Standardisation of parts and components can yield cost savings, but hinder product differentiation ©Getty Images
Standardisation of parts and components can yield cost savings, but hinder product differentiation ©Getty Images

Is customisation the answer to automotive supply security?

Is standardisation the answer as the auto sector faces an uncertain future?

The automotive industry has had a tough three years. In 2018 the industry shrank to such an extent that the International Monetary Fund reported it represented 30% of the year’s drop in global trade. This decline continued into 2019, which analysts attributed to the developed world reaching saturation point, coupled with a slowdown in BRIC economies.

 Despite the dip in sales, the automotive industry is still a heavyweight, churning out 80m units at its peak. Considering the average car consists of around 30,000 parts, any number of manufacturers from any number of different countries could have contributed to one vehicle.

And as digital components account for 40% of the cost of a new engine, this represents a major sourcing operation across a sprawling network of risks for procurement. In a nutshell, there is an awful lot at stake.

 2020 introduced its own unique challenges and when the delayed effects struck home, reports of component supply issues starting emerging as digital chips for engineering applications were becoming hard to acquire. With less than 100m cars in production compared to more than 1bn smartphones, consumer electronics manufacturers such as Apple and Samsung easily out-gunned the likes of Toyota and Volkswagen, and automotive firms were forced to delay production of some high-end models and furlough over 10,000 people because of what the company referred to as a “massive” shortfall in chips.

The case for keeping it the same

Standardisation of components could help prevent similar supply shortages in future. Admittedly, a world-leading competitive driver like Lewis Hamilton would probably prefer his car to be unique, more efficient and streamlined than Valtteri Bottas’s, but even F1 has come to acknowledge the benefits of standardisation, rolling it out across wheel trims and even braking systems. In your average car, standardisation ticks all the boxes of how to create a resilient supply chain.

If a new Toyota SUV requires 2,000 components, it makes little sense to source from a niche manufacturer in Mongolia instead of a factory in a nearby city, which also happens to supply Honda and Nissan. But in addition to making the supply chain more secure, it guarantees a cheaper price when bulk buying and if using the same parts on different models, plus staff will require less training when using the same components across all models on the assembly line. As well as increasing quality control it can help forge a more flexible ‘global but local’ supply chain.

Jaguar Land Rover is one such company striving for this. Faced with multiple mechanical standards, software platforms and control architectures, the company is moving towards greater standardisation to help simplify cost planning, speed up production and reduce spares procurement. Similarly, Volkswagen chief executive Herbert Diess recently announced plans to “apply a standardised platform model introduced for vehicle production years ago to software, batteries and charging” in its electric vehicles (EVs).

Electric ambitions

This flourishing EV market is another driver for standardisation. Last year saw EV sales rise to 8.5m globally and in 10 years that’s expected to top 116m, according to Deloitte. Volkswagen’s ambition to beat Tesla to become the world’s largest maker of EVs is sizable but not impossible. Analysts predict it will need to spend upwards of US$29bn to realise this ambition; however, young EV businesses don’t have the same calibre of investment. The hopes of startups such as Rivian and TankTwo depend on standardisation as a means of reducing both supply chain complexity and costs.

The main stumbling block for EV manufacturers seems to be the gap between EVs on the road and charging modules. In the US for example, 2018 saw an 80% rise in EV sales but just 13% growth in charging stations the next year. Further, the majority of charging stations need to be replaced rather than maintained due to a lack of spare parts.

The desire for product differentiation is a key barrier to standardisation. Whether it’s shoes, ready meals or five-door saloons, consumers are increasingly seeking custom products, even if this is only to a small extent, so as not to choose off the peg.

According to McKinsey’s What’s driving the global automotive industry report, car buyers are seeking “region-specific features, performance, and styling, as well as an element of uniqueness”.

“Most automakers respond to this demand with an increasing number of derivatives subject to mark-ups compared with standard models.” And the result? Well, the jury’s out. Although manufacturers could enjoy many benefits from standardisation, consumers may be decreasing their chances to embrace it.

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