AUTOMOTIVE & ADVANCED INDUSTRY PRACTICE
Complexity increases dynamically
Automotive industry is faced with the greatest changes since the 70s / 80s of the past century. Alternative drive and mobility concepts, an explosion of variant diversity and individualization on model and platform level meet a worldwide growing desire for mobility. North America and China are currently overtaking Europe. The automobile itself, its derivatives, accessories and services are still a highly emotional product.
The long-term megatrends still help in thinking constructively about the future and development, but short-term topics and often fashion-driven impulses lead to uncertainty, in particular in case of operational decisions. In addition, production is complex with equally complex related process and location decisions, high dynamics in sourcing and logistics as well as new partnerships and sales channels, some of them yet unexperienced.
And we have not even mentioned yet digitalization or industry 4.0.
The two next big things
Both are almost at the same time market-ready and will mutually reinforce themselves in coming market acceptance.
Autonomous driving is, in practice, significantly more energy efficient than conventional driving, thus increasing the possible range of purely electrically driven vehicles. The potential for energy saving of a vehicle that is consistently optimized for purely autonomous driving can be up to 50% in comparison with the practical consumption of a vehicle controlled by a driver. At the same time, at a global level, we reach thresholds, where energy from regenerative sources will be cheaper than fossil fuels. By 2015, 90% of all newly commissioned energy generation capacities in the US were regenerative.
The experience of driving itself is shifted by autonomous driving from pleasure of controlling power and dynamism to comfort and travel efficiency. The appeal of a lush engine and impressive dynamic driving possibilities is being reduced. Arriving becomes more important than acceleration. Comfort becomes more important than driving as a sport. Working or relaxing becomes more important than the process of driving itself. The autonomous, electrically driven car is a completely different experience for the consumer and has completely different design and market parameters when compared to all current and previous products. The value system of the youth (“car ready” Generation Y) no longer promotes the purchase of cars. In addition, new competitors from a non-automotive world are entering the car industry: Google and Apple (depending on the source), as financially-strong technology companies, are developing their own cars. Uber expands the value chain with a new offer and thus reduces the need for one’s own vehicle. On the global markets, environmental requirements (USA) or government regulation (China), such as promotion of eMobiles (right to admission, valuable parking spaces), are creating additional challenges.
New worlds of experience have new customers and need new “stories” and a different type of marketing, including sales and after sales.
Automotive manufacturers face the great challenge of rethinking their development, production, sales, profitability, corporate history, with a new product (which has to be designed “from the market”) in order not to lose their brand and value creation assets. And organization has to implement all this without costly losses.
Best manufacturers, suppliers and brands
Rhine Bridge Solutions support manufacturers, suppliers and service providers of all sizes with the experience of a company and its people, who have worked for the best in the automotive industry for more than thirty years: from the top German brands and corporations in the DAX blue chip index, over leading medium-sized companies to the most innovative e-car provider in Silicon Valley. The projects our people have successfully worked on cover all functional areas: from model strategy and site planning through global sourcing and logistics / service concepts to sales optimization, pricing and customer value analysis. The core task is always to implement corporate management’s strategy with maximum success within the organization.
For automotive manufacturers and suppliers, Rhine Bridge Solutions serve as a source of inspiration, a sparring partner for strategies and products and cost experts in order to develop ideas, check feasibilities and set up sophisticated invest-and-return scenarios.
Situation of the automotive suppliers
For automotive manufacturers, challenges of the changes are strong and complex. It will be dramatic for automotive suppliers.
For example, manufacturers of components for combustion engines will have to face ever-drastic and aggravating competition in a shrinking market. The global growth of automotive industry will no longer be able to compensate for the volume losses of products with a conventional drive after having reached a “tipping point”. After engine downsizing and partial electrification, increasing market shares of full electric vehicles will significantly increase the pressure on the component market for internal combustion engines and gears. Falling price quality and consolidation in the supply market for classic drive technology are already predictable.
At the same time, electrification also creates opportunities that can be absorbed by suppliers of classical components:
The thermal management of large battery packages with a high energy density is an interesting challenge with considerable potential for innovation. The comfortable and energy efficient heating and cooling of the passenger space is another interesting challenge.
The (partly) autonomous car also offers further differentiation possibilities. Just to mention one of these: flexible seating systems, which, from active driving to comfortable work or even a relaxing power nap, support a lot more usage scenarios than today’s seating systems do.
