This change in the automotive landscape has triggered investments across the automotive value chain in anticipation of new revenue avenues. This trend has also caught up with the upstream mining and metal companies to invest in technologies such as automotive electrification, light weighting, and even automotive manufacturing businesses that control the demand for their products. Perhaps these cross value chain investments have led to shared learning in plant management and, along with a combination of other economic pressures have opened up Maintenance, Repair, and Operations (MRO) opportunities in automotive plants, or at least they have played a part in it.

The reliance on external MRO service providers are more established in North America than in Europe. Driven by their pricing pressures that have helped them remain competitive and their exposure to economic downturns, American manufacturers have grown accustomed to MRO services.

Delivery Models – MRO

There are different types of services offered by the MRO partners that can be broadly classified as product based, services based, or a combination of both. The accelerator for these services includes reducing downtime, managing predictive maintenance, and incorporating a new technology.

The most commonly found model is Supply, Inventory, and Logistics that deals only with the supply of inventory for MRO. The cost saving by not having a dedicated team and the savings in smart inventory has been the most adopted model, as the manufacturer can still have his in-house team to control the plant.

The other model, an integrated MRO includes Inventory and Manpower wherein they cover the services offered by the above mentioned type, along with their own teams that report to a client specified supervisor. The efficiency targets and penalties are set to ensure maximum protection and overhead cost savings for the manufacturer.

The third model is a hybrid of different components that are customized for the plant. It is a given that customer wants cost savings, but identifying which areas are recommended to be provided for an Integrated MRO; for example, a specialized sensor MRO provider’s agreement with the manufacturer. Even a traditional area where efficiency plays a big role, steam management or an industrial software service provider could also be considered as a customized offering.

Despite the varied number of business types who are involved in MRO services, it is difficult to evaluate if one business model is better over another. Another interesting aspect of this market is that, it is important for any automotive MRO service provider to build the capabilities to serve the automotive industry. A company which is highly effective in delivering MRO services in another industry cannot replicate its success in the automotive industry. This gives the traditional partners of automotive manufacturing the edge over aftermarket MRO service providers from other industries.

Auto Manufacturers’ Perspective on MRO service providers

It is estimated that over 60% of the automotive MRO market is controlled by the materials MRO contracts. The growth opportunity, however, lies in the integrated MRO services that emphasise on services with required parts’ support. The integrated MRO market is valued at about 20% of the total automotive MRO market and is expected to keep growing. Here are some of the key factors that promote creating accountability of maintaining plant uptime to an external agency in automotive manufacturing.

  • MRO services are preferred when there is lack of in-house expertise for a specific application such as factory automation sensors. Maintaining a dedicated resource with a niche skill set becomes unwarranted.
  • Reducing plant labor costs is a major factor that is pitched when considering to transition from an in-house setup to an MRO service provider. Everything from a MRO logistics team cost to spares stocking cost contributes to the savings that can be realized when moving to an MRO service provider.
  • The most likely introduction of MRO service providers is when a new automotive manufacturing unit is set up or with the introduction of a new technology in the plant floor. Moreover, automotive manufacturers have also issued MRO service contracts to a service provider for multiple factories across regions.

One of the biggest apprehensions for OEMs outsourcing MRO services has been, thus far the equipment in the automotive industry have been quite standardized. However, this is changing with digitalization of the manufacturing units and the increasing number of sensors that have become the backbone of any modern automotive plant. Some of the other reasons that deter an MRO service provider to enter the automotive industry are as follows.

  • Labor costs are quite negligible as they do not need unique skill set and the labor cost can be a shared with other teams as well.
  • The conviction that there can be no further room for improvement as the setup is standardized and restructuring of the existing operational setup will not make economic sense.
  • The apprehension of the loss of control over the plant is evident in traditional organisations, especially privately owned automotive suppliers. They fear the risk of being forced to follow a standardized common plant setup (to deliver the desired plant productivity) that could affect competitiveness of the existing plant and the differentiation from its competitors. Another side to this is the risk of sharing the in-house best practices and operational processes with a vendor.

