As dire as the impact of the worldwide pandemic has been on the automotive industry, it is not the root cause behind the incredible transformation confronting suppliers today.
The most innovative suppliers are pivoting their business model for profitability in a market where all the rules have fundamentally changed. Electric vehicles have over 90% fewer moving parts than gas-fueled vehicles, the average modern car contains more than 150 million lines of software code, and connected mobile services have gone mainstream.
“Instead of just producing and selling components, suppliers have to figure out how to monetize and secure huge amounts of vehicle data,” said Rich Lindow, senior solution specialist for the Automotive Industry at SAP. “It’s a fundamental business model shift. To get more profitable, leading automotive suppliers are also finding new efficiencies for operational and supply chain resiliency in an unpredictable market.”
Witness the skyrocketing number of mergers and acquisitions, many beyond traditional automotive spheres. Lindow said that some suppliers are acquiring startups just to manage next-generation processes that have transformed cars into what are essentially cloud-based systems. One traditional automotive supplier has become an autonomous systems provider, bringing software and components together for a development operation that mimics startup culture for fast fails and faster innovation. Meanwhile, high-tech companies are buying intellectual property from traditional automotive organizations to take advantage of opportunities like autonomous and self-driving cars.
Business Value from Intelligent Data
Simplification is the only way out of such a complex and challenging environment. Some automotive suppliers are responding by bringing their entire operation onto one cloud-based platform. This is especially imperative as they create business units and acquire other companies for innovation.
“Suppliers need one platform so they can quickly evaluate how every part of the organization conducts business and apply best practices across the entire company,” Lindow said. “With a single set of data on an intelligent platform, suppliers can analyze data in real time and use predictive analytics and what-if analyses on major parts of their business. This opens the door to make process improvements that have significant value. Taking a margin up three pennies translates to greater annual profits.”
Supply Chain Resilience
Not surprisingly, supply chain resilience is central to business growth for automotive suppliers. The pandemic has revealed how supply chain resiliency supersedes lean principles. Even before COVID-19, if something went awry with demand, it flowed directly down to the supplier. Most have discovered they need a new breed of process efficiency that will lead to lower manufacturing costs and inventory levels,as well as improved delivery performance and quality. Many suppliers have already found that intelligence from advanced technologies powers faster, smarter decision-making.
“Material planners and customer demand specialists are like the firefighters in automotive plants. Any time they over-order or hold inventory on the books, they risk company dollars and cents – whether it’s storage charges, material obsolescence, or waste,” Lindow said. That’s why they’re using SAP S/4HANA Cloud and SAP Cloud Platform, applying technologies like machine learning to quickly find and fix problems. Every penny saved immediately goes to the bottom line.”
For example, the Capgemini Intelligent Assistant for Automotive (CIA4AUTO) app, built on top of SAP S/4HANA, connects SAP data such as transactions, postings, events, or lack of events, to detect anomalies and indicate potential issues across the supply chain. Variances in transactions trigger an alert to the appropriate employees for corrective action.
Look Inward for Outward Business Results
The automotive industry, including suppliers, may well emerge from the pandemic stronger than before. Consider how many suppliers incorporated lessons learned from the great recession of 2008. As challenging as the mobility business has become, it is also an unprecedented opportunity to look inside the business.
“Suppliers need to continue to look inward and see what they can control and improve, as well as look ahead to upcoming challenges as business volumes return,” Lindow said. “They’ve learned the importance of quality data, strong business processes, and engaged employees. Now it’s time to take intelligence, collaboration, and process efficiency to the next level.”
While automotive suppliers are no more besieged from disruption on all sides than most other industries, they have a unique opportunity to leap ahead using much of the same technology that is transforming the market overall. Leaders are already taking a hard look at the company they want to be in five to 10 years. Others are just beginning to realize that operating in silos is no longer viable.
One sure thing for automotive suppliers is that vehicles will continue to generate enormous amounts of data. Turning that data explosion into company income and profits is the one sure thing suppliers can count on for a successful future.
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This article originally appeared on SAP BrandVoice on Forbes.
