Steering automotive supply chains to success
Interview: Stephan Smit, Director Strategic Automotive Accounts EMEA at Avnet Electronics Marketing
As director of strategic automotive accounts for the EMEA region, he is responsible for the strategic Tier One automotive customers and their supplier partners/manufacturers that sell directly to car makers.
Avnet takes the categorisation a stage further, defining strategic Tier One automotive customers as those who provide core technologies, such as engine control units, to the car makers. Smit, in his role serving these suppliers, ha deep insights into the evolving needs of car makers and how the supply chains that service them mush adapt to support them.
Fulfilling that role means that Avnet has to understand and react to a host of rapidly evolving trends in the car industry. Macroeconomic trends The global nature of the car industry is nothing new, but it does mean that local supply chains can be disrupted by geopolitical events half a world away. Smit highlights a number of recent trends that are having an impact here in Europe. For example, China has a strong appetite for European luxury brands, which is good news for manufacturers such as Audi, BMW and Mercedes-Benz. Trade tensions between the US and China, however, are affecting these vendors because they make many of their luxury models for the Chinese market in the US.
“Car makers see themselves as at the centre of a triangle, with original component manufacturers at one point, the Tier One automotive customers at a second, and distributors such as Avnet, which help the other two match supply and demand, at the third.”
European sales are also affected by the growing strength of Asian vendors in the global market. And uncertainty over Brexit is pushing the whole supply chain to plan for operating in a new legal regime, whose form will not be settled until the UK exits the European Union, and possibly not even then, when it comes to the most detailed provisions for future trade.
The global scandal over diesel emissions has also prompted new regulations about emissions from internal combustion engines, which has caused a wave of re-engineering and re-qualification for processes and vehicles.
One of the most obvious trends in the car industry is the rapid increase in the value and sophistication of the electronics used in vehicles. “Car makers see themselves as at the centre of a triangle, with original component manufacturers at one point, the Tier One suppliers at a second, and distributors such as Avnet, which help the other two match supply and demand, at the third.”
“What began as a car radio ten years ago soon added satellite navigation and later became a full-blown infotainment system. Now it is more like a digital cockpit,” says Smit. “It’s completely changed, and those changes have come at a price. The car makers used to focus on their engines, but now the key selling points for a vehicle are choice and quality of interfaces to smart phones and tablets.”
This is driving up the average value of the electronics content of a car, from around 35% now to over 50% by 2030. “With annual car sales hitting around 100 million units, that’s a lot of components and subsystems to be made and supplied.”
These trends are only likely to accelerate when major technological shifts, such as the rise of vehicle autonomy, increased connectivity, and a move to hybrid and eventually entirely electric drivetrains, take hold.
These macro-electronic and technological trends are driving changes at both the car makers and their suppliers.
The rapid pace of consumer electronics development is forcing car makers to shrink their model lifecycles. Otherwise, as Smit says, “when you get into a five-year-old car you can immediately feel that it is old.”
The car makers are responding by investing in research, development and engineering resources, as well as forecasting, so that they can take more
of the key technology decisions in house. The Tier One automotive customers are responding in similar fashion, focusing on R&D and sales and marketing support. And so the relationships among the four players in the industry triangle described above have evolved.
Car makers now consult with the component manufacturers on technology, with the Tier One automotive customers on a business basis, and then rely on distributors such as Avnet to understand and deliver what they need in terms of the quality of supply processes, global consistency, and the right information, material and financial flows.
A lot of the outsourcing that has taken place as car makers and their Tier One automotive customers focus on their differentiating value has been enabled by the availability of standards. But in rapidly developing areas such as vehicle autonomy there are, as yet, no standards. For example, there is no standard dashboard symbology for engaging cruise control, and so Avnet has to understand and work with the pre-standardisation approaches of multiple car makers.
