E-commerce is reshaping the aftermarket supply chain

April 13, 2019
As more companies sell product online, and as traditional retailers and new companies enter the market, pressure is high on suppliers to keep up with demand.

As more auto parts companies sell product online, and as traditional online retailers like Amazon and eBay, as well as new companies like Rockauto.com, enter the market, pressure has been high on aftermarket suppliers and distributors to keep up with increased demand.

Increasingly, installers and DIY customers are looking for 24-hour access to inventory, and that is affecting the way companies up and down the aftermarket supply chain operate.

This new reality prompted the Automotive Aftermarket Suppliers Association (AASA) and Roland Berger to team up for a new study on how e-tailing, connectivity, telematics, digitalization and other trends are going to affect aftermarket distribution operations.

“Digital disruption is affecting every industry, and we’re not immune in the aftermarket,” says Paul McCarthy, executive vice president at the AASA. “Digitalization will bring new capabilities and new efficiencies to distribution and sales, as the online and offline worlds increasingly merge. We want to help people understand what is coming, how these new business models are going to affect the aftermarket, and what we need to do now to prepare ourselves for that.”

The study results were presented at the AASA Vision Conference earlier this month.

The Auto Care Association has also published a study on e-tailing and other trends affecting the industry, titled “Disruptive Trends Shaping the Future of the Auto Care Industry.”In 2014, the Auto Care Associationestimated the e-tailing channel at $6 billion or roughly 6 percent of the replacement parts market. At the time, projections were that the e-tailing space would grow to 11 percent of the market in five years.

According to the association’s most recent data, in 2017 e-tailing reached $22 billion, having experienced a CAGR of 15 percent. That CAGR is expected to slow to 8 percent through 2020. The overall CAGR for the replacement parts andaccessories market will be just 3 percent.E-procurement by repair shops grew even faster, with a 35 percent CAGR through 2017.

Again, 24/7 access and rapid delivery are paramount. When shops are ordering online, delivery speed is the top decision making factor when selecting a supplier, according to the Auto Care report.

According to the report, manufacturers may adopt more direct to consumer sales, partner with e-tailers, or increase their focus on cost reduction and/or brand/quality in response to increased channel competition. 

Traditional distributors have been challenged to add and retain customers while still maintain margins in this environment, which has led many companies to open their own online channels, or emphasize service and speed. Retailers may take the same type of omnichannel sales approach as consumer retail outlets in order to stay competitive.

The AASA also expects more integration between the online and offline shopping/purchasing experience in the aftermarket, as well as adoption of digital supply chain strategies like no-touch order processing, advanced data capabilities and informationplatforms, and automated replenishment.

In some instances, companies may add more services to improve their position. Amazon has done this with their home services offering, and there are companies like NTB that are offering mobiletire installation.

This is a new model of online retailing targeted at the do-it-for-me space that has the ability to restructure the way that consumers select and procure parts, and the way companies forecast and market parts to consumers,” says Barry Neal, partner at Roland Berger.

Distributors will also likely follow the lead of their consumer goods counter parts and implement a number of strategies to help keep up with demand. Those include:

  • Deploying integrated transportation managements
  • Predictive modeling and forecasting tools
  • More flexible and personalizerd delivery methodologies (including on-demand, Uber-like transportation models)
  • The use of on-demand warehouse capacity or trucking capacity models
  • Increased use of barcoding and other paperless warehouse technologies
There will also likely be an increase in warehouse space, which is already occurring around the country as companies build smaller, regional distribution centers to handle two-hour or same-day delivery requirements. There are more warehouses going up in urban centers, and Amazon is even building a number of multi-story warehouses in large cities across the country.

The AASA study will, hopefully, shed some light on how the aftermarket shouldrespond to these trends. “We’re trying to findout to what degree these new types of customers and B2B service model shave penetrated the independent aftermarket,” McCarthy says. “There are a lot of interesting things happening. Ifyou look out a decade, things will look very different. There will be new and different business models. We’re really ripe as an industry for this digital disruption.”

Neal believes the aftermarket is well positioned to meet these challenges. “The independent aftermarket has the abilityto service a network of 250,000 shops that carry almost no inventory, and delivery four times a day and provide 95 or 98 percent availability of any component thata car might need,” Neal says. “That’s a unique set of challenges that drive the footprint of inventory in this industry. To some degree that’s provided some protection to date from someone like Amazon coming in and replicating that. That investment, and having that infrastructure already fully vested and depreciated, provides aa unique set of capabilities that makes it hard for other players to mimic. 

“The aftermarket is really operating from a position of strength,” McCarthy adds. “We know we will have to change, but instead of approaching that with fear we should approach it with excitement.”


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