Why is complexity such an issue for the automotive sector? The automotive industry is over 100 years old, and layers of complexity
have been introduced at each turn of its evolution. It has one of the most complicated upstream and downstream value chains for a
volume product, which becomes ever more complicated as the industry evolves.
What is the role of local distributors, and what activities should they be focused on?
Can centralized direct sale work for OEMs? Is it advisable to consider cross-border
mergers?
These are some of the questions
and opportunities that knock the operating model of companies in the
automotive sector. To secure sustainable competitive advantage, automotive companies
should focus on getting fit for the future. For many, this will mean breathing new life into
the organisation by simplifying the operating model to strip out unnecessary cost and
complexity in the business operations, tax and legal structures. The benefits will include
enhanced flexibility, greater operating and tax efficiency, and long-term cost control—
all essential qualities, for high performance in a fast-changing marketplace.
Introducing simplification to an industry in structural change
As companies in the automotive sector have grown and evolved over time, so has the underlying complexity of their business models.
OEMs and suppliers need to have different strategies for mature markets versus
emerging markets. In emerging markets, companies must have the most efficient market
access platform to position themselves to benefit from growth opportunities. However,
without the right strategy and execution in mature markets, it is clear that companies
cannot profit from emerging markets – the persistence of structural cost and complexity
in mature market operations will eventually rob all but the most resilient competitors of
the opportunity to compete in emerging markets.
Instead of being equipped to cope with the profound challenges that arise, many
companies find their operating models too complex to enable the flexibility
and efficiency needed to deliver business strategy. For
example, the ability to rapidly analyse and understand trends in the marketplace,
and so make decision to reduce inventory and production levels is often hindered by the complexity in the organisation. Further, unwieldy structures complicate
the process of doing business with both
customers and suppliers, for example in
having a consolidated view of business
being conducted with potentially “at-risk” (single source) suppliers.
Many automotive companies are already very aware of the level of complexity within
their organisations, and over many years have embarked on projects such as lean
manufacturing, which seek to simplify portions of their inventory management
and production. While these have been useful steps on the journey towards a more
streamlined organisation, companies need to take care. In response to the current
environment, some organisations have effectively adapted their operating model
by initiating cost cutting and change projects, sometimes without a thorough
understanding of the impact each will have on the fundamental way they manage the
business.
Ultimately the goal may be not only to simplify the existing business, but also to ensure
that further growth of the business, be it through acquisitions, entering new geographic
markets, or expanding the product line, does not add unnecessary complexity to systems
or structures, and supports the overall business model.
Suggested approach to simplifying the business operating model
1. Simplify the business model - Sustainable cost reduction
Benefits:
Improve speed of decision making
Focusing management time on core activities
Alignment between management responsibilities and corporate structure
2. Transforming value chain for optimization - Strategic profit improvement
Benefits:
Supply chain rationalization
Improved business control
Cost savings
- DC
