- Perspectives toward 2030
Joint study by A.T. Kearney and the German Association of the Automotive Industry (VDA) finds the truck manufacturing industry is on the cusp of major change.
How can automakers stand out in developing markets? By providing a top-notch customer experience.
The most successful brands transform customer satisfaction into genuine brand enthusiasm.
From the Industrial Revolution to the 1990s high-tech boom, manufacturing shifts with periodic waves of disruptive change.
Bolstered by a dynamic industry, it is time for India’s automotive manufacturers and suppliers to get into top gear.
The Indian automotive industry is experiencing an interesting evolutionary phase. The long-term growth story is strong, but short-term volatility is creating an environment of uncertainty. Most global original equipment manufacturers view India as a strategic market of the future, and as a result, competition is intensifying.
The automotive supply chain has a big role to play in this evolution. C-suite executives expect their supply chains to be a source of competitive advantage, which means going beyond meeting basic standards of performance such as connecting supply to demand at optimal costs. Bolstered by a dynamic industry environment, India’s automotive supply chain is in a first-rate position to evolve to world-class performance levels.
Based on A.T. Kearney’s extensive experience in the Indian automotive sector and detailed conversations with C-level executives and supply chain professionals, we have identified seven industry trends that are likely to have an impact on the evolution of the automotive supply chain. We also recommend seven actions to ensure the supply chain is prepared to support growth and competitiveness.Close
How can India's auto industry build momentum for growth?
The automobile industry is a pillar of the global economy, a main driver of macroeconomic growth and stability and technological advancement in both developed and developing countries, spanning many adjacent industries. For developing countries such as India, understanding the auto industry's evolution in other countries offers a roadmap forward.
India's auto industry is the world's sixth-largest producer of automobiles in terms of volume and value. It has grown 14.4 percent over the past decade, according to the Society of Indian Automobile Manufacturers (SIAM). With more than 35 automakers, the industry contributes 7 percent to India's GDP and is responsible for 7 to 8 percent of India's total employed population.
To maintain auto's primary role in growth, India must make the right moves at all critical junctures. This paper examines how the industry, government, and key stakeholders in other countries have propped up their auto industries, and how India and other emerging markets can use the same strategies to build growth momentum.Close
Manufacturers will have to speed things up to keep pace with drivers' expectations.
Buying a premium car was once a major event. You put your name on a waiting list and then hung on for what seemed an eternity for a car that was expected to last an eternity—it aged with you. The delay heightened the sense of luxury and exclusivity. Now the life cycle of premium cars is nearly as short as that of regular cars.
This is just one of a number of changes that, taken together, become a collective red flag indicating a cultural shift. The 1980s customer was an affluent male who read car magazines, appreciated complex technical details, studied numerous options to configure and reconfigure his ideal vehicle, and minded not one bit if he had to wait months for it to arrive.
Today's premium car buyers do not like waiting. Being the first to have the latest model and show it off is too important. Manufacturers will have to speed things up.
This paper discusses the changes in the premium car market and looks at some other industries for inspiration in speeding things up in a chain of events that occurs from product development and procurement to manufacturing, quality management, marketing, and sales.Close
Indian automakers face an uncertain future. Understanding what car buyers really want—and what they don’t—will be crucial.
Consider this story from India’s burgeoning automotive industry: Bolstered by its sizable marketing muscle, an Indian automaker launches Model X. Sales are promising for a month or so, but then begin to plateau. Soon, rivals launch competing models and Model X sales plummet. The automaker reviews its options: Re-launch Model X with a peppier engine and minor design tweaks, increase dealer discounts, or scuttle the model and go back to the drawing board.
Now imagine the company takes a different route: Before making drastic changes to the model, it unearths customer preferences, thus discovering the reasons for Model X’s poor performance. Applying a quantitative market research technique known as choice-based conjoint analysis, the company analyzes customer perceptions of its product relative to competing models in the market to identify specific areas of underperformance and therefore its customer preference “sweet spot.” It then reintroduces Model X—with minor design changes and a marginally lower price—with dramatic results.
This hypothetical example underscores how choice-based analysis is used to unearth true customer preferences whereby manufacturers can make design modifications that not only improve the vehicle’s overall utility but also increase sales.Close
How can India minimize the environmental impact of its auto industry while maintaining growth?
