Ok, repairing vehicles isn’t the sexiest of conversations when talking about engineering an all new electric-autonomous vehicle. The focus, rightfully so, is usually on the plethora of exciting new technologies the team is working to incorporate into the program, not service parts. I get it, but stay with me.
Service parts aren’t thought of much until just before a vehicle launch, at least for most programs I’ve been a part of. Service parts do offer OEMs an ongoing stream of profits built on the backs of large franchised dealer networks; however, the traditional automotive business model when selling cars and trucks offers little monetary incentive for OEMs to maintain high vehicle uptime – outside of the marketing cache.
Why Service Parts are More Critical in New Mobility Landscape
The new mobility business model, where vehicle startups are launching and many established OEMs are migrating to, has little to no dealers and provides mobility as a service (MaaS). The hardware is increasingly owned by the OEM and rented to customers via mobile app. The new mobility model shifts the service parts supply chain from afterthought to center stage.
As usage rates for many vehicles migrate from 5% to near 100%, the associated uptime becomes even more critical. When vehicles are down for service, they’re not available for rent, which equates to lost revenue. Directly put, in the future, mobility OEMs could win or lose their vehicle uptime for hyper-competitive evolving markets such as shuttles, buses, scooters, and heavy trucks.
Below are some service parts supply chain best practices to consider in tomorrow’s mobility market.
1. Involve Procurement Up front to Unlock Downstream Cost Savings
A strategic procurement focus on the service parts supply chain during vehicle development can unlock substantial downstream cost savings post launch. Service parts piece prices, dunnage, and availability expectations can be lumped into production parts contracts during negotiations, standardizing consistent long-term supply.
2. Ensure Reordering Ease for Common Replacement Parts to Reduce Complexity
Less is more in the dynamic new mobility frontier. Ensure your supply chain has easy-to-reorder processes and systems in place for common replacement parts – e.g., windshields, fascias, and tires. The evolving standard is instant service part reordering via mobile phone to preferred partners versus the traditional slower process that requires issuing purchasing orders and multiple approval layers.
3. Compress Time from Order Placement to Part Receipt to Improve Uptime
In addition to reordering ease, speed is the new vital metric to track for service part success. Vehicle uptime equals vehicle revenue. Faster supply chains call for more entrepreneurial approaches for getting parts where they need to be, and fast, to quickly repair and get vehicles back on the road.
4. Build Flexible Supply Chain Operations to Support Experiments
New electric autonomous vehicle technologies and their underlying business models are evolving quickly. Thus, adaptability is more critical than cost. Building a flexible supply chain network of nimble supply partners will enable faster part changes, fulfillment, and delivery. All these factors now drive market share growth, which is more important than building fixed-asset structures for cost economies of scale.
5. Celebrate High Mix, Low Volume by Aligning with Specialized Suppliers
Electric autonomous vehicles are currently low-volume production programs. Optimizing your supply chain is about aligning fit and incentives. Curate your supply base with small to midsize suppliers whose business models are high mix, low volume. Quick rolling changes are the new norm – this is a fundamentally different supply chain – more akin to consumer electronics. Align with suppliers who are capable and excited to support you.
6. Forecast Usage Based on Wear & Tear Experience
Many traditional automotive industry best practices can be applied from experienced service part supply chain professionals. Traditional wear and tear parts – e.g., wiper blades – can be forecasted from historical usage averages and miles traveled. Categorizing parts via an A, B, C method can be a simple way to segment parts into category buckets of high, moderate, and low usage.
7. Balance Inventory Holding Costs with Part Lead Time
Yes, part availability is key, but it takes precious cash to store inventory, so there needs to be a healthy balance. A Plan for Every Part (PFEP) can be created to determine the ideal inventory levels, based on need, lead time, and carrying costs. If done right, inventory cost-reduction levels can approach 20% when fully optimized while maintaining 100% part availability.
8. Align Inventory Storage Locations with Your Market Footprint
Where to store your service parts, whether centralized, regional, or decentralized, should vary depending on your markets. Most low-volume OEMs benefit from a hybrid approach based on inventory category in their respective markets. Further, where to store parts should vary by commodity. For example, innovative electronics LIDAR and LCD screens tend to be centralized to mitigate obsolescence.
9. Embrace In-field Service vs. Brick & Mortar to Lower Operating Costs
Automotive dealerships will continue to go the way of your typical shopping mall; a slow gradual phase out. New startups are embracing a direct-to-consumer business model and with this comes the need to service vehicles in the field instead of at dealerships. An agile supply chain is necessary to support this new model which requires shipping parts and vehicles directly to end-service and usage locations.
10. Utilize Service Uptime as a Competitive Differentiator
Select heavy truck and bus OEMs such as Scania AB headquartered in Sodertalje, Sweden and owned by Wolfsburg, Germany based Volkswagen, is now selling customers buses along with offering performance service contracts, guaranteeing uptime. Investing in your service parts supply chain capabilities presents a great way to build a competitive beachhead and differentiator in your market.
Realize an Uptime Competitive Advantage
Historically, cost, distribution and features have determined vehicle OEM winners and losers. Today, mobility OEMs are competing on business model, uptime, and service terms to capture large chunks of rapidly growing markets like urban and personal transportation. This dramatic shift from vehicles as purchased assets to services offers a rare market opportunity for new OEMs to disrupt. Focus on your service parts supply chain to utilize uptime as a competitive advantage in the new mobility landscape.