Category Archives: Industrials and Transportation

What are the top opportunities and challenges faced by automotive suppliers?

Most people, who are not from the sector, cannot imagine the complexity existing behind a product like a car passenger. Many relate the word complexity to the several technologies employed. That is true but there is more, something bigger than the technologies: the organizational machine which regards many parties.

The main actor is surely the car maker. They involve and pull in its mechanism, directly and indirectly, 1st suppliers, 2nd tier suppliers, service providers, external designers, external consultants, logistic companies etc.

Each of these actors plays a key role, but some are innovators whilst others are followers. The difference between an innovator and a follower is crucial: it means being out of the crowd or being jammed in the heart of the war on cost effectiveness.

All the automotive participants in the development and production of a car model or platform (basically the same car but different “skins”) have their own characteristics and all can be considered suppliers, but for the sake of this article let’s just refer to the suppliers of the direct components (tier 1 and tier 2).

The answer to the question in the title is apparently easy: as an innovator you will just have opportunities. But what does being an innovator mean? What does innovation mean for a supplier player in the automotive industry?

We may say that the best 2nd tiers are those who are manufacturing processes innovators. They supply components, single parts that are delivered to the 1st supplier, to become parts of modules or systems. Their parts have to be the cheapest, and that means that their manufacturing processes have to be the fastest and, if they want to compete with the fast growing countries, their processes should have the minimum employment of manpower. These suppliers are normally capital intensive, and the luckiest are involved by the 1st tiers in the co-design process, so they can work using the so-called design for the manufacturing practice. This last factor is important for cost reduction and control, since making the manufacturing easy helps to be competitive regarding the transformation, also regarding the hidden costs that arise later for the quality problems during the series production.

The 2nd tiers have to catch the opportunities given by the difficulty in managing the sophisticated manufacturing processes. Even in the production of “simple” parts, their technologies drain capital and their human resources should be capable enough to convince the 1st tier to approve the simplicity.

The 1st tiers are normally less reactive in approving engineering changes. They often say that nothing can be changed because the component is part of a system that has been designed by the car maker.

I would say that there are more challenges and threats than opportunities for a 2nd tier. Aside from the capabilities of top management (normally the sole entrepreneur) in attracting the talented engineers (design for manufacturing and decision on the manufacturing processes) and in dealing with the financial institutions (capital intensive assets), the future of the 2nd tiers is influenced by the volume of the 1st tier supplier. The most frequent cause of bankruptcy of the 2nd tier is represented by the planned volume (n. of parts produced per year) that is not met.

The 1st tier supplier has other kinds of problems. It is required by the car maker to localize its production sites near the car assembly plants. It is also required to come up with new proposals to innovate the product continuously, better performance and cheaper. Their investments are relatively safe since their agreement with the car makers are with the clause “take or pay”.

This kind of organization is normally a system and module developers and its plants are pre-assembling the lines. They are big, global organizations. As they influence the business of the tier 2, their business is directly influenced by the car maker. The biggest mistake they may make is to have unbalanced business with one customer. There are much more product innovation capabilities, and therefore, for a tier 1 independent than those linked to a single customer or under the control of the same customer.

We might say that, in general, innovation is the secret to maintain the current opportunities and to win the challenges for the future.

Based on my experience, working as car maker, first tier and second tier supplier, I strongly believe that the 2nd tier has to innovate its manufacturing processes and the 1st tier has to be proactive with product innovation; but these are only prerequisite, it’s 50% of the job to survive. We have to remember that both are dependent on the main customer.

Thinking out of the box, we may say that the main customer is not the car maker. The car industry supplier should understand the trend in order to secure its business for the long-term. The main customer is the consumer, the driver that choses the model at the dealer’s. If it is true that the 2nd tier depends on the 1st tier and this depends on the car maker, all 3 depend on the final consumer.

Now, provided the prerequisite of the innovation, the answer might be: the automotive suppliers should simply get opportunities by serving the best car sellers.

And which kind of cars will the people buy in the future? What will people want? Are we so sure that we will still wish to own cars?

In the most civilized countries, the car is considered an obsolete concept. People consider the car just a vehicle for transportation. It is no longer considered a status object, it is simply considered an expense which one hopes to avoid, or at least reduce.  It is different in fast-growing or developing countries; the car is indeed still something to show.

The suppliers should make strategic decisions for the medium and long term. For the medium term they should follow the car makers that are well positioned in the premium segments and with good reputation brands, the best sellers in the Asian markets (opportunity). For the long term, they should look at the past, when the car was invented, and follow the one or those that are really reinventing the car for the future (challenge).

They should remember a basic concept for the relatively short term: the business opportunities are where the GDP grows. It grows with the investments in the infrastructures and in mass production, where the car industry plays a fundamental role. The Asian countries are nowadays the most representative countries where the Governments plays a Keynesian role, supporting both sectors.

Regarding challenges for the future, the supplier should be more wary of those who are not consistent with the volumes, with unsuccessful platform projects, or those who sell an electric motor on a traditional chassis or even alternative fuels for the internal combustion engine.