Champion industry in upheaval
Mechanical engineering and plant construction represent one of the most important industrial sectors in Germany. With just under one million employees, it is even larger than vehicle construction. The sector enjoys an outstanding reputation worldwide, many German hidden champions come from this industry. However, these companies are still faced with a multitude of challenges, as markets are becoming increasingly dynamic due to globalization and increased competition from players in Asia. And all these changes are happening at the same time.
The upheavals caused by digitization (industry 4.0) will have a greater importance for companies in this sector than either production automation by electronics and IT (industry 3.0) in the 1970s or the beginning of new mass production technologies (industry 2.0) at the end of the 19th century had.
Looking at the industry in depth, the scale of experience ratings ranges from “absolutely illustrative to all others” to “quite sobering”. This is not surprising, the digital tsunami turns the situation in many respects on its head (which fortunately cannot be printed on a 3D printer on the spot yet). The scenario becomes more complex, the success factors shift: the in the past, elaborately developed and implemented success stories such as just-in-time manufacturing or global sourcing become commodities and expected standards. Now it is all about digital flow and the linking of components and partners on production and sales side, gaining intelligent and relevant findings from big data and about decentralized control of (partial) autonomous systems, and the need for connectivity between processes, people and their organizations. Globalization creates an additional complexity. Furthermore: political imponderables and volatile alliance relationships, but also laws and liabilities create additional risk potential that can be anticipated through wise scenario planning.
Anyone who can improve his strategic positioning, his business model and his loss-free implementation to the level of industry 4.0 will be among the winners. Or should we better say among the survivors?
Develop and implement superior strategies
Market and industry structures will change significantly: new competitors and new business models pose severe risks to today’s established companies. Certainly, the random approach of “digitizing everything” is neither purposeful nor profitable. However, a strategic approach, which analyzes and evaluates the environment and the risks for products and business models carefully and which creates superior solutions, seems to be mandatory to us. In addition, it provides the basis for future successful positioning of one’s company in an industry 4.0 world.
For mechanical engineering, plant construction and industrial goods, Rhine Bridge Solutions serve as a source of inspiration, a sparring partner for strategies and products and cost experts in order to develop ideas, check feasibilities and set up sophisticated invest-and-return scenarios.
The fact that particularly far-eastern machinery suppliers represent a danger potential for established mechanical engineering and plant construction industry is by now pretty obvious. A performance of the digital infrastructure at the highest level of technical feasibility, a cultural collective cohesiveness, political protection, qualitative quantum leaps and an aggressive expansion on the basis of an unconditional will to succeed, taken together, are a highly threatening combination. In addition, the new challengers can focus on their market expansion without having to worry about established employee, supplier or customer structures and processes. Of course we also think about this in our work and develop concepts together with their implementation.
But what we would like to draw your particular attention to here, is the threat of the well-known and loved one, which is often underestimated: Amazon, Google and Apple are constantly expanding their business areas. Google Car’s development is already a reality, the same with the Apple Car varies depending on the news source between “pure imagination” and “very soon”. The first two are e-reader or smartphone providers, and have become hardware manufacturers through cross-subsidization and aggressive offerings with an incomparably high customer and user base (see: big data) that have created market realities that other providers can only dream of. With collected data volumes, which are not limited to private users, incredibly valuable material is available, which not only gives access to the customer, but also make possible precise forecasts that give their owner a variety of competitive advantages.
The “charm” of it: it appears to be “normal” and unobtrusive, if one experiences it at all and then can draw conclusions from it. For example, the acquisition of several established robot companies by Google and its impact on manufacturing and supply logistics, or the development of “perfect logistics” by Amazon and its implications for the distribution of competitors using these logistics, must not be disregarded in strategic considerations.
The threat is not only hidden, but sometimes comes along quite openly – the easier it is, to overlook it.
Electronics & High Tech are the heart and pacemaker for almost all other industries, their developments or products and determine performance or competitive edge of their customers and set the standards for an economy and the performance of a company, region or state.
