Why Automotive Suppliers need to rethink their ERP Strategy - (Part 1) The new role of IT in Automotive

For almost 30 years I am working with IT and business applications in the automotive environment and it has never been more interesting and challenging than today. The market is changing rapidly and so is the role of IT. Profitability of automotive suppliers is threatened more than ever with the next phase of the CASE revolution and in the context of Covid, the Ukrainian war and supply chain interruption.

Agility is Critical for survival

Agility has become the most critical factor for the survival of automotive suppliers. Without quickly adopting and applying digital innovation companies will not succeed to keep up with the speed of change the market demands.

From the CEO point of view it is necessary to guarantee the competitiveness of the enterprise by being able to adopt and move faster than the market is changing. Most critical parameters are people as well as technology.

From the CIO point of view to sustain the speed and agility of the company the application landscape/ the digital platform needs to be even more agile and be able to move faster than the enterprise. The CIO becomes the most important partner of the CEO to promote agility.

To become agile is a journey. Volatility and change tends still to increase within the next 5 to 10 years and with that agility determines long term survival and profitability. IT must adopt new paradigms to lead the way.

Lean is Dead

In the last decades lean concepts had the most significant contribution to maintain profitability by reducing costs in logistics, production and administration. Even with the continuous pressure of the OEMs to lower prices most suppliers maintained acceptable levels of margin. But most companies have very limited potential for further gains by applying lean. And it gets even worse. The increasing volatility of demand threatens profitability gains obtained in the past.

The big questions is: what is the next big thing after Lean? How can we protect our profitability and gain consistently additional efficiency for then next years to come?

Long life to the digital revolution

Fortunately, there are new concepts based on the advances of technology that promise to help. I am talking about Industry 4.0 in the broader sense, about Digitalization. If you look at it there are many promising technologies to gain further efficiency and reduce costs, enough to provide efficiency gains for the next decades to come.

Many companies gained experiences within the last years in successful implementing isolated use cases, but the adoption of Industry 4.0 and digitalization is still at its beginning. We will get into some details within the next chapters.

The new role of IT

Everybody would agree that IT is important for a company. Still most struggle to see more in IT than a cost center, even promoting the CIO to CDO reporting directly to the CEO. Companies need to get digital to increase agility and protect profitability. There is a huge responsibility not only for the IT staff but for the whole executive team to initiate an enormous mind shift within the enterprise. What has been done in the past might not be the right way to continue in the future. There will be a lot of work to do to create the basic conditions to excel in this environment.

Questions to ask:

• How agile is your company? Are you able to adopt to change more quickly than the markets are changing? What do you do to increase your agility?
• How can IT help to consistently increase profitability and reduce costs?
• What is your digital strategy? Is agility part of the strategy? Is the increase of profitability part of the strategy? How can these objectives be obtained?
• How is the new role of IT reflected in your organization and in the responsibilities of the CIO and the CEO?
• ?Are <ou a digital leader or only an observer? How can you become a digital leader?

Next episode

Don't stop here! Read the second episode “Why is the ERP the main obstacle to digitalization?”

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