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Auto manufacturers can differentiate themselves by offering new technology that is attractive to customers. However, research and development is expensive. Efficient product development, innovation management, and the development of the right core competencies are key.
The explosive increase in the number of models and derivatives, new driving concepts, and functionality, from one generation to the next, offers automobile manufacturers new opportunities to differentiate their products. At the same time, the resulting complexity is pushing the limits of performance and affordability. This leads to the question: How can car manufacturers achieve maximum technological differentiation and quality while minimizing their costs and investment?
To achieve this goal requires an efficient and customer-focused innovation and technology strategy. This allows the company to launch the right products for targeted customers at the right time. Nevertheless, it is also crucial to have the right platform concepts and modules, across different models and brands, to benefit from economies of scale. Additionally, it is important to reduce the costs for product development and production support with the help of an integrated, continuous, and holistic approach that goes beyond the functional limits of product development, procurement, and production.
Oliver Wyman is a trusted partner in innovation, technology, product development, and core competency strategies. We are known for our proven methodologies, deep understanding of key trends and challenges in the auto industry, and proprietary research.
Today, parts, modules, and systems from suppliers are responsible for about 60 percent of the typical added value of a car. That share will continue to grow. One of the central tasks of automobile manufacturers is to ensure the highest quality, flexibility, and cost efficiency of their supplier networks. Intense price competition in all markets makes procurement essential for competitiveness.
Automotive manufacturers and suppliers are under constant pressure to reduce their production costs. A rising number of derivatives, new vehicle functions, requirements for safety and fuel efficiency, and tighter legal requirements, increase the pressure.
The Oliver Wyman approach to lowering product costs is based on profound industry expertise and includes a holistic toolkit that enables clients to achieve significant savings before and after the start of production. Additionally, Oliver Wyman possesses a deep understanding of international supplier markets to help clients improve their supplier portfolios and minimize procurement risks.
Purchasing organizations must closely manage the quality and innovation performance of suppliers, along with costs. Superior and consistent quality is increasingly crucial for OEMs, driven by standardization and modularization. Suppliers are key sources of innovation, and OEMs must choose their partners carefully to ensure differentiating products. Flexibility across the full supply chain is of high importance to enable the OEM to respond to market fluctuations and changes in customer preferences. Oliver Wyman helps automotive manufacturers develop high performing purchasing organizations against these goals.
In a world where supplier insolvencies or quality problems can quickly jeopardize the supply of key components, a comprehensive risk management system is critical. Oliver Wyman brings its cross-industry expertise of establishing effective risk management processes and systems to identify and mitigate supply chain risks to the automotive industry.
Production efficiency and quality are the main goals of automotive manufacturers. Like revenue, the added value in production will increase continuously in the upcoming years. However, regional priorities will change and the growing complexity and variety of vehicles will increasingly challenge production requirements.
As vehicles become more complex, so do the requirements for production and supply chains. The strong shift in production in recent years toward emerging markets will continue. The bulk of new production capacity will be built in China, India, Mexico, Eastern Europe, and South America. Still, capacity continues to expand in traditional locations due to wide productivity improvements, and traditional production regions remain competitive. And quality requirements continue to rise, offering an immense challenge to all disciplines from development, engineering, purchasing, and ultimately production.
Light vehicles remain a sustainably growing and highly competitive segment. The ever increasing number of models and derivatives, along with the constant pressure on operating and capital expenses, drives manufacturers to increase both the flexibility and standardization of equipment and processes.
The global market for trucks and commercial vehicles, while historically very cyclical, has a high growth potential in the medium- to long-term. If manufacturers want to benefit from this growth, they must act globally and construct intelligent product packages tailored to the needs of individual customer groups.
Oliver Wyman offers manufacturers and suppliers a wide range of services in the areas of manufacturing strategy, production network improvement, lean manufacturing, and operational excellence. Our capabilities expanded with the acquisition of Harbour Consulting, a top consulting firm for increasing productivity in the automotive industry. Furthermore, Oliver Wyman also works on production due diligence and operational improvement programs for private equity investors, hedge funds, and industrial investors.
