Digital Leadership: Automakers Move To Procurement 4.0

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Automotive procurement leaders are facing challenges from both inside the procurement organization and outside, as impacted by other elements of the industry business.

Inside procurement issues, such as poor spend visibility, compliance, and value delivery are amplified by the overall strategic shift to digital processes and the scarcity of talent to drive procurement initiatives successfully.

Beyond the four walls of procurement, other teams, such as engineering, supply chain, and finance, are demanding more influence over the goals and objectives of procurement as product designs become more complex and connected, the flow of “material to money” receives greater margin scrutiny, and the industry shifts to Mode 2 manufacturing models. Combine this with expected tapering of automotive vehicle unit production in North America and globally, procurement leaders are in a nexus of forces few other executives in automotive companies are experiencing.

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A new role for procurement leaders

As a result, procurement leaders must augment their sphere of influence to source components and material when needed, where needed, and how needed to support Mode 2 manufacturing and virtual inventory goals. These are strategic. With the shift to strategic tasks, more operational tasks in purchasing and accounts payables will go away. Those tasks will need to be replaced with artificial intelligence and machine learning capabilities to deliver on tomorrow’s operating model.

The question we continually ask automotive procurement leaders: are you really leveraging procurement as a strategic weapon? Often the answer is no. We see several factors determining whether automotive companies are seriously leveraging procurement capabilities strategically:

  • Risk: Risk management currently implies compliance. In the future, it will include making risk-mitigating investments and risk-transfer pricing.
  • Talent development: Talent with specific non-core skills must be found and developed. New strategies must be driven outside the current business scope, and the skills to develop these new strategies are in high demand.
  • Innovation: Procurement teams need to expand their expertise in engineering and design, as next-generation procurement strategies are being developed based on outcome-based business models, 3D printing, and connected technologies.
  • Transparency: Social media is making procurement one of the most visible functions, not a back-office activity, as in past generations. As such, automotive procurement leaders need to talk to customers, regulators, and the press with one voice on behalf of the company’s strategic, 24/7, “always on” communications strategy.
  • A new relationship with financeThe global supply base is bringing new financial challenges to procurement. Procurement leaders need to develop financial acumen that rivals that of finance leaders and tighten their relationships with finance teams.

Only by reviewing these areas can procurement leaders honestly assess whether their organizations are prepared for the shift to digital business and operating models in their everyday work lives.

An opportunity to lead

With 62% of chief procurement officers unable to locate and/or develop the talent needed to address future procurement needs and challenges (Deloitte, 2016), automotive procurement leaders are at the tip of the spear to risk losing organizational influence and become a sub-function of finance or supply chain. Given the proper best practices, methods, and new digital capabilities, however, automotive procurement leaders can have a full seat at the executive table with strategic insights, foresight, and direction to maintain healthy working capital and cost of goods sold during the upcoming years of slow but tapered automotive vehicle volumes.

Learn more about automotive procurement and other industry digital advances at the Best Practices for Automotive event September 18-20, 2017, in Detroit. For more information visit the program website.

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Changing The Face Of Finance In Automotive Companies

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Automotive finance leaders have a new opportunity to mentor colleagues across the manufacturing organization.

Automotive finance leaders are feeling the pressures of a new landscape of change. This is coming from two compelling waves. The first wave originates in market volatility and risks as the industry transforms to an Automotive 4.0 digital model. This means that operationally, finance leaders can’t manage the old ways of the early 2000s. They need to develop and hone new methods to meet a new digital organization.

The second wave is business model change across all industries. Automotive finance leaders are being asked to drive strategy in a whole new and different way – advising on investments, mergers and acquisitions, and business model transformation. New operating models involving core financial and fintech advancements have created the need to develop responses to new competitive forces.

The combination of the shifts in the market due to this volatility and risk, as well as the move to digital business models, has driven a need for finance leaders to think and behave differently. In short, new management methods are needed to respond to these competitive forces.

These new competitive forces are vast and different, compelling automotive finance leaders to look beyond the immediate functions of reporting, disclosure, accounting, and controlling. For example, real-time, 24/7 reporting requires a look toward “lights-out operation,” whereby general ledger and accounts are soft-reconciled and reported on a continual, daily operational basis. Finance is also being asked to look deeply into not only core manufacturing and supply chain functions to improve margin linearity though “build to margin” scheduling, but also examine new ancillary considerations in insurance and advanced payments fields. All while keeping a secured, controlled, and threat-mitigated operational environment company-wide.

