Car Dashboard

A More Electrified Auto Supply Chain

Will your business help lead the transformation or get caught trying to catch the rest of the field?

Darryl Barber | UPS

darryl barber imageIn 1980, my dad thought it would be a great idea to load my mom and their three kids – all of us under the age of 13 – into the family’s 1976 Ford pickup to tour the Western United States.

He spent weeks planning the route. So many hours to drive here, so many days to see Carlsbad Caverns and the Painted Desert and another few days for the Grand Canyon. Up through Colorado and down through Texas on the way back home to Louisiana.

It would take two weeks in total to soak up all this beauty.

Well, much like the Griswolds, of “National Lampoon’s Vacation” fame, we were in for a surprise.

In all his planning, my dad hadn’t counted on the toll the miles and the intense July heat would have on his truck – and us.

Pullquote share icon. Share

This accumulation of knowledge is having a pronounced effect on the automotive industry.

In those days, before GPS, the only solution to an overheating engine in the middle of nowhere was to find a nearby dot on the map and hope for an adequate repair shop.

You could say my dad’s plans went up in smoke.

Flash forward 40 years, this would play out quite differently.

Imagine that a car’s dashboard warning light not only alerts the driver to an overheating engine, but also wirelessly transmits that information to multiple repair facilities within a short distance. That data would produce a fault code with four potential parts failures based on historical patterns.

The repair shop’s database would check inventory on hand and search for any parts not available on site.

A short time later, you pull into a garage that has all the parts you need.

Your vacation is saved.

[Also on Longitudes: Will Cars Become the Next Smartphones?]

How knowledge has evolved

That’s how much the world has changed. The Knowledge Doubling Curve, the rate at which all human intelligence doubles, has been reduced from 25 years post-WWII to just one.

This accumulation of knowledge is having a pronounced effect on the automotive industry. Greater understanding of carbon emissions has spurred the creation of more efficient vehicles.

Pullquote share icon. Share

The Internet of Things is now in many aspects of a vehicle from safety to infotainment.

The Internet of Things, which describes the integration of everyday objects to the web, is now in many aspects of a vehicle from safety to infotainment.

These wonders are all responsible for the rapid increase in electronic components in new cars.

For context, the electrical system, which is the “central nervous system” of the modern automobile, now accounts for one-third to one-half of all component costs in a car[1] and 90 percent of vehicle innovation[2].

These electronic components cost on average roughly $1,800 per vehicle, but estimates range as high as $3,500 per automobile.[3]

The most creative among us will see a world of new opportunities created by digital technology within the automotive sector.

New technologies and products that integrate these advances into older vehicles are a major source of aftermarket revenue potential.

Remember, the average age of vehicles is at a record high of 11.5 years. This will affect multiple industry players.

[Also on Longitudes: Disruption and Opportunity in the New Aftermarket]

Industry players on the field 

Manufacturers may see a pot of gold waiting for them in bypassing distributors and retailers – and going directly to the consumers.

They also may see higher margins for technological innovation in new vehicles, particularly on premium models.

Distributors may see growth potential in emerging markets and untapped customer bases through e-commerce and online marketplaces.

Finally, dealerships may see a boost to their bottom line, with nearly half of their profit coming from parts and service.

The more analytical automotive professional, however, likely sees a unique set of challenges that call for a new set of solutions for manufacturers, parts distributors and aftermarket parts and service providers.

Supply chain challenges, from procurement to quality control and inventory management, are increasingly becoming an area of concern for the automotive industry.

While vehicle production levels are strong, the automotive industry is still a relatively small player in the competition for valuable electrical components – at least compared to the high-tech industry.

Pullquote share icon. Share

Supply chain challenges are increasingly becoming an area of concern for the automotive industry.

That means automotive companies are at a competitive disadvantage and unlikely to wield pricing power when sourcing these parts.

Furthermore, original equipment manufacturers must ensure they are sourcing the right parts, particularly for components directly related to safety systems.

Suppliers need to source from firms that can provide full visibility, tracing the component back to the original manufacturer.

As a string of recent recalls has proven, auto manufacturers must proactively ensure their products have visibility at every step in the supply chain. Just one failure can have dire consequences.

Additional quality testing is also needed, potentially leading to longer turnaround times in the supply chain and adding more days to the supplier’s inventory.

There are also logistical hurdles to clear. Many supply chains in the automotive industry were created decades ago and are in dire need of an overhaul.

A recent PricewaterhouseCoopers study found that while automotive electrical components suppliers ranked first in gross profit margin, they were last in multiple, other categories of vehicle components.[4]

It won’t be easy to reverse this trend. Remodeling older, now antiquated, supply chains is both complex and costly.

The lone certainty is that electronics in vehicles will multiply.

According to global growth estimates, electronics components are projected to reach as high as $280 billion in the U.S. by 2020, up from $161.5 billion in 2013.[5]

To capitalize on this opportunity, businesses must consider new strategies to manage working capital and inventory levels, among other dynamics.

Some analysts suggest that this growth in digital technology will ultimately force the automotive supply chain to mirror the electronics industry.[6]

If true, automotive companies must be receptive to what worked best for high-tech firms.

Will your business help lead the transformation or get caught trying to catch the rest of the field? goldbrown2

[1] Global Automotive Logistics 2014: A detailed overview of the market for logistics services in the Global Automotive sector, Transportation Intelligence, September 2014

[2] “Whatever the future of the Automotive Industry, Electronics is the key”, Coulon, Didier, September 2014

[3] “Barclays Automotive Industry Overview”, October 2014 and “Automotive Electronics Prompt New Supply Chain Challenges”, Treinen, Jamie http://www.electronicspurchasingstrategies.com, December 17, 2014.

[4] 2014 North American Automotive Supplier Supply Chain Performance Study,www.pwc.com/auto,

[5] Automotive Electronics Market Analysis By Application (Advanced Driver Assistance System (ADAS), Body Electronics, Infotainment, Powertrain, Safety Systems) And Segment Forecasts To 2020, Grand View Research, March 2015.

[6] Global Automotive Logistics 2014: A detailed overview of the market for logistics services in the Global Automotive sector, Transportation Intelligence, September 2014

button

Every morning, wake up to the blog that gives you the latest trends shaping tomorrow.

darryl barber sepia
Darryl Barber is an enterprise marketing manager for the automotive industry at UPS.

Click the RSS icon to subscribe to future articles by this author. RSS Feed

Reuse

We welcome the re-use, republication, and distribution of our content – just as long as you credit us. So we ask that you insert the following tagline when you use our content:

Reprinted with permission of Longitudes, the UPS blog devoted to the trends shaping the global economy.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s