One of the central challenges of today’s automotive business is to tap the full revenue potential by serving customers’ needs. An average automotive customer will spend around EUR 300,000 on automotive mobility during his lifetime. There is an increasing shift from car ownership to usage-based models, such as full service packages or mobility offers.
Customer management is a complex business, considering the diversity of customers (private vs. business customer, regional differences, etc.), the variety of customer contact points (from pre-sales to sales to after-sales) and the broad range of potential partners (including dealers, internet partners, and manufacturers). A one-size-fits-all strategy does not work. Strategies need to be tailored to individual customers’ needs.
A critical link in the automotive value chain is the sales system. It is challenging for automotive manufacturers to differentiate themselves in the retail and the brand experience at the point of sale, to abolish functional orientation, to integrate and streamline all sales levels, and to improve efficiency. One of the main challenges is connecting sales, financial services, aftersales, and used vehicles to ensure an integrated product and service offering and to safeguard downstream profit potential.
Automotive retail has been designed and managed for decades in a traditional approach with few changes. Retail innovation from other industries, changing customer requirements and the notoriously high distribution costs of automotive sales will make fundamental changes in roles, steering and formats necessary. In addition, big data analyses that were established in other industries will also need to be leveraged for the automotive sales system. Especially with regard to stock vehicle sales and distribution practices, markets and dealers are currently mostly depend on their own experience and customer insight. There is a need for a well-founded tool support that performs customer analytics and facilitates a better match of stock vehicles with customer type-specific vehicle demand.
Three-quarters of all new vehicles are leased or financed. Automotive banks operate in a market environment in which the majority of customer contacts with automotive financial services are controlled by the manufacturer. In this attractive market, automotive banks are facing increasing competition from different sides. Independent vendors are gaining importance as intermediaries between brand and customer, direct financing via the internet continues to grow, and the influence of mega dealers and dealer groups is increasing.
Oliver Wyman offers automotive clients industry shaping sales expertise. This ranges from rethinking traditional automotive sales towards a multi-channel, mobility focused and fully aligned system, down to the retail level, to profit growth programs along all aspects of the automotive sales value chain.
WithLippincott, the leading brand and design consultancy and part of Oliver Wyman, we help manufacturers to re-invent customer experience and to define future brand leadership.
The change of the automotive industry from being product centric, asset driven to a service industry will accelerate over the next years. Customers (both commercial as well as private) are increasingly becoming total cost of ownership aware and demand flexible and predictable rate based models. Automotive manufacturers on the other hand embrace the opportunity to drastically increase customer lock-in and upselling and thus to more proactively channel factory output to “subscribed” customers.
Telematics technology is further advancing and provides the means to efficiently manage mobility fleets, to add a broad range of services and to offer fully flexible solutions (such as corporate car sharing).
Automotive manufacturers offer a broad variety of services. This comprises wear & tear contracts, insurances, telematics services and fleet management, to name a few. A major challenge will be to integrate these different services in stringent solutions. Only this will enable real hassle free products for customers and strong upsell potentials for the manufacturers. Further, integrated solutions will make fully flexible products possible, such as pay per drive. However, packaging and marketing such as integrated solutions (e.g. rental, full-service leasing) will not be easy. It will require managing highly complex products and will put manufacturers in direct competition with a part of their customers (such as car rental companies).
In the future, the formerly rigid service categories will increasingly converge. This goes along with a more integrated understanding of customers’ mobility needs. There will not be clearly distinct customer segments for e.g. car sharing, rental and leasing. Instead along the customer life cycle, customers will use and combine different offers. Automotive manufacturers will therefore need to combine their services for marketing purposes (e.g. combination of car sharing vouchers with a vehicle leasing offer), create a clear product and pricing logic and will need to align their offer internally to create economies of scope.
In recent years, more research and development tasks have shifted away from automotive manufacturers and into the sphere of responsibility of automotive suppliers. As a result, suppliers are increasingly becoming the driver of both the development and the implementation of innovations in the automotive sector.
Greater responsibility also implies that development projects must be effectively aligned with customer demands and managed efficiently. These are demanding tasks that have become a decisive challenge for securing the suppliers' future, particularly in view of the growing number and intensity of international collaborative networks.
