Automotive Parts OEM and OES Pricing
It is no exaggeration to emphasize the challenges of being a pricing manager, however exciting the post might be. Prices are surging across every major index as supply reduces while demand increases significantly. This makes it important for different companies to refocus their pricing processes to ensure that they adapt quickly to take advantage of the ever-changing market conditions.
Indeed, the prices of commodities are subject to several factors. Consumers are often unconcerned about the cost of raw materials, as well as the failing economy until manufacturers are forced to raise the prices of their goods and services. For this reason, it is important to discuss all there is to know about OEM and OES. This is exactly what this guide offers. Now, let’s dive in!
What are OEM and OES?
An Original Equipment Manufacturer (OEM) builds systems or components for other companies to make use of in their end products. An example of this is a computer manufacturer who integrates OEM parts, including software and processors, into what they sell. Another example of this can be seen in the relationship between a maker of auto parts and an auto manufacturer. Several components, such as brake cylinders and exhaust systems, are built by a wide range of OEMs. These parts are then assembled into a car by the auto manufacturer. This car is marketed to an auto dealer for sale to consumers.
Another firm that works closely with an OEM is the value-added reseller (VAR). They are so because when features are added to an original item, values are added to it. The OEM designs items based on the specification of the VAR company. While many OEMs complete their designs for VAR to market, others can build sub-assembly parts for VAR to sell.
On the other hand, the Original Equipment Supplier (OES) is focused on supplying any component and spares to any Original Equipment Manufacturer besides fitting as Original Equipment. The Original Equipment Supplier market consists of Original Equipment Manufacturers, as well as their dealers purchasing equipment that can be utilized in servicing and repair of components.
Many believe that OES parts must be acquired directly from the dealer. It is worth stressing that OES parts are designed on the same assembly line as the OEM. However, the former go through extra steps. Generally, several OES parts have become more expensive to consumers since added steps, as well as various middlemen, are involved. A good way of saving costs is to cut out these middlemen.
There are several large OES that are still employing the use of excel for pricing despite the emergence of many applications that can satisfy their needs. After all, using Excel comes with different challenges, including strategy execution, database, opportunity detection, and pricing control. The aim of every business is to maximize profits by making sure that their goods and services are priced at the right level.
Using Excel can make it harder to manage all advanced pricing rules. Usually, businesses make use of Excel to manage pricing strategies. Even though this ensures that goods and services are sold to achieve profitability, there are several other factors that are ignored and these support the customers’ willingness to pay. The presence of a pricing system makes it possible to test, manage, and optimize advanced pricing strategies.
For a data file that is too large, it might become difficult to make use of an Excel program as it runs very slowly, particularly when the data is stored in a single file. Some of the data can be lost if there is an attempt to break them down into smaller files. Besides, accuracy is often compromised when this application rounds off large figures by using imprecise calculations.
Furthermore, since Excel is a standalone application, the control it offers is not sufficient enough since there is the unavailability of consistent visibility of any quotes sent by their reps. Excel is also susceptible to corruption and fraudulent manipulations. The reason behind this susceptibility is the aforementioned inherent lack of controls, which ensures that formulas can be easily altered without being detected.
Excel is prone to human errors and more mundane mistakes can produce damaging results. Any misaligned arrow or missed negative signs can harm investors’ confidence – however trivial they might seem – which can result in a significant loss of opportunity. A spreadsheet often contains 1 error for every 20 cells of data, on average.
In addition, an aftermarket part simply refers to copies of an OEM part. In recent times, OEMs’ aftermarket business has become more under pressure due to the fact that their aftermarket market share in older age segments reduces significantly. Even though at least 50% of the US passenger cars that are under two years of usage are serviced in the OEM network, this figure reduces drastically to about 15% for vehicles that have been used for over 8 years. In emerging markets, these figures are tougher since there is an increase in the average vehicle age.
Benefits of OEM
It has already been established that OEMs are focused on providing components that other companies can make use of in their products. Oftentimes, electronic companies, vehicle manufacturers, and others employ the service of experts to engineer their products with absolute precision and accuracy. For smartphones and computers, the smartphone must be carefully built to ensure that users’ needs are met. For this reason, there is no room for error. To ensure that they achieve this, brands outsource their manufacturing to OEM to help them build components that get the best out of their products while maintaining quality.
OEMs do not just work on electronics or vehicle parts, they are companies that provide all kinds of consumer products. There is no business that cannot employ the services of OEMs and enjoy the plethora of upsides of their fields. Besides these, resorting to OEM for any form of manufacturing needs makes it possible to get the same quality and reliability that top brands depend on.
Rather than rely on OEMs, some companies often turn to aftermarket manufacturers and value-added resellers. However, this does not compare with the service and precision that the best OEMs offer, regardless of the kind of product the company produces. For deeper insight into the upsides of adopting the services of OEM, below is an introduction to what companies get when they turn to OEM manufacturing.
