Martins World

2010-02-19T04:56:00.001-08:00

Retrospectively my analysis was quite accurate:
Big 3 automotive cash flow and liquidityhttp://ping.fm/k9eON

2010-02-18T12:00:00.001-08:00

The power of the internet – Is social media a fad? http://ping.fm/ouyDA

2010-02-18T03:07:00.001-08:00

Impact of crisis on unemployment: http://ping.fm/oVPHU

2010-02-17T11:58:00.001-08:00

Never forget to visit: http://www.mjankela.com

2010-02-17T11:08:00.001-08:00

http://www.mjankela.com

2010-02-17T11:07:00.001-08:00

check out mjankela.com

2010-02-17T11:02:00.001-08:00

Currently running a cool project in Austria.

Let’s get it started! The teams have been created and the roles defined.

2008-09-08T20:59:00.000-07:00

“Really? But what are the roles? Who are the players in the automotive electronics industry?“

One of my biggest doubts when I joined in this line of work was to understand the business relationships and term of the industry. Since my earlier career as software engineer in Austria did not allowed me to get involved too much into business, I had to figure out the way the industry plays the game and, by myself, learn the names and roles of the industry partners. Here, due to my experience, the focus will be put on the partners involved into the car development and the electronic component suppliers.

Let’s start with the key carmakers like Toyota, Honda, BMW, Chrysler etc. They role is usually called as:

OEM: Original equipment manufacturer, the original manufacturer of a product, which may be resold by another company.
In the automotive industry, status as an OEM is a legal identification. OEM status (in the United States) signifies that the company’s automotive products have been tested and validated according to Federal Motor Vehicle Safety Standard (FMVSS) and Department of Transportation (DOT) regulations. Examples of OEM automobile companies include General Motors, Ford Motor Company, Honda and Toyota. The last remaining small OEM automobile company in North America is Saleen. Small “tuner” companies do not qualify for automotive OEM status as they do not bear legal liability for vehicle safety or performance, nor are they required to provide any form of warranty on their products.

Building a car is nowadays more than complex. The customer demands are numerous and timing to is crucial in the market. Competitors compete with new products, different key features and globalized strategies all over the world. The pricing constrains are massive and in many countries environmental issues also have to be considered, driving the investment prices up. Think about it: with the high masses of vehicle production, the butterfly effect for costs can be enormous and crucial to the success of a car product line. If a car’s prototype is finished and it is decided to put it onto mass production, volumes of 500 000 pieces or more are not rare. Imagine the overall production of the car varies by 1 Euro. The leverage effect is tremendous.

The complexity and new demands of the automotive industry allows several new branches to flourish. That growth in the supply chain may well come from ‘value-added’ business. This is a result of the increasing complexity of vehicle design and the need for shorter innovation cycles due to competitive and legislative demands placed on OEMs. More resource is needed for marketing and globalisation, so the development and engineering costs are being pushed down to the suppliers. For us, the developers of in vehicle software, this means a several opportunities for innovation and development.

Supplier: A company which supplies parts or services to another company. Also called vendor.
Supplier is the institution that provides the necessary materials or components to the OEM. Popular suppliers in the automotive component and vehicle electronics industry are: Johnson Controls, Magna, Hitachi, Infineon etc.
The automotive industry is growing in complexity and the relationships between different vendors are sometimes considered.

Therefore additional roles are often defined:

As supplier different supplier groups on the industry area can be subdivided. In my line of work, the automotive networking industry, the following terms are commonly found.

Tier 1 Supplier: A supplier under direct contract to the OEM.
Tier 2 Supplier: A supplier providing goods or services to a OEM’s tier 1 supplier.

Semiconductor Manufactures:
The semiconductor manufacturers are classical suppliers that sometimes play a segregated role in the business models. It is of my personal opinion that this heavily depends on the perspective of the said business model.
The 2 core and 3 extended roles, intervene and create a relationship network that one must be aware of to perform business in this area. Together they build a complex Supply Chain Networks.

Supply: Supply is the aggregate amount of any material good that can be called into being at a certain price point; it comprises one half of the equation of supply and demand. In classical economic theory, a curve representing supply is one of the factors that produce price.

Supply Network: A supply network is a pattern of temporal and spatial processes carried out at facility nodes and over distribution links, which adds value for customers through the manufacture and delivery of products. It comprises the general state of business affairs in which all kinds of material, work-in-process material as well as finished products, are transformed and moved between various value-add points to maximize the value added for customers.

Supply Chain: A supply chain is a special instance of a supply network in which raw materials, intermediate materials and finished goods are procured exclusively as products through a chain of processes that supply one another.
In the semiconductors industry, for example, work-in-process moves from fabrication to assembly, and then to the test house. The term “supply network” refers to the high-tech phenomenon of contract manufacturing where the brand owner does not touch the product. Instead, she coordinates with contract manufacturers and component suppliers who ship components to the brand owner. This business practice requires the brand owner to stay in touch with multiple parties or “network” at once.
Supply chain management is the mustering of the materials needed for a business enterprise to function.