Finance leaders therefore find themselves as active leaders – and even mentors – on a number of these topics, forcing their field of vision above the normal corporate finance landscape. As digital mentors as well, automotive finance leaders need to prepare for tomorrow while managing the activities of today in a nonstop, always-on environment. The ability of automotive finance leaders to mentor and coach other C-level leaders inside the company is proving to be a key success factor as companies modernize, digitize, and compete for the same market resources as their peers, not just in the automotive industry, but also in the high-tech, transportation, insurance, banking, and retail segments.

James McQuivey of Forrester Research sums it up this way: “You always knew digital was going to change things, but you didn’t realize how close to home it would hit. In every industry, digital competitors are taking advantage of new platforms, tools, and relationships to undercut competitors, get closer to customers, and disrupt the usual ways of doing business. The only way to compete is to evolve.”

As automotive finance leaders work to change the face of finance and play a more significant role in other aspects of the automotive business, the ability to move to digital will prove to separate winners and losers in the coming years.

This article originally appeared in D!gitalist Magazine (available with additional infographs at link) as part of the CFO Knowledge community.

Want to learn more about how leading automotive companies are making the shift to digital operations? Join us in Detroit September 18-20 for the Best Practices for Automotive (#BP4Auto) event at the MGM Grand Hotel. Early registration extends to August 11. 

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Enter the Digital Consumer, Driver, Services Buyer

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LinkedIn Pulse The driver consumer holds the keys to $1.5T in future vehicle enabled digital services.

 

Working with a number of our large automotive customers, it becomes clear that what it means to become digital – and to run a digital business – can take on many forms and meanings to different companies based on their organization and their position in the automotive value chain. I have written about the advent of connected platforms, whereby suppliers are moving to land grab specific elements of the ecosystem and lay claim to their use. This includes a number of scenarios about the enhancement and transmission of information from the individual consumer as a driver whether it be to the car, the home, the household appliance and mobile device. McKinsey estimates the market for vehicle enabled digital services to grow to $1.5T by the year 2030.

Understanding how the consumer will function as a services buyer, however, is an entirely different matter whether that individual is a personal vehicle owner, rideshare passenger, renter or simply a passenger in a friend’s car out to the movies and dinner. And while automakers are determining how to enable that customer experience one thing is clear: the driver consumer wants the same, easy to use experience to carry with them from one vehicle to the next, regardless of role or method of use of a vehicle.

What do I mean by this? Digitally connected customers move seamlessly across vehicles with their secured personal identity and profile available for the use and purchase of services. Vehicles maintain the most driver desired customer experience based on real time feedback to engineering designers, significantly reducing warranty claims and updating software during non-use windows. It shouldn’t matter if I’m a passenger in a rideshare or renting a luxury vehicle for the weekend in the big city, my wallet and profile move with me based on personal credentials, personal preferences (pre-sent entertainment, services palate, etc.) and secure on-board data connectivity.

Vehicles are maintained based in similar consistency. Soft service events – uploading software versions or even tuning firmware – occur in off peak times or as needed based on severity. Hard service events occur at low-use hours to reduce labor and operating expense while maximizing availability of vehicles during peak times. Parts are available as needed, at the quickest route to service locations.

Automakers are learning more about the advanced options to support consumer connectivity as drivers, buyers and passengers and the ability that secure data environments supported by SAP HANA can deliver.

This article previously appeared in LinkedIn Pulse and D!gitalist Magazine. Learn more about trends in autonomous and connected vehicles at SAPPHIRENOW in Orlando, Florida (May 15-19) and secure your spot today!

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Top 5 Trends In Automotive For 2017

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It’s always fun this time of year to look into the crystal ball and consider what the key trends for the coming year might be. After consuming key messaging over the past several months from a number of industry related briefings and research, I’m here to offer my top 5 trends in automotive for 2017. In no particular order they are:

  1. Products will become smarter, smaller, and more connected as platforms
  1. Industry disruption and confluence will continue and accelerate
  1. The talent war will become critical, even a pinch point to growth
  1. Customer engagement will continue to grow in importance
  1. New digital business models will emerge, and most haven’t been created yet

Let’s break each one of these down and discuss some of the relevant proof points on each and the industry impacts for 2017 and beyond.

