The future of automotive supply chains: Connected, collaborative and resilient

In the fast-evolving global marketplace, automotive supply chains are being reshaped by groundbreaking technologies and the continual evolution of consumer demands, driving significant and transformative changes globally.

Today’s cars are becoming computers on wheels, and given the intricacies involved in creating such sophisticated products—such as sourcing thousands of components from several suppliers and ensuring timely delivery to meet market expectations—building a seamless, transparent and visible supply chain ecosystem becomes a major priority. This is particularly crucial in a rapidly evolving economy like India, which is the world’s third-largest automobile market.

So, let’s explore the key supply chain trends that are dominating boardroom discussions today, which are poised to reshape the automobile industry of tomorrow.

1. Shifting gears with seamless tech integration

Building upon lessons learnt during the pandemic, automakers are rapidly embracing digital transformation to create a more agile, responsive and efficient supply chain ecosystem. Today, emerging technologies, such as AI, cloud computing, IoT, advanced analytics and blockchain, are being widely implemented to reshape automotive supply chain processes. As the industry continues navigating through volatilities, OEMs are now building a more collaborative ecosystem with their suppliers, using technology to anticipate disruptions, identify complexities and develop innovative solutions. For instance, leading Indian automakers are leveraging IoT devices to deploy real-time tracking and predictive maintenance systems to monitor procurement activities and delivery schedules, seamlessly manage inventories and preempt equipment failures.

Besides, Industry 4.0 advancements are resulting in smart and interconnected factories and warehouses that incorporate innovations, such as digital twins, transforming the entire supply chain. Gen AI—the hottest topic in technology—is also expected to bring substantial shifts in supply chain operations. A recent survey reveals that about 94 per cent of automotive stakeholders are considering implementing Gen AI.¹ This trend is expected to continue with the global GenAI in automotive market size projected to grow at a CAGR of 23 per cent by 2033.²

While tech integration is growing exponentially, the industry also needs to address certain challenges. According to KPMG International’s 24th Annual Global Automotive Executive Survey, only 12 per cent of auto executives are well prepared for advanced technologies.³ Hence, the industry must focus on comprehensive skill development to ensure readiness for emerging trends. Further, with automotive supply chain being most prone to cyberattacks in India, cybersecurity continues to remain top priority for the sector.⁴Thus, robust regulatory developments along with targeted cybersecurity strategies must be prioritised.

2. Sustainability: A crucial pit stop

Amidst shifting consumer preferences, government regulations and climate targets, automakers are focusing on reducing their carbon footprint. Sustainable supply chain strategies—such as smart logistics, fleet electrification, renewable energy usage, adopting circular economy principles, etc.—are important differentiators now. For instance, an Indian automaker is making substantial investments to develop an onsite solar project, which will boost the renewable energy capacity at its manufacturing facility. Overall, estimates indicate that about 73 per cent of companies that have actively integrated sustainable design principles have reported higher revenue growth,⁵

As the sector advances, more must be done to address climate concerns. This is particularly challenging due to the complexity of automotive supply chains, as a modern vehicle consists of more than 30,000 components that are sourced from numerous suppliers.⁶

So how can these complexities be addressed? For one, collaboration and shared responsibility between the government and industry stakeholders can establish a transparent and sustainable automotive value chain. India’s automotive industry, for instance, includes many MSMEs involved in different stages of production. The government can implement planned measures, including tax incentives, subsidies and awareness programmes, to encourage sustainable practices in MSMEs. Similarly, large organisations and industry associations can conduct specialised training programmes and share best practices with smaller players engaged in automotive value chains. Additionally, to sustainably transform the entire automobile industry, the government can offer tax benefits and introduce incentive schemes to boost R&D and promote sustainable innovations. Expanding infrastructure to further strengthen the domestic EV manufacturing ecosystem can also help in creating sustainable supply chains.

3. A more diversified supply chain ecosystem

As a part of their risk management strategies, automakers are diversifying their supplier base to reduce reliance on a single source. Estimates suggest that offshore procurement will decrease by 19 per cent over the next two years, leading to the adoption of nearshoring strategies that enhance supply chain resilience, presenting India with an opportunity to capitalise on the global demand.⁷ The government has already made some headway to boost the production capacity, as evident in the sector-specific PLI schemes. Global investments have surged too, with major players investing in high-value sectors like semiconductors. This also enables India to capture a larger share of global automotive value chains. Lately, India has been meeting global demands, with exports of auto components increasing by 5.2 per cent to reach USD20.1 billion in FY2023. The industry also grew significantly by 33 per cent in the same fiscal.⁸

Global business connection technology interface global partner connection of Container freight train for logistic import export background. Business logistics concept, internet of things. Low poly vector illustration. Headline

Moving forward, India must continue expanding this momentum. For instance, the government can focus on improving India’s engineering and R&D capabilities according to evolving industry demands. Additionally, India can build domestic capabilities in critical resources that are required for emerging automobile technologies to enhance its position in global value chains. Further, our export potential can be improved by introducing fresh schemes tailored to industry requirements and exploring new global markets opportunities.

As the industry continues to recover and evolve in the aftermath of the pandemic, a connected, collaborative and resilient approach will be the next step in redefining automotive value chains.

^[1] Generative AI in Automotive: Why Are Industry Leaders Integrating Virtual Assistants and Other AI-Driven Solutions?, Master of Code, 10 July 2024, accessed on 17 July 2024
^[2] Generative AI In Automotive Market Size, Share, and Trends 2024 to 2033, Precedence Research, April 2024, accessed on 17 July 2024
^[3] KPMG’s 24th Annual Global Automotive Executive Survey, KPMG International, accessed on 17 July 2024
^[4] Automotive Supply Chain Identified as Most Cyberattacked Sector, According to Seqrite’s ‘India Cyber Threat’ Report, The Supply Chain Report, 15 May 2024, accessed on 17 July 2024
^[5] Automotive Supply Chain: Pursuing Long-Term Resilience, Capgemini Research Institute, September 2023, accessed on 17 July 2024
^[6] How the Automotive Industry is Gearing Up into Sustainability’s Fast Lane, World Economic Forum, 19 January 2023, accessed on 17 July 2024
^[7] Automotive Supply Chain: Pursuing Long-Term Resilience, Capgemini Research Institute, September 2023, accessed on 17 July 2024
^[8] Indian Auto-Component Industry Achieves 32.8 per cent Growth in FY24, Ministry of External Affairs, 08 August 2023, accessed on 17 July 2024