Industry 4.0 and the digital transformation of the automotive industry

Niranjan Manohar, Program Manager - Connectivity and Automotive IT at Frost & Sullivan’s Intelligent Mobility Practice, investigates the automotive industry’s preparedness for "I4.0"

‘Industrie 4.0’ is a German government initiative responding to the growing needs of the manufacturing industry regarding customers. The focus of this transition is to identify look at avenues to develop an enhanced manufacturing model capable of competing with emerging economies that have advantages in terms of cost of production, labour rates, etc. Industry 4.0 (I4.0) is a framework that will be able to bring about the union of technologies, collaborative exercises and process innovations, and bring forth enormous potential for value creation in the future.

Why the automotive industry in particular? The need for customer services has increased with several non-automotive companies eyeing the consumer engagement channels beyond the point of vehicle sale. OEMs lose significant opportunities with respect to product planning, newer services, and time-to-market reaction with the lack of customer/vehicle data feedback. Direct interaction between an OEM and customer/vehicle will help the former understand and gauge customer preferences and reduce several inefficiencies. The consumer piece of the pie is like an Apple Store model, where every transaction can be monetised, and manufacturers will also need to work towards understanding avenues that can have a positive impact on internal savings and ways to improve the bottom line. I4.0 is expected to bring forth the idea that advances in manufacturing will help the industry focus on key functional pillars such as technology, collaboration, and processes.

I4.0 will chart certain Mega Trends that are expected to be key enablers for the automotive industry‘s transition, namely Cloud computing, cyber security and Big Data analytics.

Below is an overview of these three megatrends:

1. Cloud computing

Improving quality and productivity while reducing operating expenses remains at the heart of every process improvement. Cloud is one area that could possibly highlight a new era where IOT will not merely be used as a purchase puller, but more as a tool that can impact internal savings and improve OEMs’ bottom-line performance. Criticality and latency are the two most important factors that come into play while deploying Cloud in any industrial environment. For instance, a Cloud-based PLM system eliminates supply chain inefficiencies caused by miscommunication. Prototype review and up-to-date information across the supply chain results in significant savings, helping suppliers provide competitive quotations to end customers. A Tier 1 HVAC (heating, ventilation and air conditioning) supplier in North America, for example, was able to achieve a reduction in injection mould tool cost from 33% to 50%, and time-to-procure supplier quotations were reduced by 20%. In addition, manufacturers were able to achieve instant prototype review among the supply chain partners, which results in quicker design change and a reduced development cycle.

Vehicle manufacturers with no internal capability should ideally work with Cloud-based ecosystem partners to leverage their strengths in terms of managed services, reduced investments on licensing fees, and real-time computational power.

2. Role of cyber security beyond the car

As the automotive industry prepares for a connected future, security should be incorporated as a part of any design principle parallel to business strategy, and not treated as an investment concern. A cyber-secure architecture uses IT security needs as a design standard and not as an additional layer that increases complexity, which, in turn, enables greater multichannel integration, supporting modularity and protected APIs to permit integration among ecosystem partners. To weather the digital transition, the automotive ecosystem needs to evolve with security protocols at customer and value chain touch points for a comprehensive defence against a larger business risk. The future could see a connected ecosystem that integrates new technologies and services, such as V2X communication and VRM, and look at investments as a positive approach to tackle both vehicle- and infrastructure-level security concerns. Intelligent mobility trends will see non-automotive companies raising mandates around data and authentication.

For instance, the value of electronics accounts for about 20%-25% of the value of a present-day car; this is likely to increase to 40%-45% or more by 2020. If OEMs ignore cyber security, they would be compromising their users, risking brand value, and drawing financial and moral liabilities. The liability of a security threat must be addressed by the OEM both inside and outside the vehicle; it cannot be sold to a customer as an aftermarket solution. Current tools are heterogeneous in nature; a collaborative approach from vehicle manufacturers, governments and IT companies (IBM, Cisco and others) is required to tackle such issues.

