The Pandemic Accelerated Digitization of the Automotive Supply Chain

In a freewheeling chat with Matthias Haberstroh, Director, Supply Chain Management at ZF Group, we discuss the impact of the pandemic on the digitalization of the automotive supply chain and how it will define the future of the industry.

Hi Matthias, welcome to Infosys. Could you tell us about your company, its products, and customer profile? Also, share some details of your role in the company?

ZF is a global technology company supplying systems for passenger cars, commercial vehicles, and industrial technology, enabling the next generation of mobility. Our mission is to provide clean and safe mobility – automated, convenient, and affordable for everyone, everywhere. We are developing holistic solutions to address the challenges of congestion and emission. We stand as an integrated systems provider that is exerting a major influence on the shape of future mobility.

I’m the head of supply chain management for commercial vehicles for ZF Friedrichshafen. So, I’m in charge of supply chains around the globe. We have a global footprint of roughly 40 plants that deal with all products in the commercial vehicle category. I’m the process owner for all supply chains and logistics engineering within that division.

How have you responded to the supply chain disruption brought about by the pandemic?
While the digitization of the automotive supply chain was already underway to some extent, the pandemic certainly provided a huge push in accelerating that disruption. In the initial stages of the health crisis, the primary challenge was around the inbound supply of parts due to shutdowns and restricted movements, rather than from the demand side. At least in geographies such as the US or South America.

When the pandemic spread globally, we did see decreasing demand, but it bounced back rather quickly. In my area of operations which is commercial vehicles, there was a steady demand as e-commerce picked up fast with people staying indoors.

Apart from the pandemic, we saw several other global events such as the Suez Canal blockage, semiconductor crisis, which caused short-term disruptions in the supply chain and made things very challenging. These local disruptions had a global impact on the supply chain.

So, while organizations invested in plenty of pilot projects earlier, these disruptions proved to be a kind of ‘burning platform’ that forced everyone to jump into full-fledged digitization.

With unexpected and wide-spread disruptions such as the COVID-19 crisis, people suddenly want to make efforts to ensure they are insulating themselves from future incidents. So, even if the pandemic subsides, the investments in digitization and reengineering of supply chain processes are set to continue.

Everyone is talking about semi-conductor shortages and their impact on the automobile industry. Please give us your views on how it will shape the industry in a couple of years.

The trend of increasing numbers of semiconductors in the cars, truck and buses will continue. In result the whole semiconductor industry must increase their capacity. In addition, we need a clear common strategy regarding obsolesce management. Both will affect Supply Chain Management to steer these processes from a demand and launch management perspective.

What about the shift to the electrification of transportation in general, including commercial vehicles? Does that have an impact?

Yes, absolutely. In the 100-year history of the automotive industry, we are perhaps at the most challenging point concerning technology. E-mobility and autonomous driving are transforming the industry and supply chain. So, managing this shift in addition to the disruptions brought by the pandemic hasn’t been easy.

So, how are you managing this shift?
Like I said before, the methods and ideas around digitization have been long known in the supply chain. However, these were being implemented only in a task force mode.

Now, the challenge is to look at these processes and concepts and use the lessons learned during the taskforce mode to turn them into full-fledged future-oriented systems, solutions, and processes. The challenge here is to find resources that allow us to move from daily troubleshooting to building sustainable solutions for the future.

We will continue to have such disruptions in the future as well, but we need to see how digitalization can support us. For instance, one step is to have risk alerts that can give us more time to react. But that won’t help too much in the future. The second aspect is leveraging visibility and data out of the supply chains. While we have used manual processes and expertise to manage these risks in the past, the new disruptions need to be managed with clear execution, tools, landscape, and processes. Our main challenge in the whole industry is to have an execution system that is manageable and less complex but allows us to identify a solution and react quickly in executing the right decisions.

What will be your priorities for running a supply chain in the next five years for supply chains?
Starting at the foot of the supply chain, we need to be more resilient. A dual sourcing strategy, for example, will allow us to be more flexible. However, it also brings more complexity to the supply chains, which we need to manage through digitalization.

The good thing about the pandemic is that it has pushed people to go digital in their day-to-day work lives. We must take time out to transfer the lessons that we learned into building formal digital processes for the future too. So, that is something that we are working on with Infosys to build the journey for the coming years. Last but not the least, autonomous driving will force us to optimize and be more efficient in our processes. These dimensions will drive our daily work and our future optimization journey.