Creating the 21st Century Automotive Supply Chain: Complexity #1 - Accelerating rapid innovation and flexibility through collaboration
July 8, 2020
With newly introduced climate legislation, a fast growing environmentally conscious consumer base, and the push for automation creating new needs and challenges, auto manufacturers seek to rapidly introduce innovation and leading-edge features to consumer markets, all while ensuring vehicle safety. For automotive, the three primary investment categories for innovation include:
- autonomous vehicles / automated driver assistance
- electric and power
- in-car entertainment / infotainment
In many cases, these areas of innovation are uncharted territory for traditional automotive manufacturers and require the ability to quickly scale production capacity to win over previously unserved consumer segments.
According to ResearchAndMarkets, “The global autonomous/driverless car market was valued at USD 24.1 billion in 2019 and is expected to project a CAGR of 18.06%, during the forecast period, 2020-2025.” As automakers continue to add new technology, there will be rapid growth in the utilization of advanced driver assistance systems, where more than $50 Billion has been invested over the past 5 years.
More and more automakers are setting bold goals to reduce carbon emissions and expand their range of electric vehicles; this shift requires significant changes to the manufacturing process. Allied Market Research estimates the global electric vehicle market will continue to grow at a 23-28% CAGR (depending on region), reaching over $800 Billion by 2027.
Furthermore, adding IoT connectivity to cars are table stakes for automotive manufacturers, whereby 80% of passenger cars sold in 2020 are connected. To add to this, consumers continue to demand personalized and advanced infotainment capabilities, which often become regulatory requirements such as back-up cameras became.
The supplier’s role in rapid innovation
For an industry relying heavily on a global pool of suppliers, innovation creates even dependency on these partners, but unfamiliarity with new players takes time to nurture and build trust. Until trust exists, these suppliers may initially bring more risk than opportunity as quality assurance measures take a while to implement.
With suppliers providing everything from simple parts to complex hardware, software, and services, working with quality providers is essential sustaining success. While easier said than done, establishing the right supplier network, developed around a strategic sourcing plan, reduces supplier numbers and eliminates complexity through component standardization.
Additionally, automotive manufacturers enabling real-time visibility and connection across their supply chain can accelerate trust and collaboration, opening the doors to co-innovation between the supplier and the manufacturer. With today’s consumers choosing from options and features galore, spanning aesthetics, safety, and driving experience, the ability to foster this co-innovation is greater than ever.
Moving forward, suppliers will increasingly be measured by ROI, placing less emphasis traditional metrics like cost and value, with strategic supplier selection being seen as a competitive advantage. Manufacturers utilizing the Kraljic matrix and supplier scorecards to evaluate risk and profitability find themselves far better positioned to introduce new products into the market than those seeking “lowest cost” and will build consumer loyalty based on quality. Both suppliers and manufacturers will need to adapt new strategies and innovative methods to meet consumer expectations while adapting to the speed of change.
To learn more about how automotive manufacturers can accelerate rapid innovation, checkout the comprehensive 21st Century Automotive Supply Chain best practices guide.