Car sales in India are going through the roof as the country continues to grow and prosper. More people with money means more goods and services and more cars to transport them. While prosperity is a welcome addition to the India economy, the impact on the environment is not. In fact, the environmental challenge raises some important questions: How can India minimize the environmental impact caused by the transportation sector without impacting the country's growth momentum? Which automotive technologies are environmentally friendly? How can Indian automakers sell "green" cars at a price that will suit cost-conscious Indian consumers?
To answer these questions, A.T. Kearney and the Confederation of Indian Industry (CII) conducted a joint study to identify and prioritize key actions for cost-effective green mobility. This report explores various options available to India to move toward a green mobility paradigm with lower carbon dioxide equivalent (CO2e) emissions—and therefore less impact on global warming—and lower emission of regulated pollutants such as particulate matter (PM), monoxides of nitrogen (NOx), carbon monoxide (CO), and unburned hydrocarbon (HC).
This report examines the opportunities available for a more cost-effective, greener mobility future for the consideration of all stakeholders: industry, government, and consumers.Close
As emerging economies seek to influence global standards, Europe's role as a shaper becomes a priority.
Standards are the rules, guidelines, and definitions that describe repeatable ways of doing things. Standards are a crucial element in the EU's industrial strategy as Europe seeks to remain a shaper of global standards rather than a follower.
The European Round Table of Industrialists worked with A.T. Kearney to study the issue of developing and implementing standards. We found six recommendations for establishing standards in European industry:
- Establish performance targets to foster innovation. Standards spread collective knowledge, bringing together industry players in a working environment of sharing and collaboration. The use of standardized parts and business processes can reduce early investment costs and risks, and provide a platform from which industries can innovate.
- Consult with experts. Involving technical and industrial experts, even when standards are initiated by governments, can help build standards on solid foundations.
- Coordinate industry players. European standardization bodies can play a larger role in facilitating standard-setting along the value chain and across industries.
- Balance speed and consensus. Standards must be put in place quickly in the face of accelerating technological change and market competition, and they must be built on a foundation of consensus to broadly address the requirements of all players.
- Encourage a global approach. European companies that adopt and participate in setting global standards increase their market access to other countries.
- Encourage SME participation. Despite their importance to the European economy, few small and medium-sized enterprises (SMEs) are actively involved in setting standards.
Noncompliance can ruin corporate reputations, shatter financial performance, and destroy careers, families, and lives. With so much to lose, doesn't compliance deserve our undivided attention?
Corporate compliance—or, more accurately, the risk of noncompliance—has become a major concern over the past decade, especially for global manufacturers with operations in many different countries and jurisdictions. When a practice commonly accepted in one country could be a serious criminal or civil offense in another, companies had better know about it.
Many firms understand that compliance can lead to competitive advantage and are making their suppliers commit to compliance standards that go far beyond those required by law.
To understand how companies reduce the risks of noncompliance, A.T. Kearney surveyed execu¬tives at leading manufacturers, conducting in-depth interviews with compliance executives at nearly 40 top companies worldwide. While most studies approach compliance from a legal perspective, we focus our attention on compliance management.
Five major findings emerged from our examination of compliance management in these areas:
- Most companies expect to expand their compliance systems.
- Lower management has a much less favorable perception of compliance systems than top management, indicating a strong need for administrative efforts to generate acceptance at all levels.
- Most companies do not have an independent compliance department that reports directly to the executive board.
- External resources are especially useful for setting up a compliance system.
- The most effective compliance systems integrate compliance and process management.
Ernesto Hernandez, President and Managing Director of General Motors de Mexico, discusses why he is optimistic about the future of Mexico's automotive industry.
At the recent A.T. Kearney conference, "Mexico as a Premier Source of Human Capital for Global Competitiveness," held in New York City, Ricardo Haneine and Brian Irwin sat down with Ernesto Hernandez, President and Managing Director of General Motors de Mexico, to discuss the common view of Mexico as a source of low-cost labor, the country's competitiveness, and what the future holds for its automotive sectorClose
It is not at all difficult to turn customer dissatisfaction or even mere indifference into pure delight.
Creating a unique customer experience is one of the best ways to achieve sustainable growth, particularly in industries that are stagnating. If a telco, a utility, or an insurance company can create a highly differentiated customer experience that turns dissatisfaction or indifference into delight, it will recruit an army of vocal advocates online and offline, gain market share, and generate revenue growth.