1. Products will become smarter, smaller, and more connected as platforms

On the topic of product design, there are a number of factors. First, vehicles continue to be designed under emission reduction guidelines. As such, the notion of “light weighting” vehicles continues at a rapid pace. New tech companies working with composites and new alloys are popping up like Internet startups in the late 1990s and early 2000s. The ability to simulate structural impact conditions with the use of very sophisticated analysis tools (along with large, massive data calculations) makes the ability to “fast fail” before committing to physical metallurgy a reality. These are all positive indicators that automobiles will become faster, lighter, and more fuel efficient.

An interesting caveat and counter-balance trend to the progress of light-weighting is the effects the industry faces as we move from “Level 1 and 2” autonomous vehicles (requiring the use of a driver/controller) to “Level 4 and 5” (generally considered by approved for driverless operation – see this funky graphic for a simple explanation of the NHTSA and SAE levels). While vehicles will have more autonomous features, the need to add redundant systems – including the weight of the driver – will counterbalance vehicle-lightening initiatives during the transition period, until Level 4 becomes more reality and less fantasy (and is approved by regulators for general population). How automotive suppliers connect in terms of their respective digital products and platforms will also evolve (see #2).

2. Industry disruption and confluence will continue and accelerate

It’s already hard to tell how much a vehicle company is a manufacturer, retailer, bank, and marketing firm these days, and those segments will continue to muddle as the industry morphs into Transportation as a Service (TaaS) business models. As vehicles move into a TaaS-based operation environment, a funny thing happens: the rate of use skyrockets from about 20-30% of total available use (when a personal vehicle is parked or idle) to about 70-80% (when fully autonomous or fully driver/consumer engaged). Automakers are considering what this means to service and aftermarket parts, particularly when the rate of use can shift to non-owner/vehicle customers. Will the current dealer infrastructure be deep and wide enough to manage demand? What about the insurance industry? Who insures the car when it is not a personally owned asset? If the vehicle is a personally owned asset, can I as an automaker share driver information with the insurance industry as it is collected? Am I allowed to sell these assets? What does this mean in terms of micro-royalties passed to connected suppliers who provide automakers the platforms to connect this information?These elements need to be factored into tomorrow’s business models, business processes, and data analytics.

3. The talent war will become critical, even a pinch point to growth

The biggest challenge most manufacturing and engineering-related companies have today is the ability to attract and retain key technical talent. Without talent to move into the new demands of the connected and autonomous industry, products, and operations, the growth rate of companies could become constrained just like any other capital asset. At the recent OESA Annual Conference, management consulting firm Boston Consulting Group identified through its survey work that the #1 issue facing the automotive industry is management, with the top area of concern there being talent management. The big fight for talent is just getting started.

Case in point: Last year I was with a company whose entire IT architecture team was approaching mandatory retirement age. Earlier this year I was with another company that needed to maintain its engineering workforce as a key to growth as it replaced retiring skilled workers and designers and built product sales volume. In short, every company in the industry has a talent-management problem, and everyone is competing for the same skilled resources in science, technology, engineering, and math. These STEM resources are of top demand in the workforce and will command attention, compensation, and flexibility in terms of how work gets done in automotive and manufacturing companies.

4. Customer engagement will continue to grow in importance

Driver consumers will continue to demand greater engagement in services and other delivery models with automakers, and automakers are extremely interested to accommodate these new, largely millennial drivers. A McKinsey study published earlier this year suggested an estimated $1.5 trillion in digital services would be rendered through connected vehicles by 2030. This represents by far the largest growth area for the automotive industry, with personal vehicle sales expected to grow modestly between 2% and 4% during that time (IHS, Frost & Sullivan, others). So how do automakers tap into that engagement model at a deeper, more meaningful level? My colleague Thomas Leisen from our organization and talent group suggests the answer is be purpose-driven and authentic. According to Thomas, when it comes to millennials in particular, “this generation is really sensitive as to whether a brand purpose is authentic or not. If millennials don’t buy your claimed purpose on the fly, not only are you throwing away a lot of money for all of your marketing campaigns, but they might also get the wrong impression.” Pushing that level of authenticity – with deep data accuracy and meaning – to driver consumers will require new and evolved thinking to capture this massive future wallet share.

