Revenue for automobile OEMs does not stop with sale of new vehicles but continues throughout its life cycle due to sale of spares parts and service. Today, the percentage of revenue from aftermarket as a share of revenue is in single digits and there is an opportunity to double it in the long run with meticulous planning, investments in appropriate technology and execution. There seems to be a paradox in some quarters that revenue from aftermarket segment could be due to poor quality of parts, which is not true. All parts have limited life due to wear and tear. If the life of critical parts can be predicted using physics based or analytical models and backed by field data, there is an opportunity to be tapped. This could translate to a regular revenue stream from replacement of parts nearing the end of their life. Revenue from aftermarket sales can be much more predictable and steady compared to new product sales.
Asset-intensive industries typically have a double digit share of revenue in developed economies, with new products being sold at break-even sometimes. Some of our recent research with executives shows interesting trends such as an expectation to double the revenue share from the aftermarket segment in 2 years in developed economies by investing in areas like Smart Services. OEMs in India are realizing it and we see executives leading this relatively new function, in a market with the average life of vehicles going up each year due to continuous improvement in quality. Automobiles can be looked at as not just products but a lifetime service provider of comfortable and economical drive from home and back for customers.
CIOs and functional leaders can develop aftermarket as a robust function with meticulous planning starting with IT systems, engineering models, all the way upto responsive supply chains and support teams. Internet of Things (IoT) can make automobiles a closed loop model, with regular feed of vehicle parameters from the field. Standards such as OBD-II for onboard vehicle diagnostics may soon become ubiquitous in all Indian cars. Dealer management systems can keep the OEM updated on service visits of vehicles, part replacements and overall performance. Enterprise level IT systems like PLM (Product Lifecycle Management), EAM (Enterprise Asset Management) and SLM (Service Lifecycle Management) can give the big picture to senior management and keep multiple departments on the same page collaboratively. Physics based models available with the design and engineering teams, coupled with empirical data from the field can help in building a business model for after-market sales. With a well equipped supply chain ready to handle this demand and a network of well trained service shops, the market can be catered to until the last mile.
Increase in revenue share from aftermarket can make the entire ecosystem more mature. Focus on predicting and improving part life can lead to innovation and advancement in part design and testing, advanced materials, manufacturing processes and design of supply chains. Spurious markets can be handled by foolproofing. Like all new initiatives, aftermarket needs to overcome the resistance of change. If CIOs can make the appropriate technology decisions and show the benefit of implementing programs like Smart Services, it can be a distinctive advantage in the long run for early adopters.