How automotive organizations can become agile amid supply chain disruption

The CASE (Connected, Autonomous, Software-Defined and Electrified) transformation is driving unprecedented product and process innovation across the automotive industry. This transformation doesn’t come without challenges.

Rare earth supply constraints, declining electric vehicle (EV) demand—especially in the US—and volatile prices have caused a 40% drop in original equipment manufacturer (OEM) profit margins compared to their 2021 peak. Moreover, there are new European Union (EU) environmental regulations, such as the Nature Restoration Law and the Corporate Sustainability Due Diligence Directive (CSDDD), that organizations must adapt processes and products to meet.

The COVID-19 pandemic and other supply chain disruptions, such as the cargo ship that blocked the Suez Canal and the recent fire at an aluminum factory that was a primary supplier to Ford’s flagship F-150 truck, have underscored the importance of agile, resilient supply chains for business growth and innovation at scale.

Turning challenges into opportunity

While retooling for CASE may prove challenging, the payoff can be enormous. For example, autonomous driving is estimated to unlock up to $668 billion in revenue by 2033, and the software-defined vehicle (SDV) market is expected to grow at a compound annual growth rate (CAGR) of over 19%, reaching $300 billion by 2034. Furthermore, with only 20% of customers currently happy with their in-car connectivity, there’s huge opportunity to monetize vehicle connectivity and autonomy.

But it doesn’t stop there. The CASE transformation is driving broader changes in the automotive ecosystem, as no one organization can go it alone anymore. For example, Audi has taken a co-innovation approach to meeting connectivity demand by partnering with Ericsson to advance the technological capabilities of its vehicles. Other examples of collaboration include Volkswagen (VW) and Rivian, General Motors (GM) and Honda, and Toyota and Subaru.

Stronger, more resilient, and agile supply chains are indispensable to capitalizing on this historic industry transformation. Strategies such as nearshoring or reshoring, and broadening the supply base—especially for critical commodities like rare earths, steel, and aluminum, as well as parts and subassemblies—can help mitigate supply chain volatility, shorten lead times and time to market, and significantly reduce business risk.

Accelerating agility through advanced technology

Our research found that 76% of automotive organizations agree that success is dependent on the use of new technologies. In an industry where stable and efficient supply chains are fundamental to innovation and business growth, organizations need to invest in technologies that power smart and efficient processes to keep pace with complex business requirements.

While success looks different for every organization, there are some proven approaches for building supply chains that are ready for the next era of progress:

• Just-in-time feeder line coordination enables organizations to promptly respond to market changes and optimize inventory, reducing cost and space requirements.
  
• Supplier collaboration solutions fuel real-time communication for increased visibility and traceability, supporting more efficient processes as organizations embrace nearshoring and reshoring. These tools can also accelerate response time across the entire supply chain, giving organizations a competitive edge.
  
• Scenario modeling and risk mitigation can make the difference between having a stable, reliable, and resilient supply chain, and one that makes an organization vulnerable to disruption and financial harm.
  
• Co-innovation between OEMs and tier suppliers means teams can combine their expertise to develop innovative, profitable products and services in an age where no one organization can do it all.
  
• Artificial intelligence (AI) and robotic process automation (RPA)-enabled data-driven processes reduce time to market, while integrated feedback mechanisms help deliver a superior customer experience to ensure brand loyalty.

Making possible happen

In the automotive industry, a resilient and responsive supply chain serves a dual purpose: keeping production going while enabling innovation and faster time to market. Through enhanced collaboration and advanced technologies, organizations can stay one step ahead not only in handling challenges, but also in finding new opportunities to unlock value.

Building an agile supply chain is a strong first step to success, but for those looking to secure a competitive advantage, there are other areas to consider. Our new global research has uncovered four Vectors to Value—the key areas of focus that the most productive organizations are investing in as they ride the crest of the innovation wave in the industry.

Download our report to secure your place as an industry leader.