With the emergence of EVs, the drive to autonomous mobility, and connected software defined vehicles, the next five years will see North America’s automotive industry accelerate towards a significant turning point. Digital transformation is essential if automotive companies are going to continue to grow profitably.
The North American automotive industry is barrelling into a period of change far more intense—and far faster—than anything it has experienced in its first century. The transition to electric vehicles and other zero-emission vehicles is gaining speed, driven by government action and consumer demand. New players, unburdened by decades of tradition, existing infrastructure and aging technology, are entering the market to compete with traditional automakers. Supply chains built over decades are growing more complex, as automakers find themselves partnering with companies that haven’t traditionally been part of the automotive ecosystem, from EV battery manufacturers to tech giants. Suppliers themselves face growing demand to be faster, more agile, and more transparent.
At the same time, advances in digital technologies—from analytics and the Industrial Internet of Things to cloud-based services and infrastructure and the incredible capabilities of artificial intelligence and machine learning—can enable companies to completely transform their business and operating models. These digital technologies offer considerable potential benefits to automotive companies, from OEMs to smaller-tier suppliers, including higher productivity, improved quality control, less machine downtime, lower operating costs, greater agility, and greater transparency from the top floor through to the shop floor.
When digitally transformed companies connect all along the automotive supply chain, these benefits are magnified. Real-time data flows can be used to enable supply chain participants to more effectively manage procurement and inventory, optimize processes, and respond more quickly to customer or market changes. Predictive maintenance minimizes machine downtime, to keep parts and products moving. Digitized manufacturing processes mean plant staff, engineering departments, and customers can be much more integrated, speeding approvals and production. Quality issues can be identified and remediated swiftly—at source—minimizing the risk of later failures, recalls, and costs.
And the reality is, digital transformation of the automotive sector isn’t optional. The newest players in the sector are digital natives creating businesses tailor-made for the EV future, from parts and components to vehicle assembly, and they’re building digitally, taking advantage of the latest advances. Established companies need to invest in digital technologies and upgrade their business for this new reality. Those that don’t will either be bought by someone who has, and can therefore run the business more effectively, nimbly, and profitably—or they’ll fade into irrelevance.
Of course, successfully embracing digital transformation requires companies across the automotive sector to acknowledge and overcome the obstacles holding them back.
One of the most significant challenges faced by traditional players in the automotive sector is technology debt. Many companies continue to rely on legacy systems that are decades old, using now-ancient software and hardware and technological duct tape to keep the business running. These companies typically manage the business on a plant-by-plant basis. Some might deploy MRP systems at one or more plants, but they struggle to scale up across the enterprise. Financial reporting is often arduous and time-consuming, requiring countless spreadsheets, roll-ups and manual work that inevitably leads to inconsistencies, inaccuracies, and information gaps. The result? Management is constantly making decisions based on mostly accurate information about where the business was then—not where it is now.
Compounding the challenges posed by technology debt is organizational inertia. This is an industry that’s been around for more than a hundred years. A lot of suppliers have been in business for decades. The people leading these businesses tend to have firm ideas about how to run their business and what makes them successful. As long as the old systems still function and allow the company to keep running, they reason, why change? Why invest in new digital technologies when we could invest in something we know how to do, like build or expand a plant or acquire a company?
This reluctance to change is understandable. Digital transformation is new. It’s complicated. It can drive major changes in how a business operates, the processes it uses, even its business model. It also requires companies to invest in something unfamiliar, where the impact and return on investment may take time to be seen and felt. Change can be scary—that’s why organizations often resist it.
But the line between inertia and complacency can be very thin. And that’s risky.
Companies that continue to rely on aging legacy systems and traditional ways of running their business will find themselves more easily outmanoeuvred by competitors who are either new to the industry or who have invested in digital transformation. Those that simply focus on running the plant as they’ve always done will be left behind. The reality is that what separates tomorrow’s winners from the also-rans isn’t technology. It’s the willingness to embrace change and transform.
It’s important to realize that the journey to digital transformation can take different paths. A new owner, an injection of investment capital, or a new joint venture can all serve as the spark for digital investment. An automotive company looking at building a new facility, for example, can invest in new digital technologies and the benefits they offer, rather than replicate the same aging technologies and processes used in older plants. As the advantages of the newest digital factory become apparent, the technologies and processes can be deployed in subsequent new facilities, or retrofitted to older ones.
In many cases, digital transformation initiatives begin in the back office—and with good reason.
Digitally transforming everything from accounts payable and receivable to financial consolidations and reporting provides much more accurate insights into the business. Improving enterprise visibility is a huge win for any organization, and facilitating a clear view of the entire purchase-to-pay cycle helps CFOs and other decision makers zero in on what drives profitability in each plant and across the business. And that information can create a powerful impetus for change and further digital investment.
The rise of cloud-based deployment models also makes digital transformation faster and more flexible than ever. The days of having to install and maintain costly on-premises infrastructure is giving way to operating the business entirely in the cloud—capitalizing on service providers’ innovations, regular maintenance, consistent uptime, and seamless connectivity and interoperability. With cloud services, automotive companies can upgrade their facilities far more quickly, which means they can realize the benefits of digital transformation more quickly, too.
The time for automotive companies to act on digital transformation is now. If you’re leading an automotive business, look at where you want your company to be in ten years, and the kind of growth or success you envision. Do you see a realistic path to get there with business as usual? If not, then it’s time to set aside your fears and invest in digital transformation.
To learn more about how Syntax and SAP help customers build their digital factory of the future today, please visit https://www.syntax.com/manufacturing/digital-factory/