Sound simple? It isn't, especially in sectors where the core product or service is difficult to differentiate. But it is doable, as Disney, IKEA, and ArcelorMittal have demonstrated. These firms are among the 15 Summer Champions identified by A.T. Kearney from an initial list of 500 as companies that outgrew their markets consistently over a five-year period despite being the largest players in their sectors.Close
As rising commodity prices and other factors squeeze manufacturers, frugal re-engineering can cut costs and improve margins.
Most manufacturers know about frugal engineering—the concept of developing innovative, no-frills products at the lowest cost possible. India's Tata Nano, an urban vehicle with a $2,500 price tag that targets price-conscious customers, is the poster child for frugal engineering. What, then, is frugal re-engineering? We define it as a structured, sustainable process of continually redesigning products to cut costs. Cost-effective continual re-engineering (or continuous improvement in manufacturing parlance) of a product is the essence of frugal re-engineering. For example, plastic parts can be redesigned to be made of polypropylene instead of costlier fiber-reinforced plastic, and low-temperature specs can be relaxed for window-channel grease in temperate regions that don't have harsh winters.
Frugal re-engineering builds on the concepts of value analysis, value engineering (VAVE). It encompasses the strategic imperatives of an empowered organization supported by processes, metrics, tools, and systems. It enables companies to continually reduce costs in a structured manner.
Material purchases account for about 60 percent of the typical manufacturer's cost base, and rising commodity prices exert upward pressure on engineered material costs. But there is good news: Frugal re-engineering has the potential to drive year-on-year cost savings of between 7 and 12 percent.
Frugal re-engineering borrows from the Indian concept of "jugaad." Indian entrepreneurs, using parts from junkyards, have been known to create their own local transportation to fill the void in low-cost vehicles. It is comparable to grassroots innovation that uses ingenuity to solve a problem at a minimal cost. In this paper, we discuss the processes and techniques used by these innovators to develop cost-effective solutions.Close
As India becomes one of the world's largest automotive markets, more component suppliers are entering the market. Can India's homegrown suppliers compete?
India's automotive market is basking in a 13 percent compound annual growth rate, going from five million vehicles produced in 2002 to 18 million in 2011. India, already the second-largest global market for two-wheelers (2W) and the fourth largest for commercial vehicles (CV), is now poised to rank among the top three global automotive markets in all vehicles, including passenger cars, by 2020.
Market growth is naturally translating into growth in the automotive component sector, where suppliers are focused on moving into new vehicle segments and manufacturing new, higher-margin products—for example, engine sensors and advanced exhaust after-treatment products such as diesel particulate filters. As global and Indian manufacturers invest in new capacity for new programs, more component suppliers are riding their coattails, anticipating short-term growth while eager to capture longer-term advantage.
Indian auto component suppliers that succeed in grasping this opportunity will do so by growing across three strategic dimensions:
- Wider. Diversifying by manufacturing new components for new segments
- Deeper. Developing stronger relationships with existing customers
- Faster. Acting now to capture the next wave of growth
Manufacturers can get suppliers to add capacity to help meet demand by reducing the risks and sharing the rewards.
The late 1990s and early 2000s were a time of unbridled optimism for most industries across the globe. As demand grew, original equipment manufacturers (OEMs) and suppliers invested in capacity ahead of demand to stay competitive. Ambitious growth plans and easy access to capital fueled heavy over-investment across the supply chains of most industries.
The global recession changed all of that, as pessimism reigned. The steep fall in demand across sectors forced manufacturers to cut production and cancel orders for input supplies. Cyclical industries with long investment lead times were hit hardest—primarily because they could not pull out of their large capacity investments. The effects were felt worldwide, with a drastic drop in sales translating to a near—complete cancellation of orders from suppliers. Facing idle capacity and unable to repay loans, many suppliers went bankrupt, reduced their workforce, or downsized production facilities. As thousands of smaller suppliers went out of business, major manufacturers streamlined their vendors, focusing on retaining their larger first-tier integrators—those most able to withstand future shocks.
Although the past two years have brought a brief rebound, future prospects remain uncertain. Demand is picking up and the manufacturing sector is recovering from the depths of the crisis, yet many suppliers remain hesitant to add capacity. Component manufacturers have seen significantly slower investment growth than OEMs.
