In July 2021, the German Association of the Automotive Industry, known as Verband der Automobilindustrie (VDA), cut its forecast for production growth from 13 percent to 3 percent, citing supply-chain disruptions, including a shortage of semiconductors. In the UK, car manufacturing fell 42% in September 2021, registering its worst drop for the month since 1982, with the global chip shortages adding more than 2.4 billion pounds ($3.30 billion/2.81 Euros) to costs. The impact of the pandemic was felt across OEMs and suppliers in the automotive industry and spanned nearly all elements of their business processes.
The automobile industry must take cognizance of these trends and ensure they are ready for the future. Being a highly resource-intensive industry, they must build the capability to navigate both local and global market challenges, such as material shortages or new environmental regulations. Digital technologies, especially, the cloud can be instrumental in transforming the industry by strengthening their core. Cloud enables other digital technologies such as AI and ML to drive intuitive decisions and build responsive value chains. Even prior to the pandemic, the automotive industry was undergoing a transformation driven by popular trends often abbreviated as ACES – Autonomous(driving), Connected, Electrification, Shared(mobility). With the disruptions in the last several months, there has been an acceleration of these trends giving rise to a new abbreviation – F(Faster)ACES.
The various elements that the automotive industry needs to navigate through to recover from the recent setbacks include:
Improving Supply Chain Visibility
The traditional forecasting mechanisms failed to make accurate predictions in the supply chain in the wake of the pandemic. The unexpected disruptions made supply chain visibility a mission-critical priority. Even regulatory authorities have had to become more digital. While several of the challenges over the past year were unprecedented, the situation helps shine the spotlight on the importance of technology.
As per an Infosys survey, digital manufacturing and intelligent supply chains are the latest trends in the manufacturing industry. The survey found that manufacturers have been increasingly relying on digital technologies, especially cloud computing, to transform into more intelligent, personalized, nimbler, and customer-relevant organizations. Technology can play a key role in predicting or mitigating these challenges and keep car makers well-prepared.
For example, a transparent supply chain could help spot constraints in global shipments and enable the early identification of supply chain bottlenecks. In addition, AI could help inform the steps needed to clear them or plan for alternative sources or logistics.
Embracing Open Technologies and Cloud
Changing IT systems can be particularly challenging, given that most systems are typically mature and stable. Also, linkages across suppliers and OEMs add to the complexity. Majority of the systems in the automotive sector utilize classic ERP solutions and a host of specialized custom solutions. To function seamlessly in the new reality, companies have rapidly embraced solutions and systems built on open cloud technologies. These technologies make it possible to handle rapid deployment and deliver the required functionalities quickly and effectively. In addition, an open cloud environment enables the easy adoption of features such as API integration and AI.
Most ERP providers also took this opportunity to enable integration with external cloud-based open technologies. In some cases, this meant integration with a new platform that enabled bolt-on applications built on open technologies, marking a shift from the standard approach of custom application development layers. What has emerged is the much faster adoption of cloud-based open technologies. This is true of not just automotive companies but also the IT system providers and the ecosystem at large.
Enabling New Ways of Doing Business
Companies had to change their B2C as well as B2B interactions to adjust to the new realities of lockdowns and social distancing. They had to quickly embrace the digital way of doing business. OEMs have seen the introduction of click-and-buy models for online buying of cars. They have had to rapidly create more immersive online experiences as an alternate for the reduced footfalls at dealerships. Even as the pandemic fades away gradually in the years to come, these changes are expected to stay as they bring convenience to customers and nimbleness and agility to organizations.
The automobile industry has always had challenges, such as environmental concerns, new customer demands, and technological innovations. The pandemic further exposed the vulnerabilities of an unpredictable environment with supply chain disruptions and unpredictable customer demands. Adapting quickly to the changing market is an attribute that few automobile manufacturers can afford to ignore. The cloud and cloud-native and open technologies have a critical role to play here.
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Pictured: Ritu Raj Sharma, Vice President and Head of Europe, SAP Digital Sales, Infosys