What an exhilarating time for the automotive aftermarket! This is the first opportunity since the days of Henry Ford and the Model T that the auto industry has a chance to take a step back and construct a brand new service delivery model and a supporting supply chain. Exponential technology growth and the rapid rise of electric vehicles (EV’s) are leading internal combustion engine (ICE) OEMs and EV OEMs on a high-stakes collision course.
What will the future of parts planning and service delivery look like? Will decades operating in a dealer-based service model help or hinder ICE OEMs? Will EV OEMs usher in a new field-based service model standard? How well can ICE OEMs adapt to changing business models? Will EV OEMs effectively find the infrastructure to thrive?
The legacy ICE model has been anchored in the dealer paradigm for decades. In many states, direct sales to consumers are prohibited by legislation. The dealer model has served legacy automotive OEMs well for decades, adding value to the OEM and end customer. Without rapid evolution of the dealer model, there is potential for revolution. Customer experience expectations will send a clear message to OEMs as they strike a balance in delivering service. Dealerships will need to evolve how they deliver value to avoid becoming an unnecessary layer of inefficiency and cost, a cost ultimately borne by the consumer. The service delivery model also was wedded to the dealers, with them being the aftermarket face to the customer for service and parts. But manufacturers, both legacy ICE providers, and EV-only startups are accelerating away from the dealer model.
Today’s EV startups go to market predominately via a direct-to-customer approach. ICE OEMs are racing to catch the EV wave, but how will they go to market with one foot firmly planted in both camps? Is it possible to sustain and serve the ICE vehicle business while growing the EV business? Will customers tolerate a dealer-centric model after experiencing a field-based model (ie service comes to their driveway?) After a taste of over-the-air updates paired with a mobile field technician-based service delivery, will customers reject the dealer-based model? How will OEMs optimize service parts planning and service delivery? These questions only scratch the surface.
OEMs are bringing service delivery back in-house and with a very different approach. While the historical dealer model is largely break-fix, where customers bring the car into a dealer for service. The EV approach is based much more on the customer experience, which focuses on maximizing vehicle availability for customers to drive. This fosters a more proactive model where the OEM leverages vehicle and customer data harvested directly from the assets to monitor performance, activity profiles, and issue identification.
Unlike the dealer-centric model, which relies on a break/fix mentality, the emerging service delivery process starts with the customer and their vehicle. It works its way up the service chain to the OEM. In between are brand new approaches to maximizing that customer experience. At the lowest of a multi-echelon approach to service delivery are mobile service vans. They will be stocked with an optimized mix of largely high-volume parts enabling the highest possible first-time fix rate. The vans travel to the consumer to swap out parts, help with diagnostics, and counsel the driver to optimize vehicle performance.
If unable to resolve the issue with the mobile van, in-house service centers will be deployed to allow customers to bring their vehicles in for repair, not dissimilar from the dealer model but with one important distinction – who owns the facility and associated service process? New parts distribution centers need to be built to support a supply chain with service on-demand, which requires parts on-demand. Body shop repairs and major collision damage will largely be performed by independent 3rd parties, as OEMs will focus on vehicle maintenance capabilities first and expand their scope over time.
What looks great on the whiteboard may need some refinement in the implementation process. It is no secret that many of the EV startups have had difficulty scaling their service delivery bandwidth as they do not have the luxury of a legacy dealer model that they can leverage while they build out the vans and service centers. These problems are multi-dimensional. The complexity grows as sales/service centers expand outside of the big-city-based product launch zones into more geographically dispersed territories. It needs to be determined where the distribution centers and service centers should be located based on vehicle density. What parts should be stocked in the DCs to replenish the vans and service centers based upon demand forecasts and to carry the high dollar-low usage parts inappropriate for the lower echelons?
Also, they will need technicians, lots of technicians. This may be the hardest of these scaling issues to resolve. An OEM can rapidly build or buy the brick and mortar facilities, and tools like Servigistics can quickly develop an inventory optimization strategy for the parts, but the OEM cannot manufacture technicians. The skills for supporting ICE vehicles have been developed and honed for decades, from driveway tinkerers to professional mechanics. These resources are readily available, although in diminishing numbers. On the contrary, a talent pool of EV technicians doesn’t exist to the same degree. The skills required to troubleshoot, diagnose, and service more high-tech aspects of EVs do not transfer from ICE. EVs require an electrical engineering and computer diagnostics skillset, which does not map well to traditional mechanics strengths.
