Understanding the Auto Aftermarket Supply Chain

Q: What are some trends in the automotive aftermarket supply chain?

A: One ongoing development is suppliers are increasing their ship-direct activity. They are shipping parts directly to the dealer, or they may ship to a primary distribution center or field DC, bypassing the national distribution center.

This approach benefits the shipper during a surge in demand, because the inventory is available throughout the network, so the supplier can quickly distribute it where it is needed.

Another supply chain trend in the automotive aftermarket is same-day delivery. Traditionally, dealers place their orders late in the afternoon on the day before delivery. But today, suppliers place high-velocity parts in various select locations, allowing them to ship to dealers in multiple daily deliveries. Dealerships can then provide much faster service to their customers—repairs that once took two or three days, for example, can now be completed within 24 hours. This strategy is prevalent in premium auto brands, but is spreading to more mainline brands as well.

Establishing high-velocity distribution centers represents a third auto aftermarket trend. High-velocity DCs ship original equipment manufacturer (OEM) parts every day to most or all of the automaker’s dealerships. Some smaller auto brands ship less frequently, typically delivering service parts two or three times weekly to the dealer.

Using high-velocity centers—either their own facilities, or ones operated by third parties—allows companies that once delivered two or three times weekly to serve customers five times per week. This approach could raise the level of inventory on hand, but if companies strategically focus on turns and inventory placement, they may not have to increase the amount of inventory in the system—they can just place it closer to customers.

Q: What challenges does the auto aftermarket pose?

A: It’s easy to focus on assembly plant needs, but dealer needs are just as critical. Making more frequent deliveries to keep up with service demands raises the challenges of determining where to place the inventory, and managing the associated transportation costs, including identifying opportunities to reduce them.

Sharing the network can help. In many cities, most of the car dealerships are located in the same area. There’s often opportunity for suppliers to share distribution networks and improve service to dealers—as well as keep their transportation costs in check. OEMs generate about half of their profit from aftermarket service parts, so serving these dealers is vital. Being able to deliver faster than the competition makes all the difference.

Q: What should auto OEMs look for in an aftermarket service provider?

A: In addition to transportation capabilities, inventory and order management are crucial. The right service provider can help suppliers identify service goals and determine what it will take to achieve them, as well as decide how much inventory to hold, where to locate it, and what fill rates should be.

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