With growing prospects for the future, opportunities, complexity and challenges are also rising:
- Expectations of an ever-shorter time-to-market
- Tough environmental laws for development and production
- Achieving advantages while simultaneously pursuing product customization (customer side) and standardization (development and production side)
- Optimization of software development
- Product lifecycle management (PLM)
- Designing, thinking and evaluating joint development manufacturing (JDM)
- Development of global manufacturing structures and processes while optimizing the supply chain
Thanks to fast progressing digitization, development and production processes of the past can no longer be recognized. Agile responses in real-time have become standard and allow for an unprecedented level of customization. But not only advances in technology are shaping the new supply chains and networks: customer requirements become suppy chain determinants. For premium performance, essential requirements have to be identified, structured and combined with the necessary technology levers as well as connected, if one would like to achieve an excellent perception on the customer side in order to create follow-up business.
Consistency in both process and data management are key success factors.
High Tech also in corporate management
Long-term success for globally connected companies lies in the efficient build up and targeted cooperation of company locations as well as in their management and control. This global footprint emerges in a field of tension between different cultures, national / regional legislations, personal networks and special local situations. The complexity of transformation increases. A major challenge is to reduce the time span between monitoring, assessment and action. In these structures, it is important that various and initially unnotized gaps do not mutually form a gigantic “mega-gap”.
For transformation of strategies at corporate level, in business areas or at company locations, high tech in processes is required to close the Strategy Execution Gap at high speed with the greatest possible precision.
For electronics and high tech companies, Rhine Bridge Solutions serve as a source of inspiration, a sparring partner for strategies and products and cost experts in order to develop ideas, check feasibilities and set up sophisticated invest-and-return scenarios.
New digital platforms and associated availability of innovations, technologies, creativity, skills and human capital are drivers of competitive advantages.
Smart Development also means spontaneously purchasing creativity needed or any relevant ability that is required at that moment in time, and to integrate this ability into the development process in a purposeful way. But this process also needs to be completely designed: from criteria and selection funnels, speed briefing, intellectual property management, data management to costing and documentation. The new connectedness must be smart, if it is to produce the smart products.
Chemistry is everywhere
Almost all products in this world use some form of chemistry. It is therefore not surprising that the chemical industry is linked to the manufacturing sector through a large number of complex value chains: plastics, varnishes, detergents, petrochemical products, pharmaceutical base materials and all products which use them. Of course, in cars plenty of chemistry is used, too.
Chemistry also influences the industrial landscape as far as the end consumer and is a frequent subject of public discussion.
The chemical industry faces huge challenges and must take a new path:
Efficient use of energy and resources is a constant focus on the agenda of most major decision makers. Together with sustainability as a continuous challenge, this drives the integration of processes that are increasingly taking place across the all plants and the entire organization. The effect is that thermal, energetic and material processes, streams and their interactions have to be re-thought and newly developed. Local (in a worst-case scenario continental) distances, different availabilities and qualities must be taken into account with appropriate technologies, which must be made available and generate investments. In the case of commodities and commodity-related products, whose margins are steadily declining due to international pressure, there is a necessity to achieve economies of scale, leading to a multi-dimensioning of the plants, which may rapidly overburden the own organization and its investment budgets.
Building up and thinking about feasibility under high dynamics with a view to correctly evaluate investment and operating costs in the lifecycle run of a plant is therefore more important than ever before. Of course, here, too, digitalization is the key driver: the digital twin of the newly designed and connected system can only be the basis for valid decisions if the strategic specifications and the engineering solutions are transferred to the simulation free of errors.
Renewal of strategic direction
The shift in demand to new markets is continuing. In addition, basic chemical products (commodities) continue to migrate to lower-cost foreign countries. Established value chains are threatened to be torn apart, thus the competitiveness of established players decreases. Progressive commoditization and a rising volatility on the commodity markets will further increase the pressure on margins. Since the possibilities for the invention of new basic chemical materials are largely exhausted, product innovations have to be conceived and realized. Actual innovation success is therefore shifting into the development of tailor-made solutions for the customer. The focus is not only on products, but also on the underlying business models.
For chemical and process industries, Rhine Bridge Solutions serve as a source of inspiration, a sparring partner for strategies and products and cost experts in order to develop ideas, check feasibilities and set up sophisticated invest-and-return scenarios.
International corporations have the opportunity to hire their employees in a more cost-effective country. For a medium-sized component or device builder already under management aspects this is a clear no-go. The price competition is made even more difficult by some governments and their exceptional support for domestic suppliers when it comes to financing conditions.
The entire strategic and operative array of possibilities is needed here in order to equip technology leadership with real added value for the customer and to communicate it convincingly. Maximum production flexibility with increasing productivity to the customer and adaptive project and after sales management have to be balanced.
