Transcript Blog: SAP’s Industry Cloud Special Edition- Automotive
Hear about the open innovation platform for SAP, our partners, and our customers, and learn specific Automotive solutions in this episode of Industry Insights by SAP. Josephine Monberg interviews Jim Davis, Director of Americas Automotive Industry Business Unit at SAP, and Martin Bilderbeck, Sr. Business Development Executive of Automotive at Capgemini.
Hey everyone. And welcome to this episode of our podcast industry insights by SAP. So the automotive industry is racing into a new world of mobility, and that’s both when it comes to its traditional Business model of designing, manufacturing, selling, servicing, and financing cars. But also when we look at some major trends that are reshaping the industry, and those trends are like connectivity, autonomous driving, shared mobility and electrification. So in order to keep up automotive companies, they have to be able to act in real time while innovating with partners in an ecosystem. And that’s why we SAP recently launched something called SAP industry cloud. And that’s an open innovation platform for SAP, for our customers and our partners. As we do on each of our special edition of the shows or SAP industry cloud edition, is that we look into what SAP industry cloud is. And then we put it in context of each of the industries that have been launched. So as you could probably guess from my introduction, the industry that we’re looking at today is the automotive industry and to do this well, luckily I am joined by two very smart automotive experts. First of all, Jim Davis, who is from SAP. So he’s the director for automotive industry business unit. And then we also have Martin Bilderbeck who’s from SAP partner Capgemini and he’s business development executive in the North American automotive practice. That was a lot of me talking now I’d rather turn it over to our guests. So, but before we do that, I said you were both automotive experts. So let’s perhaps hear a little bit about what you do, starting with you, Jim, what do you do at SAP?
I’m a director in the automotive industry business unit, as you mentioned. We sit in the center of our customers our sales and our development groups, kind of speaking automotive to all three of those groups, understanding the requirements of the industry, making sure that gets translated back as requirements to our development group so that they make relevant software for our industry customers, and then work with our sales field and with our partners to make sure that they understand how those how those solutions are relevant for our customers and can be sold and implemented at our customers. So that’s it in a real quick nutshell.
In a real quick nutshell. So thanks for that. And Martin, how about you? What do you do at Capgemini?
Yeah. Thank you. I’m with North American automotive practice and really work in the field with tier one suppliers and OEMs from strategy all the way through implementation, solving all kinds of automotive issues, both on the business side, on the it side, and also within the product engineering aspects of things. So glad to be here.
Glad to have you both. So let’s start off a little bit broad, just looking at the automotive industry because the automotive industry has faced, significant disruption, which has impacted their suppliers. And this has just been intensified by our current global pandemic. So I’d love to ask you both, what are the key strategies that automotive suppliers are using to thrive in today’s world, perhaps starting off with the you Jim?
Yeah. So, you know, as you mentioned I think there area lot of key things going on within the industry that, you know, even before the pandemic we’re starting to kind of expose the rocks in our current operating models, right. Trends like electrification changing a lot of the content in the vehicle, you know, putting some suppliers on the outside, making them have to consider, you know, if you know, Hey, if I’m a drive train supplier, what am I going to do now that electrification is coming in? So trends like electrification, trends around individualization or lot size of one, have really put a lot of variation into the process at the OEM level. And that of course drives down into the supply base, you know, changing some of the delivery requirements, but also changing the volume aspects of a lot of the vehicles parts that they produce. So, a lot of these trends we’re starting to, you know, I look at it like, you know, rocks in a pond where, you know, the water level was already starting to drop and expose some of the, the tips of those rocks. Um, and then the pandemic comes in and that really dropped the water in the pond. And a lot of rocks got exposed in, you know, what was going on with the, with the supply base and at the OEMs with a very big and rapid change in the volume aspect, obviously just the sheer business disruption, those types of things. So, given that, you know, what have the suppliers and the OEMs done around that? You know, I think the focus rapidly has shifted to strategies around cash pressure, crap, cash preservation, and just basically keeping the business afloat. So kind of a survey, core survival strategy. And as a part of that, really taking a look at, you know, investment, where were they having to invest, whether that’s deferring investment or still going ahead and taking a look at the investments that they’re going to have to make kind of during the downtime during the slow period. I think the suppliers especially have really had to take a look at, how do I preserve cash and the investments that I do make, how do I make sure that it’s going towards the things that are going to not only keep me afloat now, but also set me up for success in the future, things around investments in perhaps industry four.now, core technology. Um, also in product line, as well as looking at things around M and A, mergers and acquisitions, divestitures, things like that. So I think those are, those are kind of the big three key themes that I think the suppliers are really focusing on cash preservation, really understanding their investment profile, and then M and a.