For last, here is an instinctive translation from the Japanese JasPar consortium web page. The Japanese market is a very strategic market in automotive industry and the local key people here in Japan are famous for going deep into the subject and have key strength in analysing the situations.

The Japanese market has depicted the world wide OEM – Supplier relationship in a very expressive way. The key message is that the countries and continents, even on a globalized market is not everywhere the same and locally influenced. So there plays a major role to consider the customers own cultural influences and the execution of the local business processes. The graphics below demonstrates, that driven by the governmental and cultural influences, the 3 continents vehicle manufacturer industry plans can be pulled down to completely different OEM supplier relationships and effects. Perhaps in a later blog I will describe the things in a more detailed view.

Quo vadis automotive industry? Welcome to an industry sector with enormous growth and option!

2008-09-08T10:58:00.000-07:00

“The auto industry is a huge contributor
to the well being of people and society,
with millions of people living from the
automobile.“　(OICA 2007)

While the vehicle manufacturing industry is an intervened network of mainly powerful worldwide players, there are many other related companies involved. It belongs to the top highest profit business units with a great economical power.
Concerning the OICA, the International Organization of Motor Vehicle Manufacturers, the auto industry’s turnover is approaching €2 trillion, (€ 2,000,000,000,000).
Comparing this turnover of GDP with other economies in the world, the automotive industry by itself would be able to compete with the economical power of countries like Italy, France or the UK.

”If vehicle manufacturing was a country it would be the sixth largest economy in the world” (OICA 2007)

This is a quite amazing fact and shows that the car, which was a rare object not long ago, in the beginning of the 20th century, is nowadays an integrated part of our society and important to many nations as a job giving industry. OICA states that in 2005, the world’s automobile industry made over sixty-six million cars, vans, trucks and buses.
At the same time the term automotive industry covers a broad range. Many business areas are included, starting from the design of a car, the research and development of new techniques, the mechanical development, the individual component production, the factory assembly, the component supply chain and much more sectors, until the sales units bring the car to the end customer and the product reaches the masses.
Even the automotive industry can be described as conservative comparable to other sectors like the Internet it is in many areas, already now in the role of an innovation supporter for many new technologies by enabling them a market and playground of proof.

Driven by customer demands, the automotive industry also a major innovator, investing almost €85 billion in research, development and production. The auto industry plays a key role in the technology level of other industries and of society and is one of the largest investors in Research and Development, with several manufacturers leading the Top 10.For sure the final demands are dictated by the end-customers, but it can be seen that the increase in technological innovation is heavily bound on the customer demanding for different key issues like safety, environmental compatibility, driving comfort, reduced costs etc. which opens the big automotive makers a listening ear to innovation technology.

Building sixty-six million vehicles all over the world in 2006 requires the employment of more than eight million people directly in making the vehicles and the parts that go into them. This is over five per cent of the world’s total manufacturing employment. And the indirect involved people in relating industries that use the busses, trucks and coaches are not included.
Vehicle manufacturers and users are also major contributors to government revenues around the world, contributing over €430 billion in twenty-six countries alone.

It is not easy to make a car, to sell it or even to become part of the big business. A big start-up capital would be required to compete here. So the industry can be seen as closed, but also at the same time facing new challenges to satisfy rapid changes in the customer’s demands and global requirements.

The world is getting globalized and the automotive industry is one of the big players. Their battlefield is the world market. Take a look at the big key player in the picture on the left side and the brands they represent. It is easy to notice, since not so many big players are included in the industry sector. You can see, many brands actually belong to one huge final owner. Now it is easy to understand that, to enter in the sector, a huge amount of money flow and capital investment is required, due to the complex process of building a sellable car and competitors that shoot with atomic bombs and not simple bullets.

(Sorry, but the picture is only available in German language. Red line represent the capital involvement or daugther firms; Green lines show cooperation in component supply and car development)
But playing directly at the front is not required. Also, as a supplier of a major manufacturer a big return on investment can be achieved. Often the return on investment is higher than the constant grow of around 3-9 % in the automotive industry.Suppliers like JOHNSON CONTROLS INC or MAGNA INTL benefit of a growth between 10-40%.

Will there be a stop in the near future of this growth or the supplier market is getting saturated?

No one knows. For sure the OEM market can be seen as saturated already, with the majors car manufacturers battling to keep up with the 3-8%. They give their best to be competitive and push the suppliers to give their best.
To enlarge their market, they are looking for new playground in the globalized world like in India and China and for new innovation technologies. On the other hand, if we individuals are flexible and can adapt to the globalised market, we can also participate and get a piece of the globalized share. For example the India Automotive and Chinese automotive industry is growing in a rapid pace and giving new ground for new markets to conquer.Also in the rest of the world the automotive customers market is demanding for new innovation and inventions, this is no fiction and a huge growth can be seen and is already known of happening.