Drive a positive margin impact of 1-5% annually with Vendavo Price & Margin Management.

1. VENDAVO IN
AFTERMARKET
INDUSTRIES
WINNING THE RACE TO VALUE
VENDAVO
INDUSTRY COMMENT
#5: Aftermarket
FEBRUARY 2017

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With Industry 4.0 – the so-called ‘fourth industrial revolution’ – in full swing,
robotics, augmented reality, 3D printing, artificial intelligence and machine
learning are changing the face of manufacturing.
And the winds of change are sweeping through every industry – including the automotive, aviation
and industrial manufacturing sectors, which are being transformed by modernisation and digitisation.
But some players are so focused on digital transformation of their primary activity, that they’ve overlooked
the profound implications these new technologies also have for their aftermarket business.
And so, while they ride the wave of modernisation and embrace the digital revolution when it comes to
production, their approach to spare parts is less proactive.
CHALLENGES AND OPPORTUNITIES FOR THE AFTERMARKET
Global political and economic uncertainty will continue to affect the aftermarket. A new US administration
that’s withdrawing from trade deals and on a road to repatriating production, the continuing uncertainty over
the trade implications of Brexit, recession in Brazil and the slowdown in China – with a hard or soft landing
not yet certain – will all create challenges in an already complex market.
Yet there are some big trends affecting the aftermarket, and those who capitalise on them will reap the
rewards. Those who don’t will lose out on a significant untapped revenue stream – and a competitive
advantage:
• The Industrial Internet of Things (IIoT) is a game-changer for the aftermarket, and will help drive
revenue and growth. Connected components will allow manufacturers to diagnose problems remotely
and search inventory to locate replacement parts. IIoT will let manufacturers move from reactive to
proactive mode: performing diagnostic tests, tracking usage patterns and using predictive analytics to
schedule preventive maintenance.
• Globalisation of the aftermarket will present a significant opportunity for manufacturers, as emerging
markets drive demand for parts across the globe. But meeting this demand will also create new
challenges, as distribution logistics becomes more complex. Optimising inventory across diverse
geographical locations will require insights based on big data and deep analytics – as will optimising
pricing, which may be further complicated by grey or parallel imports.
• The emergence of automotive parts e-commerce is one to watch, as manufacturers embrace a digital
model. In 2015, Peugeot acquired online spare parts player Mister Auto, which has gone on to become
the leading European brand, with 2 million customers and 12,000 orders a day. The e-commerce market
is predicted to grow to $20 billion across North America and Europe by 2020, almost 10% of the overall
aftermarket1
. The direct-to-customer model will continue to grow, challenging existing distribution models.
In addition, the consumerisation of B2B will mean increased customer-service expectations, as well as a
demand for simplicity and transparency in pricing.
• Rapidly changing inventories. The pace of technological change is a double-edged sword for
manufacturers, as the emergence of connected components means carrying mixed inventories of smart
and non-smart parts. Shorter upgrade cycles for technology will mean that components have a limited
shelf life, as new (and potentially incompatible) parts come on-stream. The trend towards ‘electronics
everywhere’ may radically change how we think of spare parts. In addition, the emergence of entirely new
sectors – such as self-driving cars – may require a fundamental change in approach.
AFTERMARKET OR AFTERTHOUGHT?
1. Forbes.com: Future of automotive aftermarket and car servicing: Consumers will have more channels to shop around
2. Locatory