Fast Adaptors – Automotive Customers and Service Providers

It is estimated that automotive manufacturers loose about €14 million to €17 million due to downtime annually.
The shift from preventive maintenance to predictive maintenance requires a team driven by efficiency guarantee as part of metrics to minimize down time. Listed here are some MRO service providers and their automotive clients who they are supporting to ensure plant utilization optimization:

  • Production Services Management Inc. (PSMi) is a renowned partner specializing in shop floor tools, gauges, quality measurement apart from general MRO inventory management. Some of its key clients are General Motors, Ford, John Deere in the United States, Canada, Mexico, and India.
  • NM&E is the factory consumable spares distribution arm for Nissan Motors, the company is listed as undertaking MRO operations for Nissan globally.
  • Performance Consulting Associates (PCA) is a MRO knowledge partner for companies who wish to improve its in-house plant operations & maintenance. Ford, Harley Davidson, and Michelin are some of its clients in N. America.
  • Xtivity is a tool that analyses, manages, and plans inventory for MRO. Its clients include public transportation companies. Xtivity has a partnership with V-Line, a Hanover based MRO service provider.
  • V-Line is one of the few dedicated ground up integrated MRO service provider. V-Line offers its services at VW’s China plant.
  • Fraunhofer Innovation Cluster, A German MRO services company, who has made a name in the aviation industry now also caters to a few automotive clients in Germany such as DB Mobility Logistics (a rail transportation), Fuss EMV (electric vehicle parts supplier) and MAHLE Amovis GmbH (automotive supplier).
  • Siemens has remained an integral partner to BMW in manufacturing and plant maintenance. Siemens’ (Totally Integrated Automation (TIA) was recently awarded by BMW for its initiatives in advancing industry 4.0 at its plants. BMW has claimed near 100% uptime for its plants.
  • Honda in America depends on an extensive MRO network for its equipment and services. Over 5,000 MRO suppliers help run 3 manufacturing plants, 1 engine plant and 1 transmission plant.
  • Jaguar Land Rover (JLR) has given DHL control of almost all of JLR’s in-house parts logistics, warehouse management, and the entire in-house parts value chain. DHL further subcontracted the labor with other agencies to carry out the services for JLR. However, the Indian conglomerate Tata uses MRO services providers for its Steel business; it has not adapted MRO into its automotive business units in India – implying its underlying confidence in managing plant efficiencies and cost pressures in its home nation.

The product based MRO business is a highly competitive market. However, extremely little differentiation in value addition is witnessed between services offered by each other. For example, Grainger and MSC Industrial have unique business models but there is little to differentiate the efficiency they offer their clients. However, these companies have seen the need to support automotive manufacturers and have now integrated service based MRO teams as well.

Underlying Opportunities for an MRO Service Provider

There is significant interest for an integrated MRO service from a reputed automotive engineering company who understands digital technologies that drive the production in a modern automotive plant and has an existing working relationship in the industry. The most likely MRO outsourced aspects of an automotive plant are its new advanced technology installations that aid new production methods and software solutions that support plant operations plant maintenance.

Another factor contributing to manufacturers using an MRO service provider is if the manufacturer’s plant is outside their HQ country, the reliance on MRO is greater. Auto manufacturers believe this eliminates roadblocks that otherwise will be difficult to handle/ build in-house capabilities. For example, most European & American manufactures depend on external MRO service providers to run their plants in China.

The pressures of automotive manufacturers to reduce costs have made outsourcing MRO an attractive business opportunity attracting a many service offerings. It is not prudent to quote the value they all provide or the efficiency they deliver with a single figure as the efficiencies they offer their clients would be different from each other.

We believe the integrated automotive MRO space is a domain that has unique barriers of entry, favouring companies with high capital who can reinvest large amount of money in setting up distribution centres, technology capabilities or even marketing budgets. This would separate the long-term success stories from the unorganized aftermarket MRO service providers who will face challenges to scale up. This scenario also offers multiple opportunities for acquisitions for larger companies to quickly develop competencies and scale in new technologies.

About Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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