Design for aftermarket – a complicated captive audience
In many core industries, global competition has created a scenario where many mainstream OEM’s are literally breaking even on their production products, and designing customized designs for components so that they can control a more profitable aftermarket.
Design engineers who could easily design standard nuts, bolts, washers, O-rings, and other standard products are instead being directed to create unique, customized components for their products so that customers are “slaved” to the OEM when maintenance is performed and replacements parts are required. Since the industrial marketplace is becoming more fragmented, there isn’t enough volume of product for manufacturers of component parts to develop tooling to compete with the OEM for the aftermarket. This gives the product OEM the leverage to charge exorbitant prices for their custom aftermarket products with minimal competition. Industries like automotive systems, hydraulics, pneumatics, pumps, heavy equipment, and valve systems are creating unique designs for components as a regular practice, as the majority of margins are realized in aftermarket sales. In many cases, OEM’s are actually selling production product at margins as low as 2% in order to command the aftermarket business!
In most cases, the OEM customer does not understand why the prices are so high, and why they cannot simply purchase their spare parts needs from local, trusted sources. We have all experienced the “sticker shock” of purchasing replacement ink or toner cartridges for our printers, and the industrial marketplace is quickly following suit.
Since most OEM’s are cumbersome to deal with, aftermarket “kit packagers” have taken over much of the aftermarket business. The OEM’s have pushed the “custom” design components in order to thwart the kit packagers’ ability to cut into their aftermarket share. Kit packagers normally have to purchase a complete OEM machine in order to reverse engineer the individual components, so when they find they cannot source the components with standard product and available tooling, it raises the threshold for their costs, and makes it more difficult to compete. To complicate matters further, OEM’s are specifying unique colors, material specifications, and even specific part number identification on the surface of the aftermarket part. Although these tactics may make it more difficult for aftermarket copycats to produce conforming parts, it also complicates the sourcing for the OEM.
Twenty-first century, high tech approaches are also being tested. Much like software and other high tech products, some OEM’s are experimenting with hologram imbedded images and/or tiny identification chips to authenticate their aftermarket products. As the cost associated with this sort of identification continues to go down, and as production techniques allow for more complex means of modifying finished products, the battle will continue.
When it comes to rubber and plastics seal products and mechanical components, Real Seal has a long history of providing conformance to customer specification. Real Seal is adaptable to customer requirements, and pragmatic enough to make these adaptations without undue cost. Our engineering support services may offer alternative tooling and production methods that will meet your objectives competitively. Please contact us for more information.
