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From losses to lessons: How the automotive industry can drive forward in the post-COVID era

Dec. 10, 2020
Automakers can learn from the flaws highlighted in their business processes to protect the industry from future crises.

The automaking industry was hit on two fronts during the pandemic. With little opportunity for remote working, production was brought to a complete standstill during the height of the crisis, and then demand slumped causing companies to take a big financial hit. As production slowly begins again, automotive manufacturers have to work hard to make up for their dormant production period.

The automotive sector, like other industries, experienced the ultimate business disruption during the early months of 2020. Automotive original equipment manufacturers (OEMs), as well as their tier I and tier II suppliers, were hit by both supply and demand shocks that entirely shut down production at many major vehicle-manufacturing facilities in March of 2020.

The Big 3 plus Tesla, Honda, Toyota, Subaru and Bentley came back online in mid-May, and much of the latent demand for vehicles of various types is expected to rebound. But the journey to recovery is not as easy as simply resuming operations for automotive manufacturers—manufacturers up and down the automotive value chain will have work to do in order to return to previous levels of productivity.

With production being brought to a halt and demand suffering as a result of economic circumstances, product innovations, supply chain resilience and operational improvements should all be top priorities for the industry—and there is a big role for technology to play.

Just-in-time delivery will need a re-evaluation in the post-COVID era

The halt of production happened as supply of labor was interrupted due to stay-at-home orders and as employees laid down tools because they got sick. Even if production were to continue, in many cases the just-in-time nature of the auto industry means that production would only be able to restart if their suppliers had resumed operations. In some regions in particular, resuming a steady flow of parts from tier I and tier II automotive manufacturers could disrupt production for some time as local lockdowns continue to be introduced.

For this reason, the heavy reliance on strict just-in-time parts delivery, that forms the basis of automotive manufacturing, may get a second look in the wake of the pandemic. Many OEMs have been unable to complete their own production schedule—not due to their own staffing shortages but because of supply chain disruptions.

New supply models take center stage—enter DDMRP

Consequently, one practice may gain credence in the industry—Demand Driven Materials Requirement Planning (DDMRP). DDMRP is a planning practice that helps to mitigate disruptions in production when there is an unexpected spike in demand. However, during the coronavirus crisis, unexpected shortages from suppliers became the main cause of disruption. This method of resource planning sees stock not as waste, but as strategic inventory buffers so automakers can plan for uncertain events and increase supply chain and production agility.

To successfully transfer to a DDMRP supply model, or even a hybrid approach combined with just-in-time delivery on some parts, automakers need to deploy a capable ERP solution that can use daily inventory metrics and external demand indicators to predict unexpected demand spikes or supplier shortages. This will ensure that disruptions to the supply chain, as automakers experienced during the pandemic, do not have a detrimental impact on production.

The human factor poses a risk to both supply and demand

In order to reliably restart, OEMs will in many cases need to come to terms with the fact that as biological organisms, human workers present risks in an environment where biohazards and communicable disease may be resurgent globally. Prior to re-opening, manufacturers, too, had to examine their facilities and procedures to ensure their plants and facilities were not contributing to the spread of the virus among their workers and community. The same factors, combined with demand-side factors like interruptions to individual incomes and concern for the financial future, led to a complete halt in car sales as well.

With production and demand currently in a volatile position that is so exposed to external factors, senior management at OEMs should seriously re-examine their own operations and channels of distribution and consider how transformational technologies could make them more resilient to changing conditions and emergencies.

Collaboration will improve the sales side

On the sales side, something as commonplace as a buyer-facing product configurator and e-commerce site could help them keep the lights on and demand rolling in the event of a disruption at local dealerships. The hard part of this would not be the e-commerce configurator technology, which is common and proven, but the collaboration between the online dealer and the manufacturer.

To realize the maximum benefit of e-commerce car sales, the online-to-order system would need the configurator to release a shop order to the manufacturers and streamline the order-to-cash process. Due to the presence of a large distribution channel, some credit will probably need to be given to a dealership partner who can interface with the customer as needed and handle delivery and subsequent service. The dealership-to-manufacturer portal must be configured to respect classes of trade, even as it mitigates risk of disruption in the region where the dealership is located.

Suppliers can go more remote

On the supply side, although automakers are already highly automated in their own operations, the degree of automation will probably accelerate, perhaps with increasing capacity even for plant-floor production personnel to work remotely or limit exposure to contagions. From AI-driven production robots to remote assistance for asset management and maintenance, now that OEMs are operational again they will be making investments designed to help them stay that way regardless of potential resurgence or other disruptions. 

Fluctuating demand means a new approach to project planning

The pandemic has upset demand, which creates new headaches for demand planning. Automakers will need to closely monitor the resurgence of demand with real time metrics and send pull signals for parts and bring back workers accordingly. This will require a new approach to much more flexible enterprise resource-planning solutions with project-management capabilities that extend from the design process through the entire supply chain.

The release of many models has been delayed. GM has managed to keep release of their cash cow SUV line on schedule while delaying release of other new models. Kia meanwhile will focus on launching new products in markets that have mostly recovered, while perhaps delaying launch in markets still struggling with the pandemic.

With the future of demand uncertain, and the threat to workforce shortages remaining high, the need for supporting software to mitigate risks will be essential for the future. Enterprise resource-planning solutions must be able to quickly compress or extend a project timeline as a program-target date is moved, communicate the shifting timetables to vendors and revise the just-in-time delivery schedule as needed.

Success or failure for the automotive industry post-COVID will be driven in part by OEMs’ ability to make good decisions on timing of new models, while ensuring they and their tier I and tier II suppliers have the resources and capacity to collaborate on a successful product launch without disruptions or initial quality problems.

Turn business disruption into valuable lessons 

Volatile times are never fun for automakers, as the pandemic has clearly proved, but the industry can take lessons away from it. Automakers have now seen that they must prepare themselves for any disruptions that can happen in an intermediate-term future where, as we now know, the demand plan, supply chain and operations can be upended at any time. Only by integrating a capable and agile automotive ERP solution, one that can help manage risk and support automakers across the total lifecycle from supply chain to demand planning into their operations, can automakers prepare for and succeed in times of uncertainty.

By Stefan Issing, global automotive industry director & senior solutions architect at IFS