The aftermarket community in India has been traditionally unorganized unlike the global counterparts. Conventionally most of the manufacturers in India 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 impact created by Covid-19. A gradual shift towards a relationship based model from a transactional model has been underplaying wherein the 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 ROI for the distributors. In order to build the distributor ROI, broadly three key approaches can be adopted.
Inventory Control
Controlling the inventory of the distributors will help in building the efficiencies. Day by day, the vehicle range are increasing; many variants are being added by manufacturers on 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 structure to weekly 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 in larger time gap and companies can focus on liquidating their material faster for quicker cash conversion.
Network Optimization
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 then the efficiencies in the after market increase, since the distributors do not have to chase multiple manufacturers for new after market products.
Further, to expand the distribution from metros or tier 1 regions, manufacturers are also focusing on building their presence in Tier 2 regions, instead of being dependent on only 1-2 large metro based distributors.
Optimizing Integration
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.
For many OEM’s 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 after market. From consolidation amongst parts distributors to aggressive new launches by OEM’s, and changing waves forced by digitization, manufactures will have to think long and hard and re-strategize their business models to have a robust aftermarket landscape.
About the author:
Manav Kapur is the Executive Director of Steelbird International