What is happening in the Automotive Aftermarket Industry? | Part 2 – Digital enabling capabilities
Digital enabling capabilities
Automotive Supply Chains evolved a great deal since Ford fundamentally transformed local supply chains with the first mass producing of Vehicles. From that time until now, automotive players in the aftermarket segment faced different disruptions. Whether driven by innovation or crisis, the impact of that reinvention has often been felt on their supply chains. Players keep reinventing themselves throughout the years developing core capabilities that support their end-to-end processes.
In the first post of these series, the main trends impacting the automotive industry and how they translate into the aftermarket were introduced. The key message was that disruption is a common theme in the industry. Driven by innovation, the environment or geo-political factors, existing business models were continuously in flux and this is by no means an exception at all. Finally, the post ended with the idea that a resilient supply chain at the core of the aftermarket industry is essential to enable Aftermarket Players to ‘drive’ the road ahead.
In 2016 William Newman wrote an article pointing out that when it comes to digitizing their processes the automotive aftermarket is behind most manufacturing companies. The article emphasizes that digitalization capabilities from direct-to-consumer distributors are capturing important market share. Crucially, the core operations ‘back office’ and supply chain visibility are key pillars that can support ‘front-office’ and customer facing processes to excel. The article ends stating the importance of an enterprise wide approach where sales is enabled by the supply chain back-bone.
Since 2016 the trends we discussed in the first part of these series have grown more relevant. The pressures on the aftermarket industry to enable resilient enterprise-wide businesses through digitalization have only mounted.
In this blog post, we will address some of the main enterprise-wide digital capabilities that aftermarket players need to excel into in order to be ready to move into new business models. This will enable them to capitalize on growth derived by innovation and technological development.
What are then the core enterprise-wide digital capabilities that that aftermarket players need to master to achieve their goals and partake into the aftermarket growth?
The SAP reference capability model for automotive aftersales identifies the following 10 Core Business Capabilities for the automotive aftermarket players:
- Customer and Order Management
- Order Fulfillment Management
- Parts Availability Management
- Digital Integration
- Revenue & Operations Management
- Service Parts Planning
- Product Life-cycle Management
- Procurement Management
- Supply Chain Execution
- Asset Management & Capital Utilization
Let’s verify some of them in detail to understand what they entail and mean for the aftermarket industry:
Order Fulfillment and Parts Availability Management
The ability to manage order fulfillment processes effectively goes hand in hand with the parts availability management and operations capabilities. OEMs and suppliers need to remain cost competitive but also provide transparency through their processes. It is fundamental that both parties work hand in hand with each other to provide an excellent customer experience. It is crucial to have an overview of all unfilled orders and their status and be able to manage on exception. Here, it is not only decisive for OEMs and Suppliers to be able to handle high volume orders but also to ensure core processes can be executed as back-order processing, direct shipping and drop shipping. Additionally, it is essential to ensure dynamic sourcing relationships that allows an effective distribution within the geographical network that fits the required service level. The mastering of these capabilities become more and more crucial when shifting from a B2B to a B2C approach dealing with end customers.
Parts availability management capabilities are tightly linked with global operations. Proper global stock visibility across a thought distribution network is essential. Digital capabilities in this area shall also include the ability to manage core parts availability processes as parts exchange and replacement, parts consolidation and cross-docking activities. The aptitude to address these capabilities will ensure that supply chain inefficiencies are identified at an early stage and margins are protected allowing the aftermarket players to remain competitive in the market. Additionally, these capabilities will provide the ability to escalate and grow easily into emergency markets with existing business models.
Service Parts Planning
At the heart of the aftermarket capabilities lays Service Parts Planning. Digital capabilities in the core planning processes ensuring planning capabilities specific to service parts to ensure transparency throughout the supply chain from demand to the distribution of the product are essential. These include: Ability to capture and managing demand history efficiently as basis for forecasting and further planning processes. Optimal Inventory planning including calculation of Economic Order quantity in combination with safety stock along the distribution network. Optimization of Stocking & De-Stocking decisions. Forecasting with forecast models that fit specific products and their locations throughout the life-cycle of a part. Determination and demand across the network distribution – ideally at a local level and according deployment across the distribution network. Finally, Inventory balancing that balances excesses and shortages throughout the network. Only having these processes in place will create the access to data that will allow to leverage new technology and innovation and predictive analytics and parts data.