5. New digital business models will emerge, and most haven’t been created yet

And this is just what we know. What about digital business models that haven’t even been created yetAccording to IDC, by year-end 2017, over 70% of the G500 will have dedicated digital transformation and innovation teams. In addition to those digital (DX) transformation efforts, by 2019 40% of all digital transformation initiatives – and 100% of all effective Internet of Things (IoT) efforts – will be supported by cognitive/AI capabilities. When the industry moves into AI and machine learning concepts, the role of the human is one more of oversight and control and less one of execution: intelligent machines, building intelligent vehicles, servicing intelligent machines.

Case in point: Much like many household connected items, the first interaction with a digital device is with your phone to match/pair, personalize, and engage the product. What will the phone – or some other primary device – in the future represent? How will we use that to onboard and personalize a vehicle? These are questions that automakers are considering today, even with the rapid pace of current change, to be ready for tomorrow.

So how did I do? Long shot or bull’s eye? Check out my top trends for 2016, and listen to my crystal ball 2014 predictions from SAP Radio Coffee Break with Game Changers.

This article originally appeared on LinkedIn Pulse and Digitalist Magazine.

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Automotive Industry Briefings Highlight “Peak Year” Challenges, Opportunities

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The past month I was fortunate to attend and moderate a number of automotive industry briefings which highlight the challenges and opportunities the industry faces as it moves into its anticipated peak years of 2017-18.  As was pointed out in August at the annual Management Briefing Seminar sponsored by the Center for Automotive Research (CAR: www.cargroup.org), with the industry tapering to 17.7M units in North America for 2017, industry management skills can be historically challenged given the sharpness of action stemming from growth and decline cycles.  Long term, slow growth remains vexing for most companies – making it more difficult to place their bets – and how best to emerge prepared and readied for the next wave of growth opportunities in a vastly different (and digital) ecosystem.

At the recent Best Practices for Automotive event co-sponsored by SAP, ASUG and Eventful Conferences, Executive Vice President of Research Dave Andrea of CAR brought this topic up again during his keynote and challenged those in the room with thinking differently and embracing the rapid digital changes sweeping the automotive industry.  His head-scratcher question of “is the automotive industry ready to become a utility?” in light of emerging Transportation as a Service (TaaS) models sweeping automaker boardroom left many attendees re-evaluating their own directional response to these changes.  IDC Principal Analyst Jeff Hojlo contended that key issues from vehicle security to the open platform of the Internet of Things (IoT) and how we securely connect various components together to provide a personalized driver consumer experience would remain at the forefront.  I had the pleasure of moderating the financial transformation track featuring presentations by FCA, Karma Automotive and Delphi which further explored how these companies were readying for – and embarking – on their digital journeys.

The Annual Original Equipment Supplier Association (OESA: www.oesa.org) further challenged the industry to move to a “new clock speed” and how the disruption in the industry has changed the notion of a “vehicle” to more a personalized transportation model.  Tesla stands as a disruptor in this area impacting the industry supply chain by behaving (and demanding) more and different relationships from suppliers while providing the personalized driver consumer experience echoing other briefings this season.  Management remains the top challenge facing suppliers, with talent management now the primary management issue given the continuing workforce transition, Millennial shifts, and need for transition planning at all levels of the workforce. (Catch my full audio recap of the OESA conference here or listen below).

And finally the Automotive Aftermarket Supplier Association (AASA: www.aftermarketsuppliers.org) Tech conference yielded a number of industry opportunities including the findings of the joint white paper with SAP. As part of our findings, we learned that the aftermarket segment does indeed have aspirations to move to digital – particularly in the on-line self-service consumption of product information that is so key to engaging Millennial buyers.  However the gap between “where we want to go” and “where we are today” across the industry is pretty stark.  When buyers can go to Amazon.com and engage in a fully preferences-driven experience – even touchless routing to recommended parts and equipment – it puts most conventional parts suppliers to shame.  This high bar is reality today, and the “Big 4” aftermarket direct to consumer distributors (Amazon, Ebay, Autozone and Napa) are capturing the lion’s share of Omni-channel (web, phone, app, etc.) sales in the segment. (Read the full discussion and find a link to our whitepaper here).

