Digital Transformation In The Automotive Industry

Harish Thyagarajan

29 Aug 2017

Digital Transformation In The Automotive Industry

The expectations from the customers have placed immense pressure on the automakers to completely change the way they execute their strategies and manage their companies. The automotive industry has to be really creative to capture a bigger share of the consumer’s attention and also the transportation spend, both in and beyond the usage of vehicles.

 

Most of the automotive companies have been using the power of technology for improving its productivity and efficiency, to enter new markets and also to optimize the supply chains. Something that has changed over a period of time is the customer’s expectations. Technology has empowered the customers so much that they use it everywhere in their daily lives, be it to find job or to find any restaurants.

 

Various factors such as advances in the connectivity technology, the regulatory practices, the changes in the behavior of the consumers and the newly emerging business models govern the pace of this transformation. The post sales stage has had the biggest impact thus far. However, digital has also impacted other segments such as assembly, parts-services, procurement, R&D and marketing. Around 15% of revenue will be generated online, in the part segment by the year 2025.

 

The digitization in the automotive ecosystem has also allowed several non traditional, tech based firms to enter at various points along the automotive value chain. This in turn has resulted in a growing challenge to the business models of original equipment manufacturers and other entities. The digitally empowered consumers are now expecting the automotive companies to manufacture vehicles that offer a good level of digital capability. The present generation of consumers are living in the world, where they need everything instantly. For these consumers, transportation is not just a means to get somewhere, but an emotional journey that is enhanced by incredible user interface platforms allowing them to instantly access transparent data that is augmented by boundless array of entertainment services.

 

Here are some of the areas in which the digitization will play a key role in transforming the automotive industry.

 

1) Connected Vehicles

Technology connected vehicles are not new, however the potential for growth is huge for this sector. In the automotive industry, this segment potentially represents a $45 billion market, the industry is expected to grow further as automobiles integrate smart data, telematics and other technologies. Connected vehicles have the potential to excel by offering the ability to connect with computers, smartphones and other products.

 

By the year 2020, around 90% of cars that will be sold will be connected. However, cloud computing, wireless communication and data analytics are all relatively new tech areas for automotive companies. This places them in a difficult position when compared to highly tech driven companies such as Google or Samsung, which has expertise and ownership in these technologies. These non-automotive companies have also developed good and long lasting consumer relationships, particularly with the younger generation. Adding to this this gap, historically, OEMs are unused to owning the customer relationship (including vast amounts of customer data), as this was traditionally done by independent third parties – the dealers.

 

2) Autonomous Driving

One of the most disruptive advancements in the automotive industry is the autonomous vehicles. These vehicles will have huge implications for the local infrastructure and safety. This will also lead to the emergence of sub-industries with products or services offerings, in order to meet the demands of self-driving cars. The autonomous vehicle comprises of cameras, GPS technology, ultrasonic sensors and vehicle to vehicle connectivity working in sync to make the entire driving task a blissful experience.

 

As far as the public is concerned, the freedom of personal travel will be made available to everyone, be it youth, senior citizens and physically disabled people. There will be a great reduction of road congestion and an immense drop in the percentage of road accidents.

3) Effective Supply Chain Management

Digitization will certainly drive considerable improvements to the value chain through innovation, reduced costs and enhanced efficiencies. As the original equipment manufacturers aim to expand their business through dealership, there will be new ways to engage with partners, suppliers and customers. The main benefit of inter-connecting the supply chain is cost reduction via an efficiently managed process. Of late there have been several strategic decisions on decentralizing both production as well as the supply chain. Apart from lowering the costs, digitization will also drive some significant changes. Data analytics will bring down the defects and speed up the process of component design, manufacture as well as delivery. Much of this integration will be facilitated via cloud, where all the party in the chain will be looking at the same data, thereby creating better stability and flexibility.

 

The automotive sector has been really aggressive in replacing manual labor with automation. There are robots working alongside humans on the assembly lines. Artificial Intelligence, Robotics and IoT are all now a part of the automotive industry. Companies in the automotive sectors are now investing heavily on smart factories, where the connected and intelligent machines will speed up the operations, create more flexibility in customization and improve the overall performance by bringing down the defect rates.

 

For Instance, Siemens has a small electronics plant in Germany. In the year 1990, this plant was 25% automated, however, now it is 75% automated and the defect rates have substantially dropped to less than 12/million. The output has also considerably increased 8.5 times with little change in the number of employees.

 

Change certainly creates major challenges for any industry. However, focusing on the right opportunities and having a concrete digital strategy will help the automotive companies to stay ahead of its competitors.


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