How Autonomous Vehicles Will Challenge Traditional Supply Chains

A study by McKinsey & Company indicates that up to 15 percent of new cars will be autonomous by 2030.

While most players in the automotive industry believe that autonomous cars, with varying degrees of autonomy, will soon see the light of day, a study by McKinsey & Company indicates that only up to 15 percent of new cars will be autonomous by 2030. For decades to come, then, automakers will be producing both autonomous and traditional cars simultaneously.

This dual production won't seem like a significant issue until people realize how fundamentally different autonomous vehicles are. These are not regular cars with a few extra parts. They are innovative machines that rely on a completely unique set of systems and technologies, requiring a fresh approach to design, build, and take them to market.

Consequently, developing the supply chains necessary to produce autonomous vehicles at a high volume will require a coalition of tech experts, automakers, manufacturing specialists, and academics. These stakeholders must collaborate to develop a product that performs with a high degree of safety in scenarios that carry innate risks. And they must make this technology viable within a short period of time to keep their respective shareholders from getting impatient.

For all of these reasons, a conventional, linear supply chain doesn't suit autonomous vehicles. Instead, a circular supply chain, in which hardware and software are cooperatively developed though a series of collaborative iterations, must be utilized. And with everything from the underlying automobile to a comprehensive library of real-world application scenarios still in development, autonomous vehicles will require a lot of trips back to the drawing board before they reach the desired level of driving experience.

Advancing the Equity Model of Automotive Manufacturing

When a linear supply chain gives way to a more circular one, the cost and complexity of production increases. This, in turn, pushes the commercial model from a traditional buy-sell model to an equity participation one. In this new model, each circular supply chain partner brings in something strategic — such as funds, technology prowess, intellectual property, design capabilities, manufacturing plants, research inputs needed to design core operating algorithms, etc. — as needed as "equity." These partners receive returns of revenue and margin share that correspond to the quantified value of the equity they bring in and (to some extent) the amount of risk they are willing to take.

Let's call the partners of this shared ownership alliance the Authors of Autonomous Architecture, or T3A. T3A would assume responsibility to drive change across a wide range of relevant areas, like technology, business models, industry operations, and even the social impact.

Different T3A partnerships will compete to deliver a superior singular experience that includes more than just features and specifications. This means the value of one vehicle over another will be differentiated by the convenience, comfort, and customization bundles offered to the passengers who will have more time to experience and enjoy such offerings. Ultimately, the appeal of autonomous vehicles is rider freedom, as the average American driver spends 42 hours per year in traffic.

Building Partnerships With the Strength to Survive

Most of the current strategic supplier partnerships, however, aren't ready for this level of engagement. It will take a few intrepid T3As to break free of the standard operating procedures and commit to developing a viable operating blueprint. Still, there are a couple of elements that T3As who want to delve into this lucrative territory can consider to better adapt their strategies and make themselves successful players.

The most essential step will be pioneering a model of cross-ownership. The biggest obstacle to autonomous vehicles — both now and moving forward — is the lack of cooperation between entities that could bring value to projects if they worked together. Essential collaborators are currently seen as competitors, and the resulting border wars prohibit the exchange of ideas that a platform as complex as autonomous vehicles requires.

For instance, understanding that software will become the new “heart” for autonomous vehicles (instead of the engine) should drive T3A collaboration toward building software-defined vehicles using proprietary or open-source operating platforms to leverage the app culture in differentiated ways. An autonomous vehicle could enhance a smartphone experience coupled with offerings to enable multiple forms of official and personal interactions — all while transporting its riders from point A to point B. This will make this platform enticing and engaging to a larger ecosystem of autonomous automotive application developers who would want to focus on larger alliance clusters rather than numerous fragmented mini-enterprise adventures.

Moreover, the ride-sharing and ownership-sharing models, in which people focus more on usage as needed rather than permanent ownership, will evolve rapidly. These models will be supported by a shift to electric cars due to regulatory and engineering reasons, which will also accommodate environmental needs. All of this will create a unique opportunity for legacy automotive equipment manufacturers or even for bigger consumer technology brands to start playing the "experience aggregator" roles. They will face the end customers and work closely with their partner T3As who can jointly enable this experience aggregation process seamlessly by pooling together their capabilities for collaboration.

Ultimately, once a circular supply chain and an equity model have been established, it will become much more accessible to those who want to bring — and are capable of bringing — the right kind of customer value. The first T3As will have to work to train automotive-grade software engineers, entice application developers, educate prospective customers, and work with governments to create regulations. Then, that groundwork and a new model of automaking will eventually become more open to all, thereby driving awareness, improving customer adoption, and preparing the automotive industry for a fresh and exciting era.

While a new type of vehicle does upend how we conceive of both transportation and production, the opportunities it currently presents for companies and individuals alike are only the beginning. Autonomous vehicles are already a part of our future, and while the question of when they'll dominate the marketplace is still out, how much they'll change it is already apparent.

Partha Mukherjee is the general manager and global client partner for Wipro Limited, where he focuses on P&L and relationship management. Partha has extensive experience in technology and the automotive industry and is particularly passionate about artificial intelligence’s foray into the automotive world.

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