These risk-averse suppliers are causing manufacturers to lose sales. General Motors blames a shortage of key parts for lost sales in India while the CEOs of Boeing and Airbus have publicly expressed concern over suppliers' inability to keep up with their growth plans. In the past two years, the lead time for semiconductor supplies has nearly tripled as suppliers decline to add capacity. Cisco's ambitious growth plans have been constrained by the lack of cooperation from dynamic random access memory (DRAM) suppliers that suffered estimated losses of $13 billion in 2009 and 2010.
One major reason suppliers are wary of adding capacity is because they bear the majority of the risks—even more so during a recession—while the rewards are skewed toward manufacturers. In the absence of appropriate risk-sharing mechanisms, suppliers have little incentive to add capacity ahead of demand, especially if adding capacity requires large capital expenditures. It is imperative for manufacturers—especially those in cyclical industries—to provide suppliers with incentives to add capacity. The question is: how?Close
Before long, electronic mobility will be a strategic necessity. For new entrants, what is the most profitable eMobility business model?
The first series-produced vehicles are bringing the concept of eMobility home to drivers, while underlying political conditions are quickly being established. Against this backdrop, the question for new entrants is: Which eMobility business model is the most profitable?
The eMobility ecosystem consists of four interactive segments—vehicles, infrastructure, providers, and regulations and subsidies—each contributing to the overall system and possessing its own opportunities and risks. The pivotal success factor is for all segments to have profitable business models and the right players. If even a single component is missing, development of the overall ecosystem will come to a standstill.Close
More industrial manufacturing companies are outsourcing their maintenance, repair and operations (MRO) services. What does this mean for manufacturers?
A.T. Kearney's recent study of MRO service concepts in Europe finds that the financial crisis spurred a trend toward MRO outsourcing as companies sought to cut costs. While internal MRO services for industrial production are projected to decline by 3 percent per year over the next three years, the European market for external MRO services is expected to grow by 2 percent a year—to about €60 billion ($82 billion)—over the same period. Our study shows that the trend continues and is both supply- and demand-driven. On the supply side, large MRO service providers are focusing on meeting customers' needs by providing quality services at affordable prices. On the demand side, pressure on manufacturers to reduce costs has increased the attractiveness of—and lowered the barriers to—advanced concepts in integrated MRO services.Close
The insurance industry's decades-old business model is changing. A multichannel approach will help insurers serve customers better.
Today's property and casualty (P&C) insurance customers no longer interact with insurers solely by visiting an agent—they're also phoning, texting, tweeting and surfing. To succeed these days, insurers must be able to serve customers across an ever-expanding landscape.Close
As the economy begins its turnaround, the traditional relationship between automakers and fleet buyers will need to be restructured.
The downturn turned upturn is not the only dynamic at play in the automotive industry. Other industry trends are also poised to disrupt the relationship between fleet buyers— including car rental firms, large corporations and governments—and their automotive sellers who must act fast to adapt:
- Formerly mere threats, Craigslist, eBay, and other automotive websites are now fully developed rivals, playing havoc with traditional automotive markets and sales channels.
- Automakers are entering new businesses, such as car-sharing services, and competing with their commercial fleet customers.
- Fleet buyers are consolidating and strengthening their demand-side bargaining power.
- Green technology players are entering the market. Circumventing the dealer sales network, original equipment manufacturers (OEMs) are introducing "green" vehicles such as electric cars through commercial fleet buyers.
We expect the shift from a fleet buyer's market to a seller's market to begin early in 2011. As OEM capacity and consumer demand align, the automakers are moving vehicles into the more profitable retail sales channel, raising vehicle prices and reducing purchase incentives. For fleet buyers, it will mean a far less favorable vehicle mix, an escalation in prices and a shortage of supply.
As a result, the traditional fleet buyer-seller relationship will have to change. The companies speediest to adapt will capture an early-mover advantage. There is no time to lose, as the window of opportunity for change is closing rapidly.Close
Amid volatile raw materials markets, companies must become more aggressive in managing their purchasing strategies.
For companies that use steel in their manufacturing processes success depends on smart pricing and materials management strategies—recovering materials costs, improving sourcing, and utilizing steel scrap throughout their value chains.Close
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