Introducing the concept of the Block Value Chain

The automotive industry's constant flow of recalls of millions of parts, vehicles, and systems – followed by public apologies to both consumers and markets – is a sure sign of the changing times facing many players in this supply vertical.

It is clear that the complexities of modern manufacturing supply chains extend far beyond mastering workflows and logistics. Where's the much-needed missing link between products and services? That holy grail of value for automotive players, commonly incorrectly defined as parts-as-a-service.

As supply chains are broken apart and spread around the real and digital world, suppliers are faced with the challenge of managing processes by partners that they don’t own or even control. At the same time, in a modern world of ever greater transparency and trust, any missteps are recognized more swiftly and have global repercussions.

So, how can blockchain technology really make an impact on automotive supply chains? Easy! It's simply a matter of focusing on service value lifecycles, rather than asset ownership lifecycles. I guess in a way we can call it a ‘block value chain’ – you can thank me later for that witty term – think of it as a special recipe for success. Automotive 4.0 mixed with Mobility 3.0 with a pinch of Blockchain 2.0.

• Read part two: Future Innovation in the Block Value Chain

Automotive Supply Chains

In automotive, when a new vehicle nameplate is defined, the supply chain is designed to best deliver the right product at the right place, right time and at the right price. OEMs should consider steps beyond production and also include services that match this vehicle roadmap and business model.

Why leave it to chance? If a vehicle platform is expected to yield a million vehicles, for example, the battery know-how might originally come from China, the autonomous driving system developed in Japan, and the seats assembled in the US. The cut and sew of the airbag fabric might be done in India, while the engine is put together in Germany. Then why aren’t the mobility services, which might be provided in the UK, taken into consideration from day one?

The automotive industry works in just-in-time, therefore, the vehicle might be assembled in three factories worldwide, but the final specifications will need to match local market expectations. OEMs have to take into account the final customer and the services that will apply to that specific vehicle in real-life circumstances. The next generation nameplate that will arrive a few years later will have a complete set of rules and a different supply and value chain – but with lessons learned, big data, and machine learning – it can be forecasted and expectations predicted.

Unfortunately, at the moment, the industry is competing on production units, mostly on price as commodity providers, not on real value creation. Shame, because the profit margins are a lot better and part of a greater good.

Value

In reality, the perfect supply framework should connect value chains end-to-end to provide a frictionless experience for the distribution of value far beyond an assets physical attributes and lifecycle.

In contrast to Henry Ford’s assembly line, where all the manufacturing processes were under one roof with one final aim, the entire world is now a factory of service value. OEMs no longer own their supply chain, neither do they control it, or attempt to go beyond the boundaries of product manufacturing and selling.

The principles should be of value chains, controlling very diverse contexts, based on new business models and services. If OEMs and their supply chains create 90 percent of the value, why are they only receiving 10 percent of the total service value of a vehicle? Why are service providers – like Uber and Lyft – and data owners – like Google and Apple – playing god almighty with us mere mortals?

Orchestrators

Let’s move away from automotive realms and focus on available technologies capable of being that missing link. Distributed ledger technologies have been the focus of most of the enterprise thinking about supply chain innovation and strategy.

But in an ever-more interlinked world, the network top-down and bottom-up interactions are becoming ever more important. OEMs need to expand their thinking, from focusing on just creating digital copies of their problems on the blockchain to being held responsible for orchestrating true disruptive solutions correctly. The automotive industry needs leaders. Hell, the world needs innovators.

The two key principles needed by OEMs:

Value Chain Orchestras: The rise of global supply chains has created a demand for orchestration, as well as an opportunity for improving value orchestration. Companies are able to reduce manufacturing costs, improve on-time shipments, raise quality and reduce lead times just by improving their value orchestration.

While companies have built supply chains, they have often overlooked the need for orchestrating these value chains beyond vehicles physical attributes and lifecycle. This orchestration might be provided in the consortium by the OEMs, the players in the supply chain, or by independent third-parties.

Service Value Teams: The traditional view of automotive competition is that a player competes against a rival on the opposite side of the world. But each of these players has an entire supply chain stretching out the back door. They should actually be competing for value chains, and the best value chain will usually win.

System owners used to see competition as a supplier against a supplier. But in a networked world, it is like a team sport - the final score depends not on one player, but on the strength of the entire team, from product to service.

This means automotive leaders need to focus not only on the strengths of their products but also on the qualities of the value chains they connected with and how this value is controlled and owned at a service level, well after a vehicle has left the showroom.

Command or be conquered

While automotive companies have focused in the past on mainly building their own core competencies, brands, and products, the global services village presents different challenges and opportunities. It is not only the product competencies that your company has but also the service competencies that you can connect to.

In constant evolving global markets, competencies in network orchestration are essential, while learning how to manage value lifecycles correctly will provide you access to new competencies and flexibility, which you will need for the survival of future challenges.

This is a networked world, and supply chains require command and conquer attitudes. Automotive players have to understand that supply chains are a part of success – or they should be. But there also needs to be a clear understanding of who controls the value chain and how.

OEMs have to take responsibility for their fate and destiny at a service level, but also be fully accountable for their complete supply chains. If there is no clear direction of control, or it is not controlled effectively, then this is a critical need. If your company does not have capabilities for value chain control, it should build them immediately. This is where block value chain framework protocols, which allow an effective connection between products and services, will provide a massive competitive edge.

• This article was provided by Antonio Ferreira, the CEO and Head of Innovation at TechHQ. For more information about the topics raised here, check out the TechHQ website, https://www.techhq.io/
• Read the second part of this article here. Would you like to contribute to Automotive IQ? This article was submitted via our 'Become a Contributor' section. Hit the link for more information.