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In the current post-pandemic digital world, we can see drastic changes in customer preferences and purchasing behaviour. The automobile spares industry is one of the key industries witnessing this change. Customers need the service immediately, and it’s a big turn-off for the customers if they have to wait due to the unavailability of spare parts. Such post-sales interactions heavily impact the customers’ decisions regarding future purchases from that OEM.

Even commercial vehicle customers worry about their business impact because of the high downtime of their assets. Owners don’t want to compromise on service expectations in this digital age.

A recognizable symptom is that the right part is not available at the right time and place. There are stock-outs and overstocking situations across the distribution network. The primary reason is the poor visibility of inventory across the network (including the customer-facing nodes).

Stock-out situations arise due to a lack of visibility around sell-through demand signals. On the other hand, overstocking of parts happens due to non-scientific ordering or discounting sales practices. All this leads to customer dissatisfaction and is a clear indicator of misaligned inventories. Working capital issues for dealers to order the right parts and the burden of locked-up capital in non-moving / slow-moving inventories is also a concern. Both situations impact customer satisfaction and revenue slippages for OEMs.

In today’s era, OEMs release a wide variety of vehicles with updated features which increase the part count. On average, an OEM has around 50k to 60K live parts for each market. Continuous improvement practices in the auto industry may result in part specifications changes leading to the introduction of new supplier parts in the market. Imagine an already burdened network dealing with such situations – there would be a tremendous load on working capital management which is already sub-optimal.

OEMs must juggle the end customer expectations and manage channel partners and sell-in customers. In many cases, dealers look to return unsold parts. Result? OEMs suffer from additional costs and distorted forecasts.

Hence, OEMs are continuously spending resources on re-positioning inventories across their networks. However, there is a need to relook at the spare supply chain and evaluate control levers technology and process to meet customer expectations across channels while OEMs are getting maximum value for themselves and their channel partners. This brings us to the concept of managed inventory & auto replenishment strategy. In other words, OEMs should treat spare parts businesses as retail businesses with replenishment & inventory control till the customer-facing node.

There is a new saying that data is an asset. OEMs are sitting with a massive variety of data like service installed base, dealer and distributors’ sell-through data, and type of orders placed by dealers like Stock orders / Emergency orders/ VOR (Vehicle Off Road) orders, etc. Every order type has its purpose and gets shipped via various modes like sea, road, and air transport based on the requirement. It’s becoming imperative for OEMs to utilize this data along with the right technology/ solutions to address the challenges.

The below illustration shows the current practice of OEMs for demand planning and replenishment where OEMs use sell-in data at CFA/ distribution centres for demand planning and replenishment is done till the highlighted node and data at the end node (dealers and distributors) are ignored.

AS IS

Auto OEMs have the opportunity to use valuable data like the sell-in data and auto-replenish and control the flow of parts across the network till the end node - dealers and distributors. The below illustration shows the use of data at the end node for demand planning and replenishment. It ensures the availability of the right parts at the right time, in the right quantity. What entails is higher customer service levels, higher fill rates, and fewer stock-outs/ overstocking.

TO- BE

Also, many of our clients are leveraging order-promising solutions to provide visibility leverage across their supply chains. With Order-promising capabilities, OEM can prioritize the supply between the business channels and order types rather than the conventional method of FIFO (First-In First-Out). Clients can also maintain differentiated service levels for different channels without eating into each other’s quota. Also, based on order type, VOR/ critical orders are prioritized first and later for the stock orders. Customers have clear visibility about the stock, order status, and expected time of arrival or delivery (ETA/ETD). Since all networks are connected, it is possible to cater to any critical or VOR (Vehicle Off Road) orders from any dealer or distributor from the available location.

Some of our customers realized these benefits using the above strategies:

• Increase in fill rate from between 85-90% up to 95-99%
• 10% average increase in revenue per dealer
• High-cost inventory reduction across the network, around 10-15% reduction in inventory at each dealer
• Maintaining the right parts at the right time in the right quantity results in reduced emergency orders by 40% and avoids reverse- logistics by 15% on average
• More parts are managed with few resources, with an overall decrease in working capital and free cash flow to invest in business growth

As a next step, OEMs are exploring methods to finetune the forecast and improve the accuracy further by utilizing forecasting techniques like Multi Linear Regression. This method uses factors such as service installed base, mean time between failures (MTBF), distance travelled, etc. than focusing only on Time series forecasting.

The auto industry has made a quantum jump in its power train system, from conventional gasoline or diesel engine and transmission to battery-powered motorized systems. Although gasoline and diesel-powered vehicle technology is mature, and around for a long time, companies still struggle to improve service levels. On the other hand, EV is a relatively new technology with a faster pick-up, and companies don’t have enough technological tools to handle customer demand. Imagine where the expectations would be with vehicles performing self-diagnosis and requesting maintenance which would trigger dealer systems to check for parts inventories and re-order as needed. That is what the industry would eventually move to globally, and the change will be rapid and impactful. What was earlier a closed industry will now open up as start-ups leverage the technology changes and take long strides to set new customer satisfaction standards.

A demand–replenishment orchestration platform is the need of the hour to prepare for the coming future, reduce non-value-added activities/wastages, and derive maximum value from working capital.