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.
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.
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.
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
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