summary:
The current round of sudden new crown epidemic has interrupted the normal operation of China's automobile industry. In