Once again, digitization with connectedness, process automation and continuous data management is the key driver.
Tension areas globalization and regulation
The global growth prospects are favorable: a growing world population, emerging economies with increasing prosperity, demographic change and an unfortunate increase in “Western prosperity diseases”. However, this industry is not without challenges: increasing regulations and stricter licensing conditions are legal demands. Through globalization and increasing connectedness informed customers who pay attention to details, can choose among several suppliers and exert pressure on margins by means of bundling. The international competition will be significantly stronger and more aggressive. Research & development are increasingly characterized by longer cycles and inherent lower productivity.
The challenges to achieve competitive advantage over the long term are immense, complex and involve almost all areas of the value chain. The strategic focus on selected indicator segments will be a key success factor in order to achieve sustained growth, in spite of fixed payment amounts, maximum cost reimbursements and further changing conditions.
Developments and findings in pharmacogenomics and pharmacogenetics allow the possibility of patient-specific therapy and medication. This “personalized medicine” leads to more sensitive and complex production and logistics processes than with conventional drugs or OTC products. It requires new forms of price calculation, has completely new requirements for distribution of content by pharmaceutical representatives and must withstand many tough arguments in public discussions.
The wise and accurate thinking through of the many influencing factors, which in few cases can be based on empirical values and their transfer into a holistic strategy together with an excellent implementation, make the difference out of which competitive advantages arise.
Optimization of sales and the supply chain
The right alignment of sales is another important success factor. Classic sales in the pharmaceutical industry, for example, by pharmaceutical representatives, as well as other proven sales strategies, are becoming increasingly less important. Personalized sales channels, such as central key account management for institutional clients, are becoming increasingly important on the other hand. Digital distribution tools also help to secure further advantages.
Another important lever is the optimization of the supply chain. Major challenges are the end-to-end supply chain visibility and the optimization of distribution networks. Furthermore, the accuracy of demand projections must be increased. Here big data analytics can and will continue to play a central role.
For life scienece & health care, Rhine Bridge Solutions serve as a source of inspiration, a sparring partner for strategies and products and cost experts in order to develop ideas, check feasibilities and set up sophisticated invest-and-return scenarios.
Research-intensive companies in biotechnology need to think not only ahead but also right and left as well as up and down. This does not mean losing sight of the market and its development. Particularly in industries with long development, patent and approval cycles and high competitive pressure, an ongoing synchronization of products in progress with the market is decisive for success. Intensive knowledge of the market and key players is indispensable. If opportunities to improve one’s own positioning or the product range are discernible or are demanded by stakeholders, inorganic growth is a strategic option through partnerships, company purchases or acquisitions.
The possible scenarios and their effects can be examined and calculated in advance; the execution necessitates procedural and communicative excellence, in order to successfully combine the acquired competences and structures with one’s own.
More chances – more competition
Innovative and research-intensive aviation industry combines many important high-end technologies like electronics, robotics, metrology, steering technology and materials engineering. At the same time it is an important impulse generator for the evolution of overall manufacturing technology. And it is increasingly subject to public discussions.
The global aviation market is growing. According to credible forecasts, the civil air traffic will double by 2025. However, in spite of these growing figures, the established players like airplane manufacturers and suppliers will face enormous challenges: increasing requirements for sustainability, stricter environmental regulations and margin pressure caused by the growing no-frills airlines that mainly focus on operating costs. Manufactures very much feel the squeeze and pass it on to their suppliers across the whole supply chain.
It is the national and political aspects, global crisis hot spots, geopolitical constellations, totally new and highly dynamic threat scenarios, public opinion streams, cutting-edge technologies, the long-term character of projects, social and ethical responsibility and economic considerations that make aviation & defence industry one of the most complex industries globally.
Far from few projects fail when facing the very reality they were designed for. We all are familiar with reports on the poor readiness of defence systems or economic disasters caused by unpredicted maintenance and overhead costs. In many a case this might be put down to a poor determination of life-cycle costs, before development or, worse, production was started. Projects entering this dimension of complexity must initially, deliberately and in multiple ways be fully thought through with agile approaches.
Strategic objectives: flexibility and agility
Projects feature a very high and sophisticated level of customization, demand for constant innovation and last-minute changes regarding the product. This leads to complex processes with the highest possible requirements on reliability – but with a very low number of sold products. Therefore, classic subjects like the optimization of production processes and supply chains dominate OEMs’ and suppliers’ agendas.