This represents an important advantage of using the services of OEMs. They offer competitive prices despite the fact that they provide exceptional support and top-quality services. Many businesses often do not need to go beyond their budget to acquire manufacturing parts with an OEM. Even though an aftermarket item can be less costly, the low prices are associated with customization and quality. Buying OEM parts in bulk also ensures that it is possible to save more. There is even a chance of matching the prices of the best aftermarket manufacturers.
It has been stressed already that aftermarket manufacturers, as well as value-added resellers, are alternatives to OEMs. However, it is safe to affirm that neither of these options can guarantee the same level of support and quality that OEM offers. It is worth noting that since aftermarket manufacturers only create parts that imitate components manufactured by OEMs, this comes at a cost since aftermarket parts are of lower quality, with respect to OEM parts. The level of customization that is associated with aftermarket manufacturers is also limited.
Similarly, it must be stressed that value-added resellers – as explained above – often take parts built by OEM and improve them by adding several new features, as well as additional components. Even though this gives them a relevant role to fill in the market, the availability of OEM parts limits their function. Since value-added resellers cannot create components entirely from the scratch, this holds many companies back.
Unlike VARs, original equipment manufacturers – as their name implies – focus on creating new components that are based on initial designs. This implies that OEMs can build relevant components from scratch. This also ensures that OEM manufacturers are capable of offering an exceptional level of customization for their customers.
OEM companies often have a direct relationship with their customers. For this reason, they are well-equipped to provide products that can be tailored towards meeting the demands and satisfaction of the customers. This results in long-lasting and sturdier parts than what aftermarkets and value-added resellers can provide their customers. Top OEM manufacturers work tirelessly to enhance the quality of products they provide.
The support that OEM manufacturers offer their customers cannot be stressed enough since they work directly with them. When brands have direct contact with their manufacturers, they are presented with a chance to converse with the engineer that is responsible for their product. This simply implies that OEM customers are offered sufficient engineering and technical support.
OEMs and their customers work hand-in-hand to make sure that every component works properly and services the intended purpose. The importance of precise and accurate manufacturing cannot be ignored. For this reason, OEMs go above and beyond to ensure that their customers’ satisfaction is met. Besides this, OEM manufacturers offer remarkable warranties on what they produce. Any part with defects will be returned to the manufacturer to correct.
This is another crucial benefit that comes with acquiring the services of OEMs. They ensure that the production of components can be faster. It is possible for OEM manufacturers to keep designs on hand to ensure that finding blueprints for relevant parts can be easy and production can commence almost immediately. Besides this, whenever existing designs for important components are not present, OEMs can offer a swift turnaround, even if they are working with the original designs from their clients. The knowledge of their competitive market ensures that they are careful enough in the quality of services their customers get from them.
Return on Investment
Getting a return on investment represents a major part of all businesses. To achieve this, Original Equipment Manufacturers ensure that businesses can enjoy profits with their products. Parts that are produced by OEMs are particularly designed from scratch to meet up with their intended applications. This implies that the lifespan and functionality of OEM products are exceptional. For this reason, businesses that are in close contact with OEMs can efficiently save money in the long run.
Having multiple suppliers rather than one has become a common practice
For most businesses, having more than one supplier can help sidestep so many problems in their supply chain that could hurt their chances of delivering products and services to their customers. Sourcing becomes simple when a company has one supplier for every item. Having several suppliers can offer protection against any form of interruption. For this reason, many businesses have not embraced the idea of having two or three suppliers, rather than one.
When a company relies on just a single source as a form of supply chain strategy, this might expose them to the risk of not being able to get essential supplies in times of extreme needs, including natural disasters that can impede a supplier’s operations. These events are some of the dangers most businesses face and entrepreneurs may regret embracing single sourcing.
There are several other reasons why businesses across the globe prefer to have two or three suppliers, instead of one. Multiple sourcing becomes important when a single supplier has no capacity to meet the full requirements of the buying organization. This might be due to the fact that the supplier is unable to provide the required volume of an item or because the item comes with various components that cannot be produced by any single supplier. By embracing multiple sourcing, buyers can get more for their money.
However, despite the different upsides – associated with multiple sourcing – that have ensured that having two or three suppliers has become a common practice, the drawbacks of multiple suppliers’ supply chain strategy have been well documented. The advantages that multiple sourcing provides often come with a prospective price tag. As businesses adopt the use of more than one supplier for a single item, this also adds complexity.
Indeed, even though employing multiple suppliers may minimize the level of dependency while raising flexibility and reducing risks, relationships with suppliers can become more complicated. This can also raise the number of resources required to sustain these supply relationships. Besides this, multiple sourcing in a supply chain strategy can lead to lower efficiency and less control, which increases costs as suppliers grow in number.
