Automotive World

“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.