Modernizing The Aftermarket: Market Research 2024
Powerful trends are modernizing the aftermarket, creating complex new opportunities and threats for service businesses.
Markets are changing as supply chains grow more unpredictable, competition from abroad intensifies and regulations grow in number and complexity. Technological disruption is making powerful new business models possible with widespread data analytics, automation and AI. And customers are shifting preferences away from owning equipment and towards leasing them, while their expectations for seamless customer experiences rise.
These shifts are transforming the aftermarket into a critical growth channel, offering high-margin parts sales, predictable service contracts, and the potential for substantial lifetime customer value. And the aftermarket players that can develop the new skills and capabilities to master these new opportunities while meeting its challenges will dominate the next decade.
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Syncron research
At Syncron, we wanted to shine a light on these changing dynamics and so have commissioned independent research to explore the challenges, trends, and strategic priorities shaping the future of aftermarket businesses.
We interviewed 600 service and supply chain decision-makers, CIOs, and CFOs from industries such as construction, mining, automotive, agriculture, and industrial equipment. The respondents represented businesses with annual revenues exceeding $250 million from regions including the US, UKI, DACH, Italy, and the Nordics.
Our study focuses on key aftermarket challenges, the role of data and technology, the importance of sustainability, and the strategic priorities businesses are adopting for the future. It highlights how businesses are managing today’s aftermarket complexities and the steps they are taking to modernize.
Key Findings
Overall, we noticed three main trends: transformations in economic models, the growing centrality of data and technology, and the strategic prioritization of supply chain and operational efficiency.
- Paradigm shifts in economic models
The aftermarket sector is witnessing a paradigm shift in the economic models, across two primary trends: servitization and sustainability.
Servitization: businesses are shifting from product-based sales to outcome-based service models, i.e. selling the guarantee of a hole in the ground, rather than a digger. Over the next five years, organizations aim to transition to outcome-based service models, expecting their business revenue generated through this method to increase from 26% to 41%, on average. This shift reflects a broader move towards delivering superior customer experiences and enhancing brand loyalty, aligning with modern customer expectations for tailored, results-driven services.
Sustainability: around 95% of businesses plan to transition more of their operations to a circular economy in the next 12-24 months. Yet, only a third of companies currently operate within this framework. Sustainability is particularly critical for industries like automotive and industrial equipment, where 76% of organizations report the need for significant improvements in how they track key circular economy and carbon footprint metrics.
This push towards sustainability is further driven by tightening environmental regulations. In order to succeed, businesses must integrate sustainable practices that not only meet regulatory demands but also contribute to profitability by reducing waste and inefficiency.
- Data and technology are driving change
New service-based business models and regulations demand much more complex, data-heavy processes, pushing businesses to invest in advanced data and technology in order to remain competitive.
Two major trends are revealed in our research: the growing centrality of data and the indispensability of automation and AI.
Data visibility and integration: nearly half (48%) of respondents identified improved data visibility as one of the most important benefits of operational improvements. However, significant challenges remain. Issues around data quality (49%) and quantity (43%) are among the top obstacles to effectively monitoring key performance indicators (KPIs). Moreover, 42% of organizations struggle with the lack of technology to streamline decision-making, signaling an urgent need for integrated, advanced solutions that can manage the growing volume and complexity of operational data.
Automation and AI: these technologies are seen as indispensable for managing the sheer volume of data and streamlining workflows and decision-making processes. The reliance on manual processes is a major obstacle, with 33% of companies managing their spare parts inventory manually. At the same time, nearly all respondents (99%) face challenges when adopting new technologies, with issues ranging from data security to difficulty identifying the right solutions for their operations.
The future of the aftermarket will depend on businesses fully embracing digital transformation. The companies that succeed will be those that invest in data-driven tools and advanced technology to enhance operational transparency and drive growth.
- Growth comes from operational efficiency and supply chain management
A prerequisite for ensuring the profitability of new business models is the optimization of operational efficiency and supply chain management, which, according to the research, has become a priority for aftermarket businesses.
Supply chain optimization: almost half (48%) of organizations see optimizing the supply chain as the greatest opportunity for increasing revenue and profit margins. This is especially relevant in navigating challenges like high costs, inefficient inventory management, and delays caused by supply chain disruptions. Around 44% of respondents reported difficulties with spare parts distribution, 43% cited excessive red tape, and 43% faced inefficiencies due to manual processes—figures that have remained unchanged or worsened compared to previous years.
Operational efficiency: more than a third (34%) of respondents expect that investing in operational improvements will lead to a profit increase of at least 15%, particularly in sectors like agriculture and construction, where equipment maintenance and downtime are costly. The key focus areas for improvement include parts pricing models—55% of businesses believe optimizing pricing would significantly enhance financial performance—and inventory management, where 47% identified this as a critical strategic priority.
In a competitive aftermarket landscape, businesses that streamline operations and supply chains will gain a significant edge.
Conclusion
The aftermarket industry is undergoing a profound transformation, driven by servitization, technological disruption, and changing customer expectations. To succeed, businesses must embrace the complexity of modern service delivery, investing in the technological and operational capabilities required to meet these demands.
Many are already prioritizing data, sustainability, and advanced technologies to shift into real-time, outcome-based service models. Those who can successfully modernize their aftermarket operations will position themselves for substantial growth and long-term success in this evolving market.
The full report contains much more detail, insight and expert commentary on these major trends. If you want to dive deeper into the nuances of the modernization of the aftermarket. Get your copy by filling out the form above.