The automotive industry was already facing a big storm in 2020 – two consecutive years of degrowth and massive disruption in the business models because of the CASE megatrends. Then, the world witnessed the COVID-19 pandemic, which took the challenging situation to a whole new level. The automotive industry faced disruptions across both supply and demand at an international scale and at an unexpected speed. Businesses involved in automotive sourcing in the UK had to take the help of procurement consultants to counter the results that followed.
In 2021, as the automotive industry navigates the new normal and strives to grow, they need to consider a few possible scenarios and impact areas. For instance, reduced demand will put extreme pressure on manufacturers’ revenue. Also, the supply chain becomes a vital issue for the C-level leaders. Then there is social distancing which will significantly affect consumer behavior. In short, the automotive firms must transform and adapt to address the fresh challenges of a post-pandemic world. Check out how they are likely to do so.
This year, analysts and experts predict a renewed focus on supply chain strategies (in terms of risk assessment, different vendor/geographies, nearshoring, etc.). OEMs should heavily concentrate on advanced supply chain risk modeling and real-time visibility across the multiple supply chain tiers.
Further, they should also focus on component substitution and automation-ready processes. During the initial stage of the pandemic in China, the supply chain was the first area to face its impact. About 80% of the international automotive supply chain are linked to this Asian nation in some way or the other. As manufacturing stopped there, capacity evaporated soon, and it started affecting the global auto development companies.
Now, plenty of suppliers, who face liquidity problems, may succumb to the market conditions. It can lead to tremendous disruptions and have dangerous consequences across the international automotive development ecosystem. At times, supply chains realize lower costs through “just in time inventory” policies and lean methods. However, these methods do not prove to be effective during such critical disruptive events.
Thus, now, the automotive industry is expected to build flexibility and resilience into the supply chain. Moreover, it will be looking forward to cost-efficiency. These can benefit the new businesses that are considering automotive sourcing. In that case, the top procurement expert in the UK will superbly aid their cause.
Digital Customer Engagement
Due to the Coronavirus outbreak, physical customer interactions at auto shows, dealerships, etc. will reduce, either by choice or because of regulatory mandates. It will lead to an increase in demand for engaging with customers and prospects in the virtual medium. Also, there will be more spendings on digital marketing platforms and acceleration of digitization efforts. It may result in the essential rationalization of physical channels.
A few industries like e-commerce and banking are already known for adopting virtual customer engagement practices. The automotive industry is likely to follow the same path and learn from some of the best practices to ensure a steeper learning curve.
A Rapid Shift Towards Pay-As-You-Use Models
The automotive industry was already witnessing a shift to “pay-as-you-use models” before the COVID-19 crisis began. Now, it will notice an acceleration in this shift as more and more customers tend to avoid lump sum capital expenses and have a less optimistic economic outlook. It is a massive shift in the automotive business model. Upfront revenue recognition will give way to small revenue streams over a prolonged period.
Successful migration to this new model requires powerful insights into the customers’ different mobility needs, granular cost of operation, constantly tracking and monitoring of big dispersed fleets, optimizing logistics operation, etc. This new business model will support businesses considering automotive sourcing, and the best procurement consultants will help them out further.
Social Distancing and the Evolving Consumer Behavior
In the post-COVID era, it is expected that the customers’ consumption behavior will shift to a new normal. There may be a decline in shared mobility and carpooling demands because of possible health and safety concerns. Further, there is a chance of lesser mobility needs as more people continue to operate from home and avoid large events/gatherings.
Moreover, the environmental impact will also become vital in the buying decision. Understanding changing consumer behavior trends and developing personalized customer journey solutions will be immensely crucial success factors.
Focus on Cost and Profitability Levers
Businesses will heavily focus on cost amidst the disruption in demand internationally. Organizations will require viable real-time insights to act upon. They will aim to enhance profitability. It demands a granular level allocation of every cost driver along with their real-time visibility.
Market experts predict that the automotive industry will emerge from this global crisis even stronger. If you are thinking about automotive sourcing anytime soon, contact a procurement expert in the UK and let them help you with it.