In reality, the car has never been invented, it has just been a continuous development of the coach, when the horses were replaced with steam and then an internal combustion engine. I feel that many car makers are doing the same regarding the electric vehicle. In my opinion, the only car maker that has had the right vision and the courage to develop a completely truly new car concept around the electric motor and the batteries is BMW with the iProject. BMW has developed a complete project, including the dedicated assembling plant. That is vision. The challenge of the suppliers is to monitor these kind of initiatives and to try to understand whether the vision may meet ‘what people want’.

The electrical car is still considered a challenge but, since the car already is and will be a more anachronistic object compared to public transportation, I’m sure that no other technologies will be considered other than electrical power.

The vehicle will be simpler, lighter and more equipped with telecommunication technologies. It is not excluded that the car of the future will be made by Google/Samsung rather than by the current players. The car is and will be a mix of assembled components and the suppliers with the right vision will continue to play a fundamental role in the future.

The consumers of the fast growing and emerging markets will achieve the same Western needs in around 20-25 years. A second round of M&A between the car makers will characterize the end of the next twenties. The 1st tier car industry suppliers will be represented by just a few big organizations as well. The successful 1st tier suppliers will be more similar to multi-technologies and divisional companies, such as Bosch, Siemens, Panasonic and Samsung. The 2nd tiers will continue to be specialized and increasingly concentrated in the low cost countries, besides the producers of the manufacturing processes.

What are the top 3 opportunities and challenges in the Smart Building industry over the next 1-3 years?

Smart Buildings can present real opportunities to save natural resources, reduce harmful and hazardous emissions and improve living, working and leisure environments. For these to be effective, there are real challenges to overcome.  Robust, affordable and functional Intelligent Systems need to be identified and installed.

Design and construction communities around the world have been talking about Intelligent and Smart Buildings for many years. Some like to talk about wiser and smarter buildings but consideration must be given to both the challenges and opportunities that exist as we try to improve our building stock. These challenges and opportunities are not restricted to new development.  There is also scope to improve existing ‘Intelligent’ Buildings that are equipped with controls and sensors.  Such systems frequently need to be fine-tuned to the way a building actually responds.

It is important to consider Smart Buildings as part of a bigger system. A Smart Building with Smart Meters can be connected to a Smart Grid that then helps create a Smart City.

Smart Buildings are not that smart if they increase the maintenance of the building. Equally, they must not limit the flexibility of the occupied space. A building can be defined as ‘smart’ if it reduces maintenance, for example, by making it easier to clean. It can also be ‘smart’ if it learns from the way occupiers use the building.

Most definitions of a Smart Building relate to the controls systems and how the building can optimise energy use. Such narrow definitions need to be extended to embrace all use of resources and also need to cover the construction of the building and the resources needed to make the building ‘smart’ in the first place.

A Smart Building should proactively monitor energy consumption and detect if excessive heating and cooling are happening. Controls can be linked to a security system that can then only supply services to occupied spaces. The control of water systems and the introduction of fresh air should be based on demand control. Smart Buildings can really benefit from being linked to Smart Energy Grids that provide a better use of shared resources; helping to create Smart Communication Systems. Much of the hardware needed to make this happen is now much more affordable. What was once just a dream can now be implemented using actuators, sensors and the computer power that now exists.

The three key goals are to save material usage, create a cleaner environment and provide more productive built environments.

  • Save natural resources by becoming more efficient (doing more with less)
  • Reduce harmful and hazardous emissions to air, earth and water (be clean)
  • Improve living, working and leisure environments

 The three key challenges are to ensure systems are robust, affordable and functional:

  • Robust – systems need to be reliable and maintainable
  • Affordable – systems should pay for themselves through savings on utility bills within an acceptable lifecycle
  • Functional – systems should create the required comfort conditions with optimal use of resources

In essence, when planning a Smart Building, better building performance should be the key, with more comfortable and productive work spaces as the desired outcome. 

Japanese Car-Makers No Longer Favored in China

China started to be defined as the “factory of the world” a few years ago as a result of its mass employment at low wages. The country still maintains a leading role in manufacturing activities, but now has to share this position with other growing nations.

What this competition really changed was the perception of China as an end-market: despite several regions having average personal income considerably lower than Western countries, the buying power of Chinese citizens dramatically increased during the last years. In a country that counts with a population of more than 1.35 billion people, even a slight change in the macroeconomic situation can influence the decision of a big company seeking to enter the national market. The automotive industry is not an exception Continue reading

Project Finance for the Transportation Industry

Public transportation in every city is supposed to be a sustainable mode of mobility.  While this may be the case in reality for some megacities, which have shown best practice examples of public transportation systems, the same cannot be said for some cities in developing countries, that are still struggling to implement an efficient system that satisfies people’s needs an continue to offer a poor service and decreasing investments in this sector.  Moreover, these systems around the world are still lacking the technology necessary for an efficient transportation system to exist and are facing numerous challenges, such as the increase in vehicle numbers and inadequate and poor management of road infrastructure. This raises the need to look for innovative perspectives to effectively address the transportation problems Continue reading

Open Innovation Might be Key to Growing the Auto Industry

Industry specialists in the automotive industry often point to open innovation projects, i.e. the incorporation of external ideas and research, as key to company growth and maintaining a competitive edge. Large corporations in South East Asia and across Europe are increasingly focusing on establishing long-term partnerships with universities, as well as absorbing smaller corporations through mergers and acquisitions to keep their perspective fresh. Continue reading