Digitalisation of the automotive industry is a topic that has been high up on most OEM and tier one supplier agendas for some time. However, the digital age is transforming at such breakneck speed that there is the continual fear of being left behind, or even worse, of deciding on investing heavily in a technology that rapidly becomes obsolete.
In general, digitalisation opportunities are benefitting the industry throughout the full value chain, from product design, procurement, supply chain and manufacturing, all the way through to sales and marketing. However, most are doing so with a very mixed approach by combining large-scale digital transformations with mini digital transformations. These smaller-scale changes allow much more targeted benefits in niche business areas, such as developing an in-house bespoke solution to manage pricing complexity in a highly fragmented but specific product group.
Specifically, within manufacturing and supply chain, the digitalisation opportunities are very significant, typically a 15-30% improvement from overall production efficiency, including labour utilisation, footprint, material cost, and reduction in inventory and machine downtime. However, the barriers to implementation have eluded even the most forward thinking of companies. This is typically due to a lack of any sort of integrated IT infrastructure, both internally but also in connecting OEMs to their supply base.
The areas of opportunity are typically focused around automated warehousing, connected machines,real-time tracking goods in transit and improved volume forecasting.
Technologies that we have seen being used to push digitalisation and that we see continuing to grow in the coming years include RFID connected devices and sensors, touchscreens, cloud-based IT solutions, predictive analytics, improvements in cyber-security and the ability to manufacture directly from digital files, such as 3D printing.
Overall digitalisation of the automotive supply chain is being driven by the OEMs and large tier one suppliers that can afford to invest and have the most to gain from the investments. However, the average automotive supplier has hardly started its journey.
Even the OEMs lack the complete roadmap and steps needed to achieve their ambitious end-state visions. Introduction of the chief digital officer role is evidence of board-level understanding of the technologies necessary for the success of a sustainable digital transformation. A significant imbalance of digital resources across functions makes it difficult to build a one-size-fits-all approach that can be utilised efficiently and effectively, resulting in silos of technology being adopted sporadically across the organisation.
Funding is another issue for OEMs and suppliers alike, as most digital initiatives require significant investment in terms of new infrastructure or new resources. This is especially challenging given the wider industry investments already required for CASE (connected, autonomous, shared, and electric vehicles), and considering that, in 2017, OEMs invested more than $231.7 billion in capex and R&D.
Data inconsistency is another of the biggest challenges that most struggle to overcome. Typically, engineering, manufacturing and procurement all have different data standards and formats and are initially unable to align design, build and cost data to maximise the benefits from digitalisation. The issue is compounded further when OEMs attempt to compare data submissions from multiple suppliers that have their own formats. This makes a fully connected OEM or supply base an almost impossible task today.
Overall, the automotive industry has a long way to go along its digitalisation journey. Outside the big players and the new tech and software providers, what a digital transformation means in reality, or even what is possible, is little understood. Companies should focus on bite-sizing their digitalisation vision to ensure regular but sustained improvements can be made.
Nick Parker is a director at consultancy, AlixPartners