Supply Chain Execution
Having in place a strong strategy and establishing core processes for all logistics and warehousing activities are also an important aftermarket capability. These include: Ability to execute stock transfers within the distribution network, management inbound and outbound warehouse processes – while tracking inventory within these processes, measuring its precision and access reliability and performance of suppliers executing logistical activities. Additionally, a strong focus on Transportation and Yard processes with a proper strategy that optimizes costs and focus on customer needs by leveraging and evaluating key suppliers is crucial. Here capabilities as tracking and tracing, document generation and effective cost management are essential. The aftermarket players also possess the advantage to leverage current distribution channels and existing vendor networks. Reverse logistics becomes also more and more important with more focus on environmental practices and a good vendor relationship. Finally, cross processes as kitting and packaging, quality management and the ability to deal dangerous goods and hazmat management is also crucial. A strong digitalization in these processes will enable to verify as well competitive position regarding new entrants and evaluating suppliers and provide basis to simplify and enhance supply chain execution processes.
Going again back to the first blog post, digital integration capabilities are the core capabilities that link the most with ‘connected’ attribute of the future vehicle. The ability to integrate sensor data to a digital twin equivalent and bring vehicle data to back-end operations will allow those having this data to secure the new business models that it can enable. Leverage vehicle data to extend vehicle lifetime and provide value added services for equipment service and service parts will enable aftermarket players to react properly, earlier and effectively to claims. Digital assistance shall also be something that players shall be able to provide in a 24h cycle and in different platforms. Knowledge Management will be also essential: one one-side to contain industry expertise and on the other side invest in further skills focusing more and more on customer facing capabilities and in mastering new technology fundamental to keep relevant in the market.
Revisiting again William Newman’s post in 2016, the article ends with a sentence stating that the path forward to the aftermarket suppliers and how the aftermarket will accomplish its objectives remains to be seen. While the industry keeps evolving different factors are making this path more and more clear. Aftermarket players are trailing the digitization of their processes seeking to evolve and strength wide enterprise digital skills to navigate this growing industry and to protect themselves from new entrants and disruption. Digital skills that enable the aftermarket players shall be addressed end to end from Customer Management, passing by procurement, supply chain planning, product life cycle management through a fulfillment and supply chain execution skills with cross digital integrated capabilities. Ensuring their core digital skills are enterprise-wide robust and that they link different functions of the end-to-end processes is the crucial basis to pave the road for driving this more and more disrupted world and see technological and innovative disruption as an opportunity instead of a threat.
What is your opinion regarding the presented Digital Capabilities for the aftermarket? Do not hesitate to reach to us to learn more about SAP’s view on the 10 identified enterprise-wide capabilities for the aftermarket and what they entail.
What to wait for in the final blog post?
In the next blog post SAP’s next generation service parts management in S/4HANA will be presented as a solution offer in the aftermarket supporting a digital-wide enterprise core. Exactly having in mind the path ahead SAP working with value customers decided in September 2019 to enhance SAP’s strategy for digital supply chain bringing the SAP Service Parts Planning Solution (SPP) into SAP S/4HANA as part of the core Digital Supply Chain solutions. The application will be available on SAP S/4HANA, making it ideal for companies that distribute large volumes of aftermarket service parts to numerous stocking locations.
Authors: Sara Mendes, Guada Joseph, Sebastian Scharfenberger, Uli Pfeffer, SAP Automotive Industry Business Unit (IBU). The Automotive IBU is a global team that represents SAP in the Industry and is responsible for driving sustainable business growth, customer satisfaction and solution completeness. The IBU Automotive team ensures the delivery of end-to-end solutions for the Automotive industry addressing current and future customer needs, and it enables the sales and consulting organization.