An Asian automotive tier 1 group supplied independent distributors in EMEA with products from global production via the Italian-based sales organization (VO). These near-series products were sold in the Independent After Market (IAM), the non-manufacturer-bound spare parts market, which at around 60% is much larger than the manufacturer-bound Original Equipment Service Market (OES). The problem was that VO did not have access to the series products manufactured in the European plants for their distribution in the IAM, as some of these were manufactured on tools owned by the European OEM customers.
The interim manager (IM) was commissioned by the management to identify and then implement solutions as to how the products manufactured in Europe, which represented a considerable global sales potential, could also be profitably distributed in the IAM.
Analysis: investment or license fees?
The IM calculated potential sales volumes, turnover and margins for the IAM sales channel based on the number of series products manufactured to date, the estimated failure rate and the distribution of sales volumes between OES and IAM over the life cycle.
The IM compared this with the necessary investment costs for in-house tools and, based on return on investment (ROI), prioritized the product lines for which investments in in-house tools should be made and implemented the rapid procurement of these tools.
For the vast majority of products, the only option was therefore to conclude a tool usage agreement (WNV), also known as a license agreement.
Through this, the OEM manufacturer grants the (Tier 1) manufacturer the right to manufacture products on the tools/machines owned by the OEM manufacturer, which the (Tier 1) manufacturer can then distribute independently in the IAM. In return, the (Tier 1) manufacturer undertakes to pay a per-unit license fee to the OEM manufacturer.
Profitable additional revenue from license agreements
The IM successfully negotiated the WNV with various automotive OEMs and achieved three key milestones for the commissioning company:
Additional products close to series production could be manufactured on existing machines and tools with relatively little additional effort, resulting in increased capacity utilization.
Global IAM sales opportunities were agreed with the OEMs so that non-European VOs can also access these products and sell them in their markets in the IAM.
The license fee to be paid to the respective OEM manufacturer is more than compensated for by the much higher margin that can be achieved in the IAM compared to series production business.
The IM's deep and broad experience in the automotive aftermarket also paid off in WNV's negotiations with the OEMs' aftermarket departments, which took place on an equal footing. He was able to convince them that it is also in the OEMs' interest to have a long-term partner like the (Tier 1) manufacturer at their side to ensure long-term supply in the aftermarket with high-quality products and to jointly protect the market against dubious products, imitators and counterfeits.
By concluding the WNV agreement, the company was able to generate considerable additional sales with a profitable margin from new products - not only in EMEA but also globally.