To complicate matters even more: aviation and defence projects are long-term and cost-intensive large projects with accordingly complex requirements on program and risk management.
For aviation & defence, Rhine Bridge Solutions serve as a source of inspiration, a sparring partner for strategies and products and cost experts in order to develop ideas, check feasibilities and set up sophisticated invest-and-return scenarios.
Manufacturers and suppliers of components play a decisive role in the aviation & defence industry. The quality of their products drives OEMs’ performance and the public perception of OEM products. Their readiness – or lack of readiness – to engage in true innovation and to share in the costs of investments supports – or prevents – the creation of differentiating comparative advantages and the expansion of production facilities.
Digitization drives new forms of collaboration and supplier management. Development or documentation processes are disassembled and may be allocated with small, agile teams with special expertise, in different time zones to guarantee speed or incomparable cost advantages. An integrated and consistent data management has become truly essential.
The market of brands
The dynamics in this market are truly unique. Megatrends ascent into the sky like a New Year rocket and fulminate into millions of colourful streams. Some of them lasting, some of them only very short-lived, instantly burning out after having been hyped. Consumers’ tastes are as differentiated as they are moody and volatile. Product life cycles may be very short and at the same time product diversification may be very large.
The same applies to the world of retail: multi-channelling is a given, all forms and patterns seem possible: Online: e-/m-commerce – offline: hypermarkets, shops-in-shops in department stores, specialist stores and pop-up-stores, etc. All is mixed in order to maximize returns with classic product brands, specialized product appearances, product diversifications or with retail brands.
Marketing, sales, communications and advertising must be co-ordinated and provided with relevant content to strengthen the brand and trigger a consumer’s buying decision. Campaign effects, both offline and online, need to be measured objectively and constantly optimized: This applies to classical advertising, tv, direct mailing or affiliate marketing with banners as well as real-time bidding, social media campaigns and sponsoring YouTube-vloggers.
For both product and corporate brands, the process for the creation or re-positioning of a strong brand that thrills customers and turns them into fans, follows a stringent analytical and creative process. Emotions should play a most important role in a brand’s DNA – but when developing a brand’s identity, they must be removed from the process itself. They can only help to inspire or to reflect systematic, fact based decisions. Decisions concerning the core of a brand should never be guided by assumptions, alleged political correctness or – in a worst case scenario – by polling.
Forget about this recommendation, if you have an emotional and consequential brand genius on board like Steve Jobs or Bernie Ecclestone. Well, then democracy becomes an art in itself.
Creating strong brands
Brand owners and manufacturers face the threat of further consolidation on the retail side which thereby increases its bargaining power, applies more and more flexible pricing and introduces competitive own trade brands. On the procurement side, supply chains get both more complex and interwoven. Risk management, multi-national sourcing and hedging become increasingly more important, especially in the food retail business.
The situation is becoming more complicated and confusing every day. Nevertheless, it is possible to develop brand strategies to strike a chord with customers, to reach the expected targets within integrated campaigns and to reach the desired profitability per retail space. As well as strategies that simply lead to fantastic products.
For consumer products & retail, Rhine Bridge Solutions serve as a source of inspiration, a sparring partner for strategies and products and cost experts in order to develop ideas, check feasibilities and set up sophisticated invest-and-return scenarios.
Especially when introducing a new brand or new brand features it is essential to bring consumers into physical and therefore sensorial contact with products. They need to feel them, in order to experience them and then to ultimately take a buying decision.
Brand manufacturers have a very valuable tool in terms of POS-point of sale promotions to avoid price campaigns that lower gross margins and to create a brand image with customers, as well as to differentiate themselves from the competition, to underline the retailers’ performance and to increase the frequency of purchases. The necessary emotions and a direct link to the brand can be created with elaborate promotions involving able and motivated promotors and creative experience marketing. Bonus packs or add-ons to the product eliminate customers’ reservations, activate purchases and, if they are intelligently chosen based on experience, create a desire to own the brand.
Measuring the effectiveness of the approach taken and costs-per-contact needs to be integrated in promotion development. Designing an integrated campaign with elements like microsites, banner support or an online-sweepstake is highly recommended. Integrating and directing all single forms of reaching customers effectively is definitely the high art of promotions and an key success factor in overall sales & marketing.