Improving Aftermarket Sales Through Effective Supply Chain Designs

Aftermarket sales and services is a high margin business. Hence the competition is huge and there are wide range of players and service offerings involved. These services include spare parts, maintenance and installation, consulting, training and technical support provided by OEMs, dealers, and third-party suppliers. Customers tend to prefer brands and products that have good aftermarket support and services.

According to Statista, the US automotive aftermarket sales have increased by 36% while the vehicle sales grew by only 12% approximately in the last decade.

The Problem

From a supply chain standpoint, there is a distinct difference in the way aftermarket orders are filled compared to the regular production demand. The emphasis is more on service and delivery than on cost for an aftermarket order. Most companies struggle to set the inventory strategies right on the aftermarket side mostly due of the following factors

  • increased parts proliferation
  • low volume and lumpiness in demand
  • lack of proper field / equipment/ vehicle data
  • collaboration challenges with dealer networks and other 3rd party service providers

The above factors often result in high stock outs, poor on-time delivery and huge inventory holding and obsolescence costs.

CGN has worked with Fortune 100 clients to help define aftermarket inventory strategies to improve service levels and sales revenue.

The Solution

The solution typically lies within the following 4 areas.

  1. Forecasting intelligence (telematics, field data etc.)
  2. Agile and flexible distribution network
  3. Automated and seamless collaboration with partners (dealers and service centers)
  4. Optimal inventory positioning by SKU Segment

The following 5-step approach helped a major client improve their service parts availability for a specific product segment by 4%, resulting in a sales revenue improvement of 7% ($8M) and a potential 42% reduction in inventory.

Step 1: Study voice of business and customer requirements by sales region

Step 2: Evaluate current forecasting and demand shaping process, inventory and distribution strategy

Step 3: Mitigate gaps in forecasting by improving field data accuracy and dealer collaboration. Reconfigure the network lanes based on the revised VOB/VOC by SKU segment

Step 4: Model and optimize inventory positions across all DC’s for the future state network configuration

Step 5: Execute network changes and monitor performance

Our study involved testing over 20 different what-If scenarios involving demand sensitivity, order type options and improved forecasted demand scenarios and target service levels by product segments. See illustrative inventory positions chart for varying demand levels.

Figure 1: Aftermarket Parts Inventory - Demand Sensitivity

CGN offers End-To-End supply chain solutions from strategy to execution. We at CGN have worked with Fortune 100 clients to help solve these problems

Vijay Venkatasamy

Tom Rauch