Vertical integration putting strain on independent component dealers

News Lucas Deal May 9, 2013

When you’re in the business of selling products, it’s never good to hear something you sell is being discontinued, or no longer will be available.

How do you make up that revenue? What do you tell your customers?

Those aren’t easy questions to answer, especially when there’s nothing you can do to alter the decision.

Unfortunately, this experience is all too common in the aftermarket, and is the result of vertical integration. Defined as the merging of departments and/or phases of a supply chain under a common owner, North American truck OEMs have employed vertical integration for many years.

The system doesn’t make things easy for the independent aftermarket.

Due to vertical integration, parts distributors have sold for decades are no longer available through regular aftermarket channels. Single components are integrated into OEM-designed units sold only through dealer networks. Other components are improved and re-engineered to levels that make replacement versions unnecessary.

It slowly erodes the independent aftermarket share. In times like these, your business has to evolve.

Vertical integration may not be affecting your bottom line today, but you never know when a top-selling component could vanish from your shelf.

Four ways to remain successful in the face of vertical integration are to stay informed about OEM integration processes, maintain a strong line of communication with your vendors, be proactive in looking for alternative product options and just say yes to your customers.

Staying informed

As it relates to the aftermarket, vertical integration is a simple process to understand. In an effort to minimize production costs and control aftermarket share, heavy-duty OEMs integrate areas of their supply chain into their business and manufacturing processes.

This is commonly done two ways in the heavy-duty marketplace.

One is by an OEM taking a part formerly provided by a component supplier and manufacturing it for its own use. Another is to purchase components from a supplier and install them into an OEM-built system module, and then only release the module unit to its dealer network.

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