A suite of technology-forward solutions is available to EV and ICE OEMs as we head into tomorrow’s service landscape. Augmented Reality (AR) and the Internet of Things (IoT) sit at the center. Serving up valuable data to end-users and dealers through AR service sequences will make tech-savvy owners and mechanics smile. The impact of these technologies is immense. Speeding up repair processes, improving quality of service, and scaling the knowledge and skills needed for service procedures. Additionally, the customer satisfaction impact will be significant and lead to greater repeat purchases. IoT will capture high-value real-time and near real-time data to feed many service delivery processes and techniques. OEMs, dealers, and end-users can all benefit from this data depending on the programs, apps, and permissions.
After the facilities are built and staffed, one critical challenge remains, many service calls require service parts. Who hasn’t experienced frustration waiting to get your car back because the shop is waiting for parts? With the EV marketing strategy focusing on customer satisfaction through asset availability, having the right parts readily available becomes even more critical.
A typical ICE vehicle may require thousands of different service parts. EVs are more like a computer with wheels since the fuel-based engine and drive train make up a bulk of the service parts for ICE vehicles. What’s left is a significantly smaller number of parts to plan and optimize. Does that make the problem easier? Not necessarily because the smaller number of parts is a red herring since computers do much of the heavy lifting. The issue to solve is identifying the types of parts and their characteristics. Many of the parts that are subject to wear and tear will be planned just as their ICE counterparts and may even be the same parts. This includes tires, brakes, windshield wipers etc.
What will present the greatest challenge, especially for legacy ICE suppliers, are the parts that make EVs unique. These are the parts that more closely resemble a computer than car parts. While there may be fewer of these parts, they are much more complicated to plan and require different data structures, forecast techniques, and planning strategies. There are also compatibility and software revision issues that will be new. An important distinction is that these parts are the most essential to vehicle availability and will typically have the lowest volume demand and be the highest dollar parts. It is a difficult challenge to solve cost-effectively, optimizing for high availability parts to ensure customer expectations are met. High availability dictates that these parts be close to the customer, but deploying high-dollar, low-demand parts in lower, more distributed stocking echelons gets prohibitively expensive very quickly. Sophisticated technologies that can holistically optimize the entire network, and leverage pooling strategies, are the only way to profitably develop a parts stocking strategy for the central stores, service centers, and vans.
There is also the introduction of reverse logistics and repair. A foundational process for high-tech, it is a nascent one for EVs. Processes will be required to bring defective parts back efficiently, triage the part’s useful status, and execute the repair and return to usable stock. Bottlenecks in any of these steps will trap these high-cost items in various locations of the supply chain.
Some parts of the planning process, such as supporting model launch with initial provisioning of parts and managing “like” parts that provide the same form, fit, and function but are not interchangeable due to model year variations.
Otherwise, there is a roster of issues unique to establishing a brand new supply chain and then optimally stocking the locations with the right mix of parts. Some examples include:
The concept of battery swapping has existed for as long as people have considered a population of electric vehicles. In theory, it sounds incredibly efficient and effective, but in practice it requires levels of technical collaboration and sharing of strategic information that appears to be unsupportable by the industry. The vision was similar to analog film. You pick your vendor and the number of exposures (power duration) and buy your film (battery). That film cartridge was dropped into any camera, of any generation, made by any manufacturer, anywhere in the world, and you can immediately start taking pictures. In reality, where we are heading looks more like your junk drawer where you have a jumble of cables, each of which only works with a single device.
What this means for service is that we will need to plan for an array of battery and charging technologies and products as opposed to one standard offering. This means that we lose all of the process and cost efficiencies of dealing with larger product populations and the law of large numbers they afford. Each variant will require its own supply chain, parts, and result in overlapping inventory industry-wide.
The charging stations themselves must not be neglected. Charging stations with units out-of-service are a detriment to brand equity and will devastate customer satisfaction. OEMs can leverage the same technologies to orchestrate the parts, interactive service procedures, and utilization data to keep the charging stations up and running at peak performance.
There are many questions to answer, new challenges, and exciting opportunities. ICE and EV OEMs will need to act fast and decisively or risk losing market share and jeopardizing brand loyalty.
Suppose EV OEMs are positioning the availability of the vehicles as one of the primary motivators for people to buy them. In that case, it is critical that they can meet those expectations and the only way to do that is with a superior service delivery model and associated supply chain.
One thing is sure, at the current pace of innovation and disruption, it will be a fun ride.
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