For businesses that are considering more than one supplier, they often need to balance the adversity that is associated with the risk of interruption in supply, as well as other downsides of using a single supplier.
Original Equipment Suppliers in Europe
The prices of auto parts vary among countries. According to European Law, there is a legal background for international trade of auto spare parts. There are several independent wholesalers that focus on original auto parts for new sources of OES parts all across Europe. Poland, as well as countries in Central and Eastern Europe, has emerged as a promising source of several original OES spare parts at competitive prices.
Original Equipment Supplier in Asia
In recent times, there has been significant growth in the supply of automotive parts, computer components, among others. The accessories and automotive parts industry has gone through a thorough remodeling and this has resulted in the development of a competitive industry. The dramatic rise of the automotive parts manufacturing industry in Asia has been mainly driven by the burgeoning automobile manufacturing industry, particularly in countries like Korea, China, and India.
As technology grows, the growing need for a diversified number of Original Equipment Suppliers has been rising. For instance, the Asia-Pacific automotive parts and components market was worth $52.42 billion in 2020, and this figure is expected to rise to $72.14 billion by 2026, and in the process accounting for a CAGR of 5.6% during the forecast period – from 2021 to 2026. Some of the top OES in Asia include Kyosan Denki Co., Ltd., Riken Corporation, Nikki Co., Ltd., among others.
Sourcing Challenges OES faces
As globalization continues to power changes across several sectors, there are several challenges that Original Equipment Suppliers face, which are worth discussing. Some of these are introduced as follows:
A lack of visibility
It is not wrong to affirm that vehicles and computers consist of thousands of components, on average. It is important for supply chains to come together as the production requires. For this reason, it is quite easy for there to be blindspots that have a considerable effect on the entire procurement process. For instance, about 81% of the automotive industry finds the issue of visibility as a serious one, with respect to 70% in other sectors. This is because the industry is characterized by ‘just-in-time’ operations, which implies that a lack of oversight or a single mistake can result in disruption.
As a result, it is important for all parties across supply chains to enhance their focus on various areas, including central views of communication and streamlined processes across the supply chain. It is also equally important to track all parts at every stage of the supply journey.
While it is worth stressing that the automotive industry is driven by global supply chains, these long distances also ensure that effective partnerships are subjected to huge risks. Lack of efficient communication across different protocols and standards can lead to serious problems. In fact, platforms that can tackle these issues can be rendered ineffective.
Besides, the lack of transparency can also result in misunderstandings that minimize efficiency while preventing the upsides of partnerships from being truly felt or triggering the conclusion of trade relationships. The management of relationships between suppliers and businesses, which is based on trust, openness, and proper communication, is crucial in pacifying these concerns. With that in mind, there must be software that can ensure real-time communications that distant partners can easily interact with.
This is a major challenge faced by suppliers of automotive parts. As consumer concerns increase, several strict emission regulations have ensured that manufacturers, as well as their partners, can embrace the green initiatives.
During the lockdown, emissions decreased by 7%. Also, electric vehicle registration surged by 185% during this period. This has created a platform for the automotive industry to take these concerns seriously. With respect to existing partners, this is true in the short term. In the long term, there is a great need to put these emission regulations into practice.
Sadly, differences based on location, as well as complex onboarding, have ensured that these enhancements are hard to achieve. Third-party logistics partners are exposed to the risk of not realizing the environmental concerns until certain efforts are made available to draw attention to them.
The effect of Covid-19
The pandemic had significant adverse effects on OES across the globe. For instance, in the automotive industry, disruptions have resulted in chip shortages that hastened about 40% output cuts for Toyota and Volkswagen. This has produced a lasting effect on the supply of raw materials, which has resulted in volatilities in the global supply chains. For this reason, the importance of resilience in facing unexpected challenges is important.
This impact of the pandemic had led several manufacturers to ignore the long-term trajectories during an uncertain period. In fact, the post-pandemic “new normal” will not be easy unless a long-term view is embraced with respect to resilience. Furthermore, when communication is enhanced, upcoming supply shortages can be easily tackled. Yet, it is worth pointing out that flexible processes are needed to overcome them to ensure that these warnings are not rendered useless.
The counterfeit parts of cars, computers, and others are becoming a major cause for concern. The knowledge of how OEMs and OES work is much needed. The ever-changing market has ensured that Original Equipment Suppliers embrace dynamic pricing while setting a value for their products.
Automotive Parts OEM and OES Pricing
Related Articles part of our Product Life Cycle Series
You are looking for concrete cases where pricing & commercial excellence have made a difference click here
Get in touch for a casual conversation
Engage with us on Linkedin