By: Sanket Das, Sr. Consultant- Digital Consulting & Advisory, LTI

Car makers like Toyota, Chrysler & Ford have traditionally had over 400 suppliers each, delivering intricate parts & components for multiple models of vehicles that are rolled out each year. Engine & transmission are the most design-intensive parts, and thus require extreme precision of supplier-provided components to ensure that they match the performance, fuel efficiency & safety standards of the OEMs.

This requires absolute visibility & design integrity on supplier-provided components, and a single failure can wreak havoc on the delivery schedules of the OEMs. All of this has been largely disintermediated in the fully electric car era. All that is there, is an electric motor powered by a large rechargeable battery, and a drive train to transfer the power to the wheels. Though there are several different components like braking systems, Advanced Driver Assist Systems (ADAS), Control Units, etc., which still need to be integrated, the automobile arguably has more “wiring” now than the traditional “plumbing” of Internal Combustion (IC) engines.

With major OEMs declaring to have fully electric fleets by the end of the decade, this will create a large shift in the types of suppliers that will need to be on-boarded. A large part of this supplier base may not necessarily be collocated with the OEMs (as more auto companies are propping up in Silicon Valley than Detroit), and thus, calls for a more robust supply chain with real-time visibility on parts & components. Traditionally, supply chain visibility has been ERP-led, with a massive synchronization effort to consolidate data at different touchpoints of the value chain. This creates a lot of redundancy, and sometimes, the latency makes the data quality questionable.

This makes a strong case for the use of blockchain technology in the automotive supply chain. As parts get more standardized in the electrical car era, the supply chain will eventually be more global rather than local in nature. Hence, it can help in creating the “consortium” culture, which is paramount to a successful blockchain implementation.

Initially, an OEM can sponsor and onboard its suppliers to ensure no component ever goes incognito, as it moves through the factory, logistics, customs, shipping & recycle phases of its life cycle. This can later be extended to a larger pool of Tier 2 & Tier 3 suppliers, and eventually to other OEMs. This not only ensures a better quality of end products, but also a leaner inventory and cash flow efficiency for the participants. The federated nature of governance ensures that no single entity holds the command, and information asymmetry is rooted out. This creates a level playing field for even the smaller players, who often get squeezed in the value chain.

Some of the OEMs are still playing the ‘wait-and-watch’ game, while others have started with small experiments and proof of concepts. The first ones to industrialize this trend, will have a definite advantage, as we move into the electric car era. Moreover, there is an imminent threat from non-traditional players to the incumbents of the auto industry.