And how about you, Martin? Are you seeing some of the same things?
Yeah. You know, in March and April, when the OEMs decided to shut down production, obviously the suppliers took a huge, huge hit. So liquidity became a big issue. And then obviously as we all know that the automotive industry is a big capital business. So how do we get utilization out of these big assets that we have became became an issue, Jim hit on, on several things. But one thing in addition to what he spoke of is the supply chain. We not only had to worry about shutting down the supply chain, we have to restart it. And this year we’ll close out around 13 and a half million units, which basically takes the buffer, the breakeven buffer, off for suppliers, which is challenging around being able to make a margin on the business that they need to make good news this next year. It looks like those volumes are going to go back up. We’ve restarted production of things are running here into November, beginning of December. So things are back or seeing some volumes come back and China and Asia and North America. So the numbers look better, but the supply chain demands have been huge challenges for many of our suppliers.
We obviously live in A very unpredictable time where business models are being kind of turned upside down and innovation is really key and something, I think a lot of companies are thinking about in order to not just survive, but also thrive going forward. And that also means that we SAP, we obviously also have to keep up. So we have a new approach to innovation, which is our SAP industry cloud. So we’ve talked about this, but Jim, what about our current climate requires a new approach?
Right? So just very quickly, I’ll touch base on the industry cloud strategy for those who may not really kind of understand it, or have an idea about it. It’s vastly simplified, but the way I look at it is, you know, from a historical perspective, SAP has had ECC the big ERP, sort of a very large application set within ECC that kind of covered all of the core business capabilities that you would need. Lots of great things about that within integration and a single source of truth. But where people have had challenges are when they need to innovate or when they need to adopt new capabilities, they aren’t necessarily, or haven’t necessarily been able to quickly adopt those new capabilities that they need because they have to maybe do a big upgrade of the entire ECC platform and deal with the integrations and deal with all that sort of stuff. I would say innovation adoption has been challenging, and that’s where the industry cloud strategy really comes in. So if you think about SAP developing, maybe new capabilities, I’ll give you an example around returnable containers and managing returnable containers with your suppliers and with the entire ecosystem. Historically, we would have built that capability into ECC. If you wanted to take advantage of that, you would have had to do a big upgrade to be able to adopt that and get that into play now with the industry cloud strategy that returnable containers capability is now built outside in our cloud platform. Whether you’re on ECC, whether you’re an S/4 kind of version independent, whether you’re on prem, whether you’re in the cloud with your S/4 doesn’t matter, you’re able to now take and adopt that returnable containers capability, or that industry cloud capability and apply it to whatever landscape that you’re happened to be working on. And you can purchase that. You can implement that very quickly, and you can basically get the benefit of the new capabilities, super, super fast with a minimal investment. So I think that’s a good example of how the industry cloud strategy, or what the industry cloud strategy is and how that enables people to adopt innovation faster. Returnables is one of those innovations that’s out now. We have self-billing that’s also come out, digital vehicle hub is another capability that’s more focused on the mobility piece of automotive that’s out in, in the world. And then we have the other benefit is it’s not just SAP that’s doing development in this industry cloud world. It’s also our SSI ecosystem, our partner ecosystem that is bringing things to bear. So I know Capgemini, since Martin’s on with us- Capgemini, has an industry cloud app called Capgemini intelligent automotive assistant that helps with some inbound managing of demand. So, you know, these are all pieces and parts that can be adopted very, very quickly, very, very rapidly, without having to do, you know, a large upgrade.
