Interview with Benny Daniel, VP Consulting - Mobility EIA, Frost & Sullivan
Disruptive new technologies are bringing the entire automotive interiors supplier ecosystem to re-think the way it works. We sat down recently with two experts to discuss the impact of Industry 4.0 standards.
What automotive business opportunities will emerge from the connected supply chain?
At Frost & Sullivan, we believe the car of the future is going to become highly connected, electric and autonomous. And therein lies the opportunity from a two-fold perspective. One is from the OEMs’ perspective—will they be reaching out to their channel partners in a highly connected and digital world? And the second is the digital customers, whom we call the digital natives, who will want increasingly more and more personalized services.
Now this will transform the supply chain for good because most importantly, this is going to shake up the interiors industry. And that’s where we believe the biggest opportunity lies for all the players that contribute to the automotive value chain. At the moment, if you look at the interiors industry, it’s a very transactional kind of relationship, where we have a hierarchical approach between the OEMs, Tier-1s and Tier-2s.
As soon as the ecosystem becomes digitized and highly automated, you will see more advisory kind of service. So the opportunities that we see over here are for the Tier-2 suppliers, essentially the leather cutters, who can move up the value chain and have direct, face-to-face interaction with the OEMs, which at the moment is restricted to the Tier-1s, in terms of innovation. So I see this is where the biggest opportunity lies, and how advisory kinds of relationships can emerge in the automotive ecosystem, whereas today it is very transactional.
What is the biggest change that automotive leather producers can expect from widespread digitalization?
In Frost & Sullivan’s opinion, I think it provides the opportunity for the value chain players to enter new territories they’ve never been before. For example, we have seen—and these trends are very visible—Tier-2 suppliers who are essentially just consulted for cutting activities, are now moving up the value chain, moving more into value-added services like cutting and sewing, design and also setting up their own seating plant infrastructure.
But most important to realize is that in today’s automotive world, they provide the options to the OEMs in terms of design, number of patterns and complexity, and creating new needs in the OEMs. This itself drives efficiency programs within the OEMs. So, for example, if you look at the traditional industry today, each vehicle program requires their own set of investments, in terms of presses, molds and dies.
As soon as we see this industry move toward digitalization, you will see a much more software-industry kind of focus where the investments are no longer in presses and in molds, but rather in software programs, where you can have customization for a wider, more diverse array of projects for OEMs. I think this opens up a new bandwagon of opportunities and, most importantly, meets the biggest demand coming from OEMs, which is time-critical deliverables. When you add to that the dimension of personalization, it’s clear that opportunities abound.
What will happen to automotive industry players that do not succeed in their 4.0 transformation?
I think the way to analyze that question is by simply understanding where the automotive industry is heading. And in our opinion, the industry is moving from a hardware to a software player. And this is important to understand in terms of value chain. Typically the OEM industry—if you look at a vehicle program—is generally a six to seven year program. With the advent of software, this program has shifted. It’s now two to three years.
So the players within the value chain that do not invest in Industry 4.0, lose the opportunity to offer consulting and advisory services during these frequent touchpoints. So the question is, do you still want to retain the usual proposition of being a transactional player, or would you want to be an advisory player? The players that do not shift to Industry 4.0, in our opinion, will still continue to be transactional. They will only be a source, where the manufacturing or the production gets done, but will never be consulted from an advisory perspective.
And this, in my opinion, will be the biggest loss if the value chain does not respond. The industry itself is changing its face and it is important that the value chain follow suit as well.
What is the current state of maturity of across the globe in terms of Industry 4.0 readiness?
The term Industry 4.0 having been coined by German industry, I would say that at this moment, they’re at the forefront, and this will continue in every part of the automotive industry. And as we have generally seen, the leaders in this field will continue to be Europe and North America.
They will experiment. They will understand which are the areas to improve while they roll this out across much faster emerging economies, especially China, India and so on. So I believe there will be kind of a legacy flow, starting with Europe and North America on the forefront, China with a very close suit, followed by Asia-Pacific and India. At the moment, the majority of the OEMs’ focus has been on cost optimization.
So what is the OEMs’ role in this global transformation? How much influence do they have?
At the moment, I think the majority of the OEM’s focus has been on cost optimization. Now, with the advent of connected, autonomous and shared mobility, individual personalization becomes important because now, the driver for change is the customer himself. So, when the customer is dictating the change, it is important most of all for the OEM’s supplier structures—from Tier-1s to Tier-2s—to be prepared in order to provide the solution. So OEMs will likely have a greater say, not just in how they shape the Tier-1 but also the Tier-2 structure. Digitalization is here to stay, and if the supply chain does not respond accordingly, they’ll lose the opportunity.
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