With the 2017 “peak year” on the horizon, automotive companies clearly have to focus their investments to prepare for a more digital and connected future.  Making those decisions now will enable companies the ability to fund investments now while moving towards a more moderated growth forecast in the coming planning round cycles.

(This article originally appeared in the SAP Community Network. Follow me on Twitter @William_Newman as well as my LinkedIn Pulse blog).

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Highlights of the 2016 OESA Annual Conference

Today the Original Equipment Supplier Association (OESA) held their annual conference at Cobo Hall in Detroit (Michigan).  This week’s podcast covers some of the highlights of outlook and forecast sessions.

Key presentation including:

  • Gary Silberg – Partner, the Americas Head of Automotive, KPMG
  • Xavier Mosquet – Senior Partner and Managing Director, The Boston Consulting Group (BCG)

Follow us on Twitter using the handle @TheViewCLevel and comment using hashtag #TheViewFromCLevel and #FutureOfCar.

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Automotive Aftermarket Illustrates Growing Business Capabilities in an Evolving Industry

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This week at the Automotive Aftermarket Supplier Association (AASA) Tech Conference in Clearwater (FL), SAP announced its joint findings with the venerable industry group with the release of its 2015-16 survey and white paper “Business Capabilities in an Evolving Industry.” My colleague Brian Diehl joined me with Chief Strategy Officer Jay Burkhart from AASA in the release and discussion that kicked off the B2B Marketing tech track of the conference.

From our side some of the findings and trends involving the growing awareness and adoption of digital capabilities in this segment of automotive were not particularly earth shattering.  Spare parts makers – some of the same suppliers that build to OEM models new off the line – have been a key area proponents in manufacturing digitalization for some time.  However, with the admission (that according to Forrester) Manufacturing companies as a whole represent the 46% of the laggard companies when it comes to digitizing their processes, and aftermarket as a segment to automotive are further behind that curve, the industry is evolving less due to want and more due to customer demand and need.  In short, the industry is at a crossroads and the aftermarket segment is in the crosshairs.

As part of our findings, we learned that the aftermarket segment does indeed have aspirations to move to digital – particularly in the on-line self-service consumption of product information that is so key to engaging Millennial buyers.  However the gap between “where we want to go” and “where we are today” across the industry is pretty stark (3+ points on the 20 point capability scale that SAP uses to rank its best practices index).  When buyers can go to Amazon.com and engage in a fully preferences-driven experience – even touchless routing to recommended parts and equipment – it puts most conventional parts suppliers to shame.  This high bar is reality today, and the “Big 4” aftermarket direct to consumer distributors (Amazon, Ebay, Autozone and Napa) are capturing the lion’s share of Omni-channel (web, phone, app, etc.) sales in the segment.  While organizations like Federal Mogul Motor Parts and Grainger offer a very “consumer-ized” buying experience, our study shows that – as an aggregate – this capability gap is not likely to reach a tipping point for at least 3-5 years.

Another key finding that while the move to front office digitalization for aftermarket part sales is front and center, there is a lot of catch-up work and modernization when it comes to the back office operations.  Inventory management, visibility to supply chain planning, and configure, pricing and quoting (CPQ) models are front and center of where the need for digital is strong.  And while that may suggest a tighter link from front office sales to back office production, it creates a greater need to connect these often “siloed” functions of the parts maker business.  Only taking an enterprise-wide approach can create not only self-service but also “concierge” or “guided buying” experiences where sales has access to pre-approved configurations – enabled for manufacture – and supported with the right material inventory and supply to actually deliver, especially on focused small lot sizes or even a “lot size of one.”

Aftermarket has come a long way over the last decade, representing a key margin segment opportunity for parts makers.  Where we go and how we realize our aspirations in an evolving industry remain to be seen.

Download a copy of the white paper “Business Capabilities in an Evolving Industry” from AASA here.  Join SAP and SAP hybris October 17-19 in Detroit for a further discussion on automotive aftermarket and other key automotive topics at our Best Practices for Automotive Conference (#BP4Auto). This article originally appeared on LinkedIn Pulse.

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