Oliver Wyman has a broad range of experience with research and development projects for automotive suppliers and engineering services providers. Our effective support is especially geared toward meeting a number of major challenges, such as defining an innovation strategy, improving the R&D portfolio, managing collaborative networks (including the execution of M&A projects), improving R&D efficiency (based on the rapid innovation approach, among others), reducing R&D costs, or improving the entire R&D organization (including approaches for offshoring engineering services).
Oliver Wyman has developed a service offering to help automotive suppliers boost their R&D performance in terms of product development costs, products costs, quality of design, lead times and innovation put on the market: The RIDE² (Research Innovation Development and Engineering Excellence) framework has been applied successfully to the seven main modules of a car: chassis, engine, drivetrain, body in white, interiors, exteriors, electronics and software.
Product costs are the most important cost pool by far, if a company wants to significantly reduce its cost base. It is essential that automotive suppliers find a cross-functional, holistic approach for continuously addressing the most important technical, commercial, and process-related levers together with customers and suppliers. In this way, they can benefit from and sustainably implement significant cost advantages.
Oliver Wyman has extensive expertise in reducing product costs, which includes a combination of measures tailored to customers' specific needs. Our competence ranges from strategic approaches for managing the product portfolio and for modularization, to operational levers such as the improvement of procurement, or the reduction of costs by modifying the product or adapting the process chain. Experience has shown that the highest savings can be achieved if the measures are jointly defined and implemented as part of a cross-functional project involving the procurement, quality, R&D, production, and sales functions.
Apart from product cost reductions, automotive suppliers can also unlock major cost reduction potential by improving indirect materials. A perfect combination of low-cost procurement and smart spending that involves all of the relevant functional departments and seeks holistic solutions is implemented to address spending over the long term. Companies can sustainably improve the performance of their supplier landscape by professionalizing their increasingly globally active procurement organizations across processes, structures, human resources, and systems.
Oliver Wyman, with its many years of experience, the extensive commercial and technical skills of its consultants in all of the major categories, and its know-how regarding the industry environment and methodology, can make a valuable contribution to setting up and executing such programs, and help companies to improve their procurement functions.
The automotive industry is facing enormous cost pressure. Suppliers that generate more than 50 percent of the value added are most strongly affected. OEMs aim to reduce average prices by more than 4 percent per annum - from the supplier's point of view.
Consequently, operational excellence in production in terms of cost, quality, flexibility, and speed is indispensable for automotive suppliers. Despite considerable efforts, many companies are unable to adequately and sustainably implement comprehensive efficiency improvements in production. The challenge is to realize two apparently contradictory goals in parallel: to continuously improve performance and, at the same time, change standards and employee behavior in the long term.
Oliver Wyman has developed a unique, proven approach for improving production profoundly, sustainably, and quickly. The main focus is strategy and vision, operational processes, site improvement, management systems, and culture and behavior. We conceive the strategies together with our clients and we provide implementation support.
The automotive industry is undergoing many different changes. New markets are emerging, technologies are coming and going, and complexity is increasing across the entire value chain. Consequently, suppliers need to incessantly enhance their strategies and business designs, and adapt their organizations and processes accordingly. If they wait too long, they may even need to restructure or fundamentally redesign their companies to assure survival.
Oliver Wyman supports the automotive supplier industry in all issues pertaining to the long-term strategic alignment and sustained excellence of companies. They include, for example, questions on successfully capturing new market and customer segments, defining the future alignment of the product and technology portfolio, as well as measures for improving organizational structures, processes and systems that support this strategy. As part of this transformation, we support M&A processes during the commercial and operational due diligence, post-merger integration (PMI), and 100-day programs - both on the buyer and on the seller side.
Based on its many years of experience, Oliver Wyman helps suppliers and their lenders carry out strategic, operational, and financial restructuring programs. We attach particular importance to sustainable restructuring concepts that take the market and competitive environment and the automotive industry's specific success factors into account. In addition, Oliver Wyman sees itself as a facilitator of the restructuring process, i.e. as an objective expert and a neutral authority positioned between the poles of management, owners, lenders, and other stakeholders.