Hmm. And you are right. We have Martin on from Capgemini and they are a big partner of SAP. So Martin, from your perspective how does SAP industry cloud allow you to co-innovate? I mean, both with SAP, but also with our customers?
Yeah. The industry cloud, the automotive industry cloud is feature rich, function rich for us. So we are in the implementation space. So we’re concerned about the fits and then also differentiating for our clients. So fit the standard is critical because that’s what gives us the speed and also gives us the ability to deploy faster, to get quicker return upon their investment. But with that being said, they also have to be able to differentiate around their specific core business models. And differentiation many times, may lead to some customization, but we try to limit that to the best of our ability. One thing Jim mentioned is this tool that we developed, it’s called the CIA for auto and in the automotive industry around EDI and Git sequencing and so on, and do scheduling there’s huge volume from OEMs that come in. And one of the biggest challenges are that we’ve determined is that you have to get at the root cause of matters fairly quickly in order to solve that. I mean, this tool is really helps us do that. It’s got some machine language and capabilities within it, but it’s just an example of some joint development that we’ve done with SAP that’s being deployed out to the automotive market.
Hmm. And now let’s look a little bit ahead, right? Cause this is obviously a long-term strategy for SAP and our customers and our partners. So if we look into the future, as it seems impossible to do these days, but let’s try it anyways. What key issues can SAP and Capgemini help automotive suppliers, companies to address in order to be successful? So how do we help our customers be successful in the future with this newly launched strategy, perhaps over to you again, Martin?
Yeah, so agility is key, right? As we move more towards changing the industry from the traditional industrial combustion world to the electronic world, the electrical world, whether it be, you know, battery hybrids or full electrical it’s going to require a complete change into the supply chains and the way that we go about building and assembling these vehicles. So suppliers are going through that right now. So they require systems that can accommodate the changes that are going to be required for the industry. And that’s one of the key things. It can’t be constrained by the systems. And that’s one of the areas that I think the intelligent core and what, how SAP has approached the market with their ecosystem of solutions has really addressed our ability to innovate on the outside and have the intelligent core, which supports the core manufacturing, core planning and scheduling and sales and distribution modules. So I’ll turn it back to you, Josephine.
Yeah. Thank you. What about you, Jim? What are you, take out your crystal ball? How do you think we can help our customers be successful moving forward?
Yeah, and I think it really goes back to the industry cloud strategy. And then, looking at some of the things we talked about right upfront, right. So when you look at the strategies around cash preservation, smart investment and dealing with M and a, all of these things are things that we’re essentially addressing with our solutions in either a director or indirect way. So from an M and a standpoint for example, moving some of the core to the cloud with our S/4HANA cloud solutions allows companies to rapidly spin off or deal with divestitures or, you know, inbound, M and a acquisitions able to bring a smaller operation into the fold get them up and running very, very quickly from a core capability standpoint. So I think that’s, you know, one of the trends that we’re really touching on, I think, you know, from an industry cloud standpoint, those kinds of applications, again address some of the investment needs, considering how investments number one need to be very fast payback, very solid ROI. being able to adopt those things without a big upgrade, without a huge effort, without an upfront investment in license, but also using a cloud subscription kind of model helps preserve cash. Being able to look at the investments in things like, industry four.now, or connected manufacturing kind of capabilities, to be able to bring those things in incrementally, you know, prove the investment, prove the value and then take the next steps. Um, those are all kind of aspects, between our intelligent enterprise, the core capabilities, as well as the industry cloud capabilities on top. Those really, I think, tie back to where our suppliers in the industry are in also the OEMs.
Well, thank you both so much for looking ahead, but also looking at what’s going on in the world right now. I mean, like I said, in the introduction, it is definitely an industry that is seeing a lot of disruption, both when it comes to the mega trends that you guys talked about, but also the traditional business model that also needs to be kind of reevaluated. So with those words, I want to thank you both so much for coming on. It was really exciting to hear and learn more about the automotive industry and what’s happening and to everybody who listened to this episode. Thank you so much for tuning in. Hopefully I will see you on the next episode. Bye everyone.