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• Shifting demand patterns in the aviation industry. Though today’s fleet of just over 20,000 aircraft
is set to double in the next 20 years, half of all new aircraft are forecast to be replacements for retiring
ones2
. That means less demand for surplus parts, 80% of which in recent times has been driven by part-
outs for existing aircraft.
Combine this with a shift we’re seeing to a pricing model that will include spare parts, and it’s clear
there are significant implications for revenue streams. Some will disappear and others will open up, and
managing the transition may prove costly and complex.
• Changing business models are set to challenge the aftermarket sector, which won’t be immune to the
‘everything-as-a-service’ paradigm that’s revolutionised every other sector. In addition, the trend towards
outcome-based billing and total lifecycle costs may have a direct impact on how manufacturers manage
and price their spare-parts inventory. The good news is that connected spare parts and predictive
analytics may well provide the key to creating predictable costs, as pricing models are developed from
hard data and real-time insights.
Lastly, global political and economic uncertainty will continue to affect the aftermarket. A new US
administration that’s withdrawing from trade deals and repatriating production, the continuing uncertainty
over the trade implications of Brexit, and the slowdown in China – with a hard or soft landing not yet certain
– will create challenges in an already complex market.
A HIDDEN REVENUE OPPORTUNITY
With their primary revenue streams under threat from price pressure and increased competition, many
organisations are looking for alternatives to traditional cost-cutting.
They know that reducing R&D in a world that’s being transformed by innovation simply isn’t an option.
Reducing staff numbers or divesting may provide a short-term boost, but it causes damaging long-term
consequences.
So they’re taking another look at their aftermarket business - and discovering a hidden opportunity
to drive more value.
They’ve realised that optimising this portion of their business can help them generate cash faster and more
efficiently than traditional cost-cutting. And more importantly, it can avoid the damage that approach cost-
cutting often causes.
THE PARTS PRICING QUANDARY
But optimising aftermarket pricing means overcoming a major obstacle: the sheer complexity of the
business, which makes it difficult to manage. Manufacturers have tens of thousands of parts, across a wide
variety of models of varying ages, and a large number of clients spread across the globe.
Many organisations have to hold significant inventories of parts for extended periods – 20 years not
uncommon in the aviation industry – with pricing that’s often set once a year and rarely reviewed. Fluctuating
supply and demand should mean that prices are regularly adjusted so they’re optimised, but that’s seldom
the case.
The result is that these organisations are leaving margin on the table on almost every deal, in every
geography. As parts become scarcer, they’re unable to capitalise on the premium they could obtain from
them. And as others reach the end of their life, they’re unable to price them optimally to reduce inventory.
The fundamental problem is one of visibility: organisations are not able to see this multidimensional puzzle
of parts, products, clients and geographies clearly enough to get the right price on every deal, every time.
But now all that is changing, as a revolution helps transform aftermarket pricing. Drawing on the power of big
data, cutting-edge analytics and deep insights, it’s turning pricing into a data-driven, fact-based science.
And this revolution is being led by Vendavo.

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VENDAVO AND THE AFTERMARKET
Vendavo works with some of the world’s leading automotive, aviation and industrial manufacturing players to
optimise their aftermarket business. We help companies to maximise profit on every sale.
Vendavo gives these organisations unprecedented visibility and insight into the large inventories they hold,
ensuring that every deal is closed at the right price. We achieve this by:
• Identifying and eliminating margin leakage across the entire range of aftermarket parts, analysing
every data point to build up a picture of current pricing.
• Optimising segmentation across all products, clients and geographies, to ensure best price and best
margin opportunity.
• Creating dynamic pricing models that are constantly updated to reflect current supply and demand,
product lifecycle and market dynamics.
• Analysing sales and deal effectiveness, as our advanced algorithms identify in real time improvements
that can be made, and easy wins that can be achieved.
A CUSTOM-BUILT APPROACH THAT DELIVERS RESULTS
At Vendavo, one size doesn’t fit all. We design a tailored pricing strategy around your aftermarket business
that’s aligned with your goals and business objectives.
We’ve enabled organisations to manage the incredible complexity of their parts business and unlock a
previously untapped revenue stream.
This not only provides a hugely attractive alternative to traditional cost-cutting. It also gives them the financial
manoeuvring room to stay agile, continue to invest in R&D, and meet the challenges of competitive threats
and increased price pressure in their production business.
We’ve helped them to create order from disorder, and turn a secondary revenue stream into a powerful
weapon to give them a competitive edge in a globalised world.
We’re Vendavo, and we could do the same for you. Talk to us today.
www.vendavo.com
VENDAVO GLOBAL HQ
401 East Middlefield Road
Mountain View, CA 94043
Tel: +1 (650) 960-4300
Fax: + 1 (650) 962-0645
info@vendavo.com
VENDAVO EUROPE SALES HQ
One Kingdom Street
Paddington
London W2 6BD
Tel: +44 (0)203-755-3510
sales@vendavo.com