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Digitization in the Automotive Supply Chain: A Potential, Game-Changing Transition

Posted by Jenina Borromeo | January 5, 2017

As the use of technology in cars continues to grow at a rapid pace, tech companies are moving to expand products and services to the automotive supply chain.

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We’re seeing an upturn in smart, autonomous vehicles; while auto companies are keen to invest in technologies that would allow them to remain competitive as the industry is transforming to a software and solutions-focused sector.

Tech Companies Eyeing the Automotive Industry

Chipmakers are transitioning into the automotive sector as sales have dulled in the smartphones and personal computers segment. With automakers turning cars into digital technology showcases, chip makers are scrambling for deals and partnerships with auto companies and are focusing on IIoT, software development and digitization of vehicles.

Qualcomm’s recent agreement to acquire NXP Semiconductors, the world’s leading developer and supplier of chips for automobiles, for approximately US $39B could place the U.S.-based company in the number one position in automotive semiconductors. While Qualcomm has been visible in the automotive supply chain, the recent agreement would allow the semiconductor company to penetrate the automotive space quickly. It will also allow Qualcomm to extend its mobile technology towards new opportunities following revenue losses in the smartphone segment amid a general slowdown in device sales. According to reports, NXP Semiconductors CEO Rick Clemmer also noted that the deal will create a “semiconductor industry powerhouse” and the combined company could generate annual revenues worth over US $30B.

“75% of automotive parts are not designed or built by car manufacturers themselves but by their suppliers, suggesting that car manufacturing is no longer a job of a single enterprise but of a complex ecosystem of supply chain partners.”

Meanwhile, Ford Motor Co. recently designated Blackberry as a Tier One supplier amid plans to develop autonomous test-vehicles in the next decade. The designation is viewed as a critical move, and represents an inflection point in the global automotive business since it cuts out the use of a middleman in supplying products or services to the automaker. After losing significant market share to Apple Inc., Samsung Electronics and others in the smartphone segment, Blackberry has increased its focus on software development and is now moving to offer products that can enable so-called connected cars. Being labeled as a Tier One supplier for Ford will allow the telecom company to take in a bigger role in the auto industry while helping Ford keep up with the industry that is scrambling to boost security and capabilities of autonomous vehicles.

A Transition in the Automotive Supply Chain

According to a report, 75% of automotive parts are not designed or built by car manufacturers themselves but by their suppliers, suggesting that car manufacturing is no longer a job of a single enterprise but of a complex ecosystem of supply chain partners. As the latest software and connected networks of the Industrial Internet of Things (IIoT) continue to develop in the automotive industry, carmakers are bracing for various changes in their supply chains as well as in the manufacturing process.

The Industrial Internet of Things (IIoT), or Industrie 4.0 to which it is commonly referred in Germany, is a framework that would lead to the union of technologies, collaborative exercises, process innovations as well as generate enormous potential for value creation in the future inside factories. Such technologies include 3D printing, robotics, and collaborative IT, all of which help automakers improve product design and transform the supply chain. Auto OEM and supplier companies as well as automakers like BMW, Delphi, Fiat Chrysler Automobiles, Ford Motor, Harley-Davidson, and GM already have efforts underway in this field of IIoT and digitalization.

In addition, the concept of disintermediation in the automotive industry, such as Ford’s designation of Blackberry as a Tier One supplier, will profoundly affect the industry in terms of costs and efficiency.

A Connected Supply Chain

While the auto sector continues its efforts to develop smart cars, it also needs to shift towards more complex and custom products and raw materials. This, in turn, will see the industry moving into a better connected supply chain. According to analysts, the future roadmap of digitization in the automotive industry is expected to move rapidly from “digital services” to “car-as-a-service” to “mobility-as-a-service”. This transition will see cars becoming an element of a connected living solution by 2030. With the connected supply chain, a top volume vehicle manufacturer can save up to US $1B in annual costs. In a future connected supply chain, manufacturers will have  a common platform to operate with real-time visibility through the combination of IoT data with analytics -- thereby promoting greater interdependency, collaboration, dynamic responsiveness and the flexibility to integrate disruptive innovations.

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