3. Being predictive is better than being reactive – the role of analytics

Analysis of Big Data marks the beginning of the increased potential for the automotive industry to negate existing challenges and look beyond customer expectations. Customer behaviour, risk management, resource optimisation and process improvement are the four broad categories where manufacturers look to utilise relevant data insights. Such an approach will give vehicle manufacturers a view into the imminent trends that will help them structure research and guide investments, while avoiding risks and associated losses. By connecting the production line to suppliers, all stakeholders can understand interdependencies, the flow of materials, and process cycle times.

For many vehicle manufacturers, product differentiation is important, and they are focusing on customer feedback on social media. Access to predictive analytics based on real-time data helps manufacturers identify issues before they happen, lower inventory costs, and potentially reduce capital requirements. In effect, some of the key opportunities from analytics across functional areas in the manufacturing value chain are time to market, inventory management, asset utilisation, and operational downtime. Supply chain analytics will also lead to planning, scheduling and product traceability within the manufacturing ecosystem. The next step is prescriptive analytics, where a proactive approach is used to find out when and how the equipment might fail prior to actual breakdown; the related benefits are cost, process efficiency and even equipment self-learning from surrounding environments.

The ‘Internet of Cars’ and its pivotal role in the industry’s transition

The role of the connected car has increased ever since phrases like autonomous cars, Big Data, IOT and Cloud became buzzwords in the automotive industry. This transition is mainly due to the presence of connectivity promising high-speed, high-bandwidth connectivity like LTE and, eventually, even 5G in the car. The goal is to have the ability to collect gigabytes of data from a variety of sensors, OBDII and CAN, and analyse it in two ways: with respect to services for the driver, and analytics going back to the car-building process. Connectivity will be able to provide multitude of services for the end consumer, which, in turn, will enable OEMs to create new revenue opportunities and turn the car into a digital wallet.

Outside the car, a key challenge is security. There needs to be an internal collaboration between OEMs, or they must work with cyber security specialists to begin basic risk testing. There needs to be a fundamental change, like a cradle-to-grave approach; the Fiat Chrysler hack is an example of a remote hack that caused a first-of-its-kind recall of more than a million vehicles, leading to the SPY Car Act. The SPY Car Act will begin the standardisation of cyber security systems, albeit with each OEM operating unique security measures. The cyber dashboard will be the first time consumers are exposed to what historically has been a back-end solution. The legislation will promote a holistic approach that also encourages partnerships with the security community.

As the Apples, Googles and Ubers of the world threaten the automotive OEMs with their mobility solutions that would draw customers away from traditional car ownership, automotive OEMs will need to enable their connected strategies to work for them. The potential that could be unearthed for the manufacturers is like the submerged part of an iceberg, which is where the real value lies. This is where enough data is being generated and the impact is on the profit and internal savings, like warranty, product development, supply chain optimisation, and so on. The transition to Industrie 4.0 will enable OEMs to focus on how advancements in manufacturing can enable them to use the value-packed, submerged part of the iceberg. This is where longer-term customer engagement models lie, which is their basis of long-term sustainability.

I4.0 and the opportunities that will shape the future of the auto industry

Use cases such as 3D printing, robotics, and collaborative IT can aid OEMs to enhance product design and transform traditional production and supply chain inefficiencies. As the automotive industry’s needs shift toward complex products, minimal lead times, raw materials and custom products, it is certain that most of the industry participants will adopt this transition. For example, the automotive industry is expected to account for 20% of the 3D printing market by 2025. This industry transition will create a platform where labour will account for a smaller proportion of overall manufacturing costs, and cost advantages in low-cost countries will decrease rapidly.

The emergence of new business models arising from industry convergence (both horizontal and vertical) will look more viable than a standalone approach. For instance, the convergence of healthcare and vehicle manufacturers is expected to grow, with Health, Wellness and Wellbeing becoming a brand differentiator beyond automated vehicles.

The future development of I4.0 and its effect on the automotive industry will require synergetic efforts from all ecosystem partners (OEMs, policymakers, suppliers, end users, etc.) to boost reliability and deliver massive benefits. Such collaborative efforts will result in wider awareness among end users of the immense potential of I4.0, which will ultimately lead to higher demand for newer services and sustainability of the automotive industry beyond the influx of technology disruptors.

This article appeared in the Q4 2015 issue of Automotive Megatrends Magazine. Follow this link to download the full issue.

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