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The Changing Automotive Supply Chain

Get ready, the car you’re probably driving is going to look and feel much different 10 -20 years from now. Indeed, after attending Automotive Logistics’ Global Supply Chain conference recently, I came away with a much deeper respect for the often maligned automotive industry.

Blamed for offshoring jobs, plant closures and continued pressure to cut costs, the automotive industry has been enjoying a renaissance led by the US and China.  Indeed, the US automotive industry has enjoyed two back-to-back record breaking years with 17.47 million vehicles sold in 2015 and 17.55 million vehicles sold in 2016. For China, 2016 marked its 26th straight year of record auto sales.

However, despite the record sales, there are bumps as higher sales incentives were needed in 2016 to entice US consumers into showrooms. Furthermore, the implementation of a purchase tax in China seemed to have aided a growing weakness in sales there. As such, 2017 may end the record sales streak for both countries.

Buckle Your Seatbelt

Presentation after presentation at the Global Supply Chain conference highlighted the importance of technology. Indeed, our cars are turning into a computer on four wheels and will eventually become autonomous. But even before that, electric cars are gaining in popularity around the world. Here in the US, after a slight dip from 2014 to 2015, electric vehicle sales increased 37%. Compounded annual growth rate of 32% was achieved in the past four years. Globally, since 2014, sales have more than doubled – from a 72% year-over-year in 2014 and up 41% year-over-year in 2016 to reach 777,497 vehicles.

Google, Uber, Apple and Baidu are not the names of companies you’d associate with the automotive industry but they are in the thick of it putting their technology skills to work. For the US Big Three, Ford, GM and Fiat Chrysler along with other ‘traditional’ automotive makers such as Honda, Toyota, BMW and Mercedes, investments are targeting this major industry shift and as a result they are either acquiring technology start-ups or partnering with leading technology companies.

One of the best charts to visually show some of this change underway is from a Bloomberg article, Technology and Car Companies Are More Intertwined than Ever. And this is just the tip of the iceberg. CBI Insights article, Disrupting the Auto Industry: The Startups That Are Unbundling The Car , published in 2016 so a bit outdated, covers the growing number of start-ups entering the automotive industry. Check out this great visual from the article:

What Does this Mean for the Supply Chain?

A Ward’s Automotive article notes that the technology making autonomous driving and connected cars possible is also changing the way cars are built, where their components are sourced and how the supply chains are managed. Three key trends are highlighted in the article:

  • Data integration will make logistics a cohesive element of the manufacturing process, allowing more customization with no impact on lead times.
  • The need to accommodate more bespoke orders will intensify the need for responsiveness, which means logistics providers and suppliers must be able to accommodate very late changes.
  • A greater level of visibility will be required to enable customization without jeopardizing robustness of supply.

Indeed, the new automotive supply chain is underway. The focus will shift from parts and engines to software. An excellent article from TechCrunch, The End of the Automotive Supply Chain, describes the shift towards creating and building platforms. The article warns that new supply chain will connect software developers with consumers and passengers in these vehicles of the future. Automobile manufacturers must embrace business model innovation and diversify to become a platform companies, lest they face the same fate as Nokia and BlackBerry before them.

The Outlook is Here

I must confess I am not a car fan (but I am married to one) but one can see the changes that have been made by simply looking at our collection of cars in our driveway – a 1988 Corvette, 1997 Saturn, 2012 Fiat and now a 2017 Jeep Renegade – and please, no comments on our collection, all run beautifully. But, it hit home with me as each car is slightly more advanced than the other (ok, maybe not the Saturn but it still gets the best miles per gallon, excluding the Fiat). We’re still trying to figure out each button on the Renegade and are not quite sure what it means when it makes a loud beep but we can tell, cars are advancing. As for the autonomous vehicle, bring it. I can’t wait.

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