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Tech on wheels: Cars now have more tech in them than computers. What does that mean for the supply chain?

Tomorrow’s vehicles may be as much computer as car. That’s going to have profound implications for the whole automotive supply chain.

Everybody loves a car with a brain. Walt Disney’s 1968 movie “The Love Bug” launched a decades-long film and television career for Herbie, the intelligent Volkswagen Beetle. For viewers of a certain age, singer and actor David Hasselhoff will always be associated with KITT, the unflappable, indestructible Pontiac Firebird that starred alongside him in the 1980s TV series “Knight Rider.”

In the real world, the decade between “The Love Bug” and “Knight Rider” was the start of an automotive electronics revolution that has been accelerating ever since. In the early 1970s, electronic controls began to replace the mechanical systems that once managed fuel flow and ignition timing within the internal combustion engine. By the 1980s, those early analog circuits were being replaced by microprocessors. The speed, accuracy and flexibility of computer control allowed engineers to pursue a host of innovations in automotive safety and efficiency, from lean-burn engines to electronic stability control.

In the 21st century, the sophistication and complexity of in-car computer systems has exploded. A state-of-the-art vehicle from 2004 contained around 5 million lines of computer code. By 2013 that number was approaching 150 million. Today’s luxury vehicles include around 100 individual computers. Software accounts for around 10 percent of the value of a large passenger car today, and is forecast to account for 30 percent by 2030.

New architectures required

CABLE CAR: The inner workings of an autonomous vehicle. Cars with self-driving capabilities will require a range of new, dedicated hardware.

Car companies aren’t just packing more computing power into their vehicles, however. Current and emerging trends in technology and car design are forcing them to rethink the way electronic systems are packaged and implemented.

On the one hand, there’s a push for consolidation, simplifying the electronic architecture of the vehicle by replacing the dozens of separate microprocessors used on today’s vehicles with fewer, more powerful “domain controllers,” each responsible for a large number of functions. On the other hand, advanced features like those required to deliver autonomous driving capabilities will require a range of new, dedicated hardware, including sophisticated sensors and specialized systems to interpret the data they produce.

Companies also need to manage the side effects of all that new technology. Prototype autonomous cars require several kilowatts of electricity just to power their onboard computer systems, for example. Combined with the weight of all the required hardware, that could erode vehicle efficiency, driving up fuel consumption and emissions in fossil fuel cars or reducing the useful range of electric variants. To overcome these challenges, the industry is exploring a range of strategies, from the use of new generations of energy-efficient high-performance semiconductors to cloud-based technologies that allow some processing functions to be conducted in remote data centers linked to the vehicle by high-speed 5G cellular networks.

Two worlds collide

It isn’t just vehicle architectures that are being redesigned to accommodate all this technology, however. The growing importance of in-car electronics is also reshaping the automotive value chain. In particular, it’s driving a convergence between two giant industries that have traditionally adopted very different approaches to product development, manufacturing and supply chain management.

On one side of the divide are the carmakers. Their products evolve relatively slowly: models are produced for five to seven years, then supported in the market for another 15 or 20. On the other are the big semiconductor manufacturers. They work at a much faster cadence, with new product generations introduced every year or 18 months. In their factories, meanwhile, automakers strive for agility and responsiveness, with just-in-time supply chains and lean production systems that aim to maximize flexibility and minimize the lead time between order and delivery. Meanwhile, semiconductor players want to keep their hugely costly manufacturing plants running at full capacity, and that encourages them to favor large batch sizes and long lead times.

If they can’t find ways to better align their operations, the two industries could create a host of problems for themselves: new vehicles that are designed using components that are already obsolete by the time production starts; big, costly inventories to accommodate mismatched planning and production cycles; and uncertainty over the future availability of spare parts.

150 Million

The approximate number of lines of comupter code in a modern car

$32.3 Billion

The value of the automotive semiconductor market in 2018

Convergence in the value chain

But that is the pessimistic vision. There are strong commercial incentives for the automotive and semiconductor industries to find ways to resolve their differences. The automotive market is still a relatively small one for semiconductor players – around 9 percent of the global semiconductor market – but growth is forecast to outstrip the sector as a whole. Better still, automotive companies are buying more expensive, and profitable, product types. The automotive industry buys a tenth of the world’s 32-bit microcontrollers, for example, but accounts for around a third of revenues in the category.

To better align their supply chains, the industry’s players are pursuing a range of strategies. Suppliers are investing in new, more flexible production capacity with the automotive industry’s needs in mind. An example is Bosch’s new wafer fabrication plant currently under construction in Dresden, Germany. The €1 billion facility is the largest single investment in the company’s history, and when production starts in 2021, many of its products will be destined for automotive applications. Automotive and semiconductor players are collaborating on strategies to standardize and simplify the implementation of new hardware and software.

The two industries are also finding ways to streamline their everyday supply chain interactions. Vendor Managed Inventory (VMI) and Collaborative Planning Forecasting and Replenishment (CPFR) are two such approaches, relying on the early exchange of consumption and production forecast data to improve supply chain performance and responsiveness.

“The two worlds of automotive and electronics are coming together,” says Fathi Tlatli, President, Global Auto-mobility Sector, DHL. “The complexity and sophistication of today’s – and tomorrow’s – vehicles mean that no single player will be able to do it all. Companies know that they have to collaborate, whether that’s in the co-creation of new products, the manufacturing supply chain or the provision of services to end customers.” — Jonathan Ward

Published: November 2018

Images: Bloomberg/Getty Images; Mark Peterson/Redux/laif