Distributors are finding themselves at the sharp end of other major market trends. One of these is the industry’s gradual shift from making cars to providing mobility. It’s not at all clear whether in the future cars will be bought by individuals, by car-sharing companies, or even a new breed of
A second trend is the possibility of new market entrants from non-traditional sources. The most obvious sign of this is in the rise of entirely new vehicle brands, especially in the electric vehicle market in China. Less obviously, companies such as Uber, Google, and Apple may use their strengths in
connectivity and software to enter the car market, treating the vehicle itself as a sub-assembly to be contracted out to trusted partners.
A third trend is the increasing complexity of supply chains. Existing component manufacturers continue to diversify the geographical base of their
operations, making it more challenging to align supply logistics and quality globally. At the same time, as the Tier One suppliers continue to strengthen
their focus on R&D, marketing and sales, new players, such as the electronic manufacturing services companies, are stepping in to take the burden of
manufacturing off their shoulders.
Outsourcing is not a riskless strategy, though – your supplier can always mess up – so car makers are looking for multiple forms of redundancy, using multiple Tier One automotive customers to produce key modules, which have been designed to allow some level of component substitution.
“Obviously, we need to build supply chains for these players,” says Smit.
Building the right supply chain
A robust supply chain that can cope with all these issues doesn’t just happen. Avnet has a 25-strong team that is dedicated to designing them, and since minimising risk is the most important task in automotive engineering, it also monitors the resultant supply chains continuously to ensure they keep
providing what their customers need.
Avnet’s role in the supply chain is to make life simpler and more predictable for both the component manufacturers and the Tier One automotive customer. For example, if a component manufacturer wants to deliver once a month, but a Tier One automotive customer wants to draw off stock on a weekly or even just-in-time basis, Avnet can buffer that mismatch.
Component manufacturers get other help from Avnet, such as centralised demand planning, based on deep insights into customers’ production facilities worldwide, and bespoke reporting at a global, multisite level for inventory, forecasts and defined KPIs. Avnet can also manage deliveries centrally, decoupling component manufacturers from the complexities of the global supply chains of Tier One automotive customer, and can even re-label components to meet the custom requirements of individual Tier One automotive customer.
“We play on a horizontal level to help ensure some consistency in the supply chain,” says Smit. “A lot of this is enabled by the existence of standards, either global or national standards ratified by an independent body, or standards set by an individual manufacturer.”
To ensure a solid basis from which to try and ensure global consistency of the components that it sources for its Tier One automotive customer, Avnet has teams that are dedicated to understanding both international open standards and manufacturer-specific standards, working across 12 time zones and with
250 supplier production facilities.
Risk mitigation also drives a focus on good component traceability, with both date-code labels and lot numbers on incoming supplies. While this may seem excessive for suppliers of simple passives, Smit points out that more sophisticated components such as memories and microcontrollers are
likely to go through multiple revisions, including die shrinks, during their production lifetime. Knowing exactly which version of a chip has been used
in a subsystem or module may one day be critical to customer safety.
Transparency and insight
A distributor such as Avnet obviously works in commercial confidence with both its component-manufacturer partners and its Tier One automotive customer, but nonetheless can find itself acting as a crossroads for rich information flows about what is going on in the car industry.
"The rapid pace of consumer electronics development is forcing car makers to shrink their model lifecycles. Otherwise, as Smit says, “when you get into a five-year-old car you can immediately feel that it is old.”
Non-Disclosure Agreements (NDAs) usually limit information sharing, but three-way NDAs can help improve transparency between willing partners. And then there’s the tacit knowledge that the Avnet account teams build up through their experience of serving the automotive industry.
“At the end of the day, we're trying to help the car maker and the Tier One automotive customer to understand each other's capabilities and needs,” says Smit.
Often the Tier One automotive customers are looking for a strategic supply chain partner enhancing the transparency between themselves and their EMS / ODM partners. All these processes are conducted though the highest compliance standards subject to but not limited to confidentiality.
To find out more about how Avnet Abacus can support your automotive designs visit: avnet-abacus.eu/automotive
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