The automotive supply chain: Opportunities for transformation in times of crisis
Blog: Capgemini CTO Blog
The pandemic has revealed just how vulnerable automotive supply chains are to disruption. They were left reeling from the sudden shutdown of production lines and chaos ensued for global OEMs that had offshored manufacturing to low-cost countries – this presents big challenges to diversifying risks, which was clearly demonstrated when manufacturing in Wuhan, China first ground to a standstill; and the second wave clearly demonstrated that this wasn’t a one off.
But the pandemic’s disruption to the supply chain is only adding to the many significant challenges that OEMs already face. The predominant challenge is the massive structural shift required of a rigidly traditional, legacy industry if it is to quickly adapt to an entirely new paradigm. Innovation has become the name of the game, and there is rising demand for the increasing softwarization and electrification of vehicles. There is pressure on OEMs worldwide to pivot to more digital, agile business modes that allow consumers greater choice, more personalization, and more convenient mobility. And a growing environmental awareness and global initiatives, such as The Paris Agreement, are resulting in a rising demand for electrified vehicles. In fact, every third new car sold is anticipated to be either propelled or assisted by electric power by 2025. It’s a huge cultural and organizational change.
Unsurprisingly, global motor vehicle production has seen a huge drop in output; its largest fall since the 2008–09 financial crisis. It declined by more than 32% in the second quarter of 2020 and by almost 23% in the third. Although forecasters are predicting that 2021 will see a 7% rise in sales from 2020, this is still, of course, some distance from pre-pandemic levels.
In such uncertain times, automotive firms need supply chain networks capable of responding quickly to the many ebbs and flows emerging from this uncertainty. A much more flexible and resilient supply network is needed, fed by instantaneous data, in order to navigate current and future upheaval.
The key to recovery
To cope with this new normal of massive disruption, a reimagination of the automotive supply chain is needed. Yes, it’s about safeguarding against future adversities; but it’s also true that those who manage their supply chain better, with a wider range of capabilities, gain competitive advantages over their peers.
Here are some of the ways OEMs can get back on track in the immediate, short, medium, and long term:
Recovery calls for the quick identification and monitoring of demand and supply constraints across functions. A war room builds visibility and shows the vulnerabilities of suppliers and logistics partners. A company recovery governance should also be established so leaders can make quick, informed decisions. To create a deep supply chain awareness and predict consumer demand, you need a detailed view of the supply chain by leveraging real-time data – and IoT should underpin and precisely map every key touchpoint along the network. Then, it is time to digitize your crisis management through contingency planning.
OEMs and dealers are urgently looking for ways to recover sales – fast. They need to reassess customer demand, improve forecasts, and align operations. It’s imperative to have data-driven forecasts for sales and access to the learnings and best practices from territories at a more advanced stage of recovery. Consumer insights are vital. Build the groundwork for returning to business-as-usual operations. Dealerships should consider initiatives such as touchless test drives, like Tesla’s, to offer peace of mind to concerned buyers. A recent report by the Capgemini Research Institute, Automotive Sales: a bumpy road to recovery, found that 75% of US consumers consider a contactless vehicle delivery for a test drive to be important.
To start building the core of a fully digitalized supply chain network, OEMs should develop a collaborative ecosystem/platform. A good example of this is OEMs, suppliers, and transportation service providers (including Honda, Toyota, Fiat Chrysler Automobiles, Nissan, and General Motors) recently uniting to form a community called “AutoSphere” – an alliance dedicated to sharing data and building visibility. Members of the community adhere to a common set of processes and a common database to manage their supply chain.
OEMs should also take strides towards integrated and autonomous sales and operations planning down to a capacity-constraint production plan; there needs to be an intimate link to the sales funnel. The ability to receive vast amounts of data, process this with AI and generate insights can provide an early warning of potential disruptions.
In the years to come, the automotive industry will have to focus on building flexible and resilient supply chains that allow a rapid reorienting when responding to severe disruptions. Transformation should be driven through the digitization of supply chains, mapping supply networks, rethinking supply chain strategy (such as multisourcing vs monosourcing; nearshoring vs offshoring), stress-testing critical supply chain partners, and boosting sustainability. Risk mitigation must be an integral part of the supply chain. Monitoring demand and supply issues across all functions with the kind of data capabilities that enable leaders to make quick, transparent decisions.
Automotive firms face distinct challenges regardless of which phase of recovery they are in. COVID-19 presents unprecedented challenges, but there are also myriad opportunities to reinvent to become more resilient in the future. A recent report from the Capgemini Research Institute on rethinking supply chain resilience for a post COVID-19 world makes four main recommendations on building more future-proof supply chains:
- Establish a supply chain resilience strategy – access current state, account for end-to-end costs to accurately determine trade-offs, and identity areas where resilience is critical.
- Build capabilities to anticipate disruption – adopt systems and capabilities for end-to-end visibility, expand the range of risk factors, invest in risk simulation, and establish regular testing.
- Build capabilities to resist disruption – diversify the supplier base, bring operations closer to consumption, use analytics to focus on customer-centric supply chain planning, invest in R&D to find alternate materials for critical raw materials, and identify and close supply chain skill gaps.
- Build capabilities to recover from disruption – standardize plant and process designs and material and component choices and foster strong relationships with ecosystem partners.
The lifeblood of all of these is access to quality data through collaboration – a great example of this is the Catena-X Automotive Network – which includes BMW AG, Deutsche Telekom AG, Robert Bosch GmbH, SAP SE, Siemens AG, ZF Friedrichshafen AG, Mercedes-Benz AG, and others. It was announced at the beginning of December 2020 and uses the GAIA-X platform to bring more digitalization, more sustainability, and fewer breakdowns. This kind of collaboration can enable OEMs to tie the loose ends of their organization together to become orchestrators of a more intelligent supply ecosystem, and of their own destiny.
Learn more about Capgemini Invent’s approach to building resilience in the automotive industry here, or listen to a podcast featuring me discussing solutions to automotive supply chain challenges here.