March 15, 2022
"If there is a thing that we cannot do more efficiently, cheaper, or better than a competition, there is no point in doing it further—we should hire the one who does it better than we do."
Outsourcing has for a long time been part of the automotive sector. We take it for granted, but over time the model of production has fluctuated, from vertically integrated manufacturing to the sophisticated supply chains of today. In our previous blog on Build or Buy we looked at key considerations from a commercial and unit economics perspective. In the present article, we will examine the challenge from the perspective of organization, workforce, and competence. We will take a look at factors for outsourcing, in particular regarding software, and answer how these parameters confluence in the case of the connected car.
Or, more simply—Henry Ford, to whom the quote above is attributed, was certainly not concerned with integrated circuits or lines of code—what has changed since his days?
A thing Henry Ford would have agreed to: The core business of a vehicle manufacturer is to develop, manufacture, distribute, and service vehicles, parts, and accessories. The core product is the complete vehicle and the core responsibility is to deliver vehicles that are attractive for customers.
But how are these crucial goals to be achieved? It is possible to imagine an automotive company that is nothing but skeleton management, with everything else outsourced: from the design of the body and the ergonomy of the interior to the whole powertrain to marketing and aftermarket logistics. However, in practice and in our minds, vehicle manufacturing means cars rolling off an assembly line—because this is what happens and even most advanced vehicle manufacturers only go up to about 80% outsourcing. Why this limit? Because outsourcing produces certain challenges that have to be faced.
Quality is the aspect that immediately comes to mind. Suppliers have to manufacture to exact specifications and quality requirements, and do it at scale. On the side of the OEM, this requires a careful qualification and implementation phase as well as ongoing quality controls (an area that realistically should not be outsourced). Another aspect is how to implement and measure specifications at all. There is a difference between, say, the precise dimensions and exact coating of a piston ring and the quality of the seams and cushions of a car seat.
Another parameter is delivery on time. To realize the full cost advantages for themselves and the OEM, suppliers will probably try to produce as just-in-time as possible, with all the challenges this implies.
In addition, the inherent risks of international transport and trade are not to be ignored. The economical, political, or legal situation in the country of a supplier may change. Additionally, exchange rates do fluctuate, which often warrants extensive precautions.
Furthermore, the complexity tends to multiply these days, because suppliers of assemblies may have suppliers themselves. In short, any disruption in the concatenating chain may lead to cascading effects.
So, why do it? Why, say, turn to a supplier of keyless entry systems, instead of manufacturing them in-house? Because, clearly, the benefits are considerable if outsourcing is done right. To name just a few:
To fully realize these benefits, competent suppliers for a close and long-term cooperation have to be found—which in itself is a cost factor that has to be considered.
Let us now turn to the stuff Henry Ford knew nothing about: software. Given our assumption that the cooperation between manufacturer and supplier is easier the more precise the specifications are, software seems an ideal candidate for outsourcing. Not only can requirements be defined with utter precision, but the fulfillment of the requirements can also be monitored easily, sometimes in real-time. With Sibros’ Deep Connected Platform, for example, there is full visibility that the over-the-air update platform updates each targeted vehicle with the precise package it needs.
Still, from the fact that software is a good candidate for outsourcing it does not necessarily follow that it is better to buy a software product instead of building it oneself. There is an argument to be made, after all, to retain highly skilled competencies in-house. On the other hand, the development of software can hardly be seen as part of the core business. What is true here?
To get to an answer, let us review some key considerations for demanding software projects:
First: Competence in hiring and retaining the very special talent needed. There already is a global shortage of highly skilled programmers and engineers. Add to this that the most desirable candidates should bring in experience in automotive-related sectors—experience, which to gather can take years. Are the HR departments and management of an automotive OEM equipped with the knowledge for success here?
Second: If the talent has been successfully recruited, the question arises if the new software department should follow Agile methods, as many software organizations now do, while the organization as a whole may still work the Waterfall model. Will it be feasible to reconcile these approaches?
Third: Software projects are long-term endeavors, which involve considerable risks. Gallup reports that one in six IT projects has an average cost overrun of 200% and a schedule overrun of almost 70%. Stories of failed software projects are legion. This can mean not lost months, but lost years.
Fourth: Maintenance of the code. A scenario that often is not considered, but can become dauntingly real, is that developers leave the company and leave a code base behind which is peculiar, poorly documented, and thus barely usable for the future. It is crucial to not only hire and retain top talent but to create and maintain a code base that remains usable in the future. This takes deep knowledge, experience, and years of dedication.
Fifth: The depth and breadth of skills and experiences which are needed to create services like over-the-air updates and data logging in the automotive sector. To name some, there needs to be competence in the areas of automotive, cloud, electronics, front end development, telematics, data privacy, safety regulations, wireless transmission, and network packets, with particularly deep knowledge in niches like logging, bootloading, and data compression.
Considering these aspects it becomes obvious that the better solution for such challenges is to find a software partner who can deliver on all of these points such as:
These advantages lead to a compounded benefit of considering a product-based software partner as a key supplier: reduced risk, strong product-market requirement fit, accelerated deployment, and better ROI overall.
A thing that has not changed since the days of Henry Ford is that an automotive OEM exists to sell cars—which means to focus on factors like price and performance, innovation, safety and reliability, driver experience, and even emotion. Many of these aspects now involve software, but none of them imply that software is the core business. On the other hand, it turns out that specialized software is an ideal candidate for buying instead of building. The use of data to accelerate new features, minimize risk, and improve customer satisfaction is part of the core focus of an OEM. However, extracting and updating data are not core businesses—leave these demanding and specialized tasks to Sibros.
If you want to talk (and, well, can’t get into touch with Henry Ford) speak to us.