Friday 13 November 2015

Ricardo says adapt to protect aftermarket profits

Ricardo suggests automakers pay more attention to servicing the aftermarket, which generates one-third of revenue and one-half of profits.

Automotive consultants Ricardo plc, ever looking for new business opportunities, has spotted that as the average age of vehicles on the road increases and automotive manufacturers allocate their production capacity to new models and technologies, so their ability to support lifetime service parts requirements is threatened. 

Ricardo determines that the aftermarket supply/demand dynamic has changed from historical norms. Automakers thus find that traditional production-to-aftermarket transition practices may put them in a precarious position to meet aftermarket requirements.

Various factors compel automakers to analyse and predict lifetime requirements for service parts in an increasingly complex and challenging environment. 

Among such factors is greater length of customer ownership and increased average age of cars on the road.

Also, new powertrain technologies essential for tougher emission standards coupled with growing demand for new vehicles are cutting product lifecycles. This intensifies pressure on automakers’ existing manufacturing capacity to accommodate newer models.

Because of product lifetime forecasting errors, automakers have to make expensive re-launch investments to remedy critical part shortages. 

Automakers have to redesign, resource, retool and revalidate components for low-volume service, leaving their profits and consumer satisfaction at risk.

In its report, Ricardo outlines new operational and technical challenges experienced in transition manufacturing for critical aftermarket parts, including: identifying inventory and supply limitations, redesigning components for economical low-volume manufacturing and re-sourcing activities that include identification of new vendors, manufacturing processes and materials.

These operational, engineering and purchasing competencies may be in short supply in an automaker’s organization; often they are focused on new products from a supply chain producing higher volumes than required for aftermarket needs, as well as the usual day-to-day business.

The clever bit is identifying, anticipating and resolving potential inventory problems, thus safeguarding automakers’ profitability and customer loyalty.

This, of course, is where Ricardo believes it can play a part, using its cross-functional teams to reinforce, even supplement, an automaker’s hard-pressed resources.

Ricardo describes how, in one case, a special support team used a combination of skills to successfully introduce best practices for production-to-service transition for transmissions at an automaker to avoid looming aftermarket risks.

Operations experts audit inventory and identify a solution, and work with technical engineering experts to develop components – taking new designs, materials and manufacturing processes into consideration.

Then, low volume purchasing experts source the necessary materials or suppliers, while operations engineers support the launch of the transition to aftermarket production.




1 comment:

Alan Bunting said...

Automakers also need constantly to review the issue of necessarily cheaper so-called 'pirate' aftermarket parts.
They invariably condemn those as being non-approved, even though end-users, particularly in the truck and bus segment, find many - though obviously not all - pirate parts match approved parts in quality.
As long as newly-manufactured vehicles remain under warranty cover, OEMs can - via their dealer networks - oblige end-users to accept and pay for what are usually termed 'genuine service parts'. And through the medium of relatively-costly extended warranties, that stranglehold on the aftermarket parts business can be maintained into a longer vehicle life.
Manufacturer-backed repair and maintenance (R&M) contracts, for medium and heavy trucks typically lasting five or seven years into a vehicle's life, can serve a similar purpose for the OEM, making sure that only genuine (profit generating) parts are fitted.
Over say the last 20 years, vehicle reliability has improved to such an extent that the demand for 'repair parts' has shrunk markedly. And over that same period, thanks largely to longer lube oil life and reduced oil consumption, service intervals have been progressively extended, so that the requirement for even routine service parts (eg filters) has diminished.
It is therefore not surprising that automakers are having to look hard at their aftermarket business, especially as it remains the case that margins on new vehicle sales are often forced down by competition, in anticipation of compensating follow-up income from parts and service.
However, the vehicle manufacturers are unlikely to get much sympathy for their increasing aftermarket challenges from transport company accountants.