment (ROI) for the distributors. In order to build the distributor’s ROI, broadly three key approaches can be adopted.
Controlling the inventory of the distributors will help in building the efficiencies. Day by day, the vehicle range is increasing; many variants are being added by manufacturers at regular intervals, increasing the frequency of supply to the same number of distributors. For instance, if a distributor buys material from the manufacturer for two months he would be carrying stocks for that period and his investment would increase. Further, since the vehicle range is also increasing, his efficiency decreases.
Rather, it is appropriate to supply him weekly so that his investment comes down from a monthly to a weekly structure and that is how the distributor’s efficiency can be improved. One of the key areas is to increase the frequency of supply. Instead of dumping material with the distributors over a larger time gap, companies can focus on liquidating their material faster for quicker cash conversion. In short, the turnaround cycle needs to be shortened so that there is quicker movement of the goods and in turn quicker supply, thereby cutting down on huge inventories.
With constant change in technology and consumer demands, manufacturers are keen to introduce larger variety of products in the market. If manufacturers focus on offering these new portfolios to their current distributors, the efficiencies in the aftermarket increase since the distributors do not have to chase multiple manufacturers for new aftermarket products. Further, to expand the distribution from metros or Tier I regions, manufacturers are also focusing on building their presence in Tier II regions instead of being dependent only on one or two large metro-based distributors.
A good supply chain management integrated with predictive and prescriptive analytics becomes a crucial joining point for both the manufacturers and the distributors. Integrating all suppliers and parts’ manufacturers on a common supply chain platform creates a systematic process and helps in identification of issues faster, which further creates efficiencies.
Conclusion For many OEMs the aftermarket has already started accounting for the entire profit generated by the company, enabling the company to build a consistent revenue stream. Consistent geographical and technological developments will be impacting the automotive aftermarket. From consolidation amongst parts’ distributors to aggressive new launches by OEMs, and changing waves forced by digitisation, manufacturers will have to think long and hard and re-strategise their business models to have a robust aftermarket landscape.