The Auto Industry: Challenges and Solutions

The recession has hit the automotive industry hard worldwide. In times of cut throat competition and advances in technology every single day, automotive manufacturers are valiantly struggling to either maintain or gain more market share, thereby increasing their profitability. There are various areas which require innovation.

Supply chain collaboration has regained its importance and methods to shorten lead time on product development are being looked into and evaluated. The only way to rise up to these challenges and outdo competitors is to constantly improve and improvise.

In order to deliver on the scale and pace the market dictates, companies need to focus on devising an effective application management system, which will serve to help the bottom line byimproving efficiency. This will be reflected in aspects such as lowered costs, faster adaptability and the means to alter processes with respect to ever changing levels of innovation and demand.

Research indicates that in order to maintain competitive advantage, all the major companies need a system that allows them to deliver considerable levels of innovation. This demand for innovation is fueled by fluctuating changes in the market. The consumer desires value for money and that comes from process innovation to lower production costs, business model innovation to engage effectively with partners, and innovation in CRM to develop insight into consumer needs.

It is for this very reason that the auto industry’s survival is dependent on its ability to innovate continuously. Undoubtedly, this puts a lot of pressure on the existing application portfolio.

There are four key factors which are a prerequisite for the concept of continuous improvements and innovation in the auto industry to be realized.

Efficiency

Throughout the supply chain, the pressure on improving the quality and lowering the cost of making car parts and components is intense. This is why efficiency isn’t concentrated on the manufacturer with a brand name to uphold. When undertaking decision making for new design and purchasing, manufacturing cost is given due consideration as it forms substantial part of the processes executed on the factory floor.

A high level of flexibility across all business processes is required in order to offer consumers greater choice in the form of BTO or built-to-order vehicles. In the face of change application, portfolios need to be adaptable and capable of providing the right feedback of management infor-mation to facilitate process optimization.

Alliances

The days of the monolithic automotive manufacturer have been replaced by an environment within which suppliers, fabricators, designers, manufacturers, and specialists need to collaborate seamlessly. In terms of integration, this places an enormous burden on existing processes and applications, including the time taken to form effective partnerships, and finally the risks and costs associated with managing an increasingly intricate product lifecycle. It is therefore imperative to tap into the ability to adapt existing systems to support new forms of partnerships, and subsequently, a far greater network of exchange of information. It is for this reason that application portfolios have a key role in making these changes a reality.

Meeting Demand

Product innovation in the form of updated and/or new models is the basis of car buyers’ demand. In the 1980s, from the conception of a car’s design till the end product rolling off the assembly line, a lag time of 18 to 24 months existed. Today, due to better and interchangeable usage of components between models, improved and faster design processes, this time has been reduced to just 12 months.

Engagement between automotive manufacturers and suppliers occurs much earlier now in the product lifecycle, and there exists an active involvement between various stakeholders in the design phase of new models. Due to this rationale, the flexibility of existing applications and processes are key factors in reducing the time it takes to bring automobiles to market.

Cost Reduction

The impact on profit margins is inevitable due to the intense struggle and competition faced by car companies as they try to cope with the need to tackle consumers’ demand to pay as little as possible while enjoying more and more alternatives.

The consumer desires value for money and that comes from process
innovation to lower production costs, business model innovation to engage effectively with partners, and innovation in CRM to develop insight into consumer needs. It is for this very reason that the auto industry’s survival is dependent on its ability to innovate continuously.

A considerable element of the cost of products and services is ‘scrap and rework’, which is incurred when the production process does not meet the predetermined criteria in the first go. Therefore, in order to achieve improved profit margins through cost reduction, it is critical that automotive companies develop more sophisticated sourcing strategies, which combine quality, cost and flexibility.

Conclusion

Organizations that have the internal framework, invest in R&D to design processes, and promote a competitive yet healthy culture, all of which enables them to adapt rapidly and deliver constant improvements in cost management, product development, collaboration, and consumer insight, will be the ones to lead the market in terms of growth and profitability.

The key factor in supporting innovation relies on the approach automotive companies take in constructing and managing their application portfolios and the methods they adopt to govern the way in which applications and business processes.

Just as energy is the basis of life itself, and ideas the source of innovation, so is innovation the vital spark of all human change, improvement and progress
Theodore Levitt – American Economist and
Professor at Harvard Business School

    Author Information

    Babar Javed is Managing Director of Mission Centenarian, a health and fitness company founded in 2007, which comprises of a network of personal trainers in Karachi. He was most recently the chief marketing officer at Alan Guides and has worked with Glaxo Smith Kline and UBL Fund Managers as well. His key interests lie in health care, education and green energy.

    2 Responses to “The Auto Industry: Challenges and Solutions”

    1. Dear Mr. Ansari,
      Thank you for your comments. We have emailed you the email address of the author.

      Best wishes,
      tbl team

      February 18, 2010 at 11:38 am Reply
    2. Appears well researched and thought out. How can I contact the author to come speak at my company?

      February 4, 2010 at 1:02 pm Reply

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