How ERP can drive the automotive industry forward

By Johan du Toit, Strategic Sales Executive for SYSPRO Africa

The South African automotive industry has been one of the largest manufacturing sectors for some time now. Going all the way back to 2020, the global market for automotive parts and accessories had enjoyed several years of high margins and steady growth in a stable environment. Then the COVID-19 pandemic hit and the once recession-resistant industry took a massive knock.

During the COVID-19 pandemic, South African automotive retailers' and equipment manufacturers' production lines were completely halted. This had devastating impacts on the supply and demand of vehicles in the country. The already low demand, crippling effects of the coronavirus and subsequent lockdowns resulted in a substantial decline in new vehicle sales.

The automotive market also experienced several changes due to consumer behaviour too. There was a drastic reduction in vehicle distance travelled, a shift from large truck distribution to increased smaller deliveries and a change in products as well as supply chain disruption across the value chain. Disruption changed the industry so significantly that it’s likely there won’t be a return to normal. This means automotive parts and accessories businesses must start looking at changing their business model and will need technology to help support the change.

New technologies, new challenges

We are currently in one of the most exciting production times in the automotive manufacturing industry, with a myriad of technological advances and inventions being incorporated into automobiles. The shifting automotive landscape is bringing about exciting changes as disruption takes hold of this sector and promises to capture the next generation of vehicle buyers.

While this change is exciting, it does not come without challenges. While there have been significant strides made in reducing product and process variability within the manufacturing process, digital features and functional complexity have exploded. This has forced the auto industry to join the line of organisations and industries experiencing software and electronics problems due to shortages in semi-conductor chips, further slowing down automobile production across the globe.

Vehicle assembly in the automotive industry depends on just-in-time and just-in-sequence processes, which require highly flexible and efficient drive solutions to identify the parts required by each vehicle and then deliver these parts to the exact position on the assembly line at the exact time of need. Any errors or delays can cause very costly downtime across the whole assembly line.

These digital innovations and component shortages are affecting production and ultimately, profitability. To remain in business and stay profitable, companies need to ensure that manufacturing processes are as cost-effective and efficient as possible. This requires having visibility of costs across the business so issues can be identified as they occur – such as variations between expected and actual raw material and production costs; obsolete, slow-moving, and excessive inventories; and product defects and scrap.

ERP adapting to manufacturing needs

The automotive industry has utilised ERP solutions for quite some time now. However, in the current operating environment, ERP has become a necessity, with high competition, the rising demand for automotive production and the dire need to deliver top-flight products. As a result, automotive ERP has evolved to help each manufacturer deal with the fast-changing industry in a unique way.

The implementation of an intelligent ERP allows companies to adapt the user experience to meet and take advantage of changing business environments and assists in the management of processes leading to improved production and delivery of high-end components. The key benefit ERP provides automotive manufacturers and parts distribution companies around managing their logistics transactions, which are often from overseas suppliers by giving them complete visibility of cost tracking throughout the procurement.

Within the manufacturing process and assembly, ERP allows the planning of production, as well as progress on production orders. With the turbulent environment, South Africa has experienced the last two years, with global pandemics, floods and uprisings within the province of Kwa-Zulu Natal, component shortages due to supply chain disruptions and most recently severe loadshedding, effectively planning production cycles has never been more important.

With Inventory Optimisation functionalities within ERP systems, detailed parts forecasting on inventory mix and sufficient holding quantities of components needed to maintain production can be performed.

Traceability and recalls

Due to the essential safety regulations and policies within the automobile industry, product recalls are inevitable. Recently, several leading brands recalled vehicles across the globe. Most recently Mercedes-Benz Group AG recalled almost a million vehicles worldwide due to a potential problem with the braking system. This is a costly process, with research by Allianz Insurance putting the average value of a large recall costing around $13.78m. 

Product recall functionalities within ERP allow manufacturers and distributors to perform a full product recall quickly and efficiently should the need arise. The capability to instantly access all the critical information required to track suspected products throughout the value chain can prevent almost catastrophic scenarios. This can mitigate several possible reputational and financial risks of a recall, with mock recalls actually shown to improve supplier and customer confidence, improving collaboration processes and trust in the process.

The road ahead 

The automotive parts and accessories industry will need to review business model strategies, and processes to adjust to the new changes that will be a permanent fixture in the future. By digitising operations, interactions and channels, new revenue opportunities will be possible. Companies that realise that the path to recovery will require a very different approach, and the deployment of technology, will have a better chance to not only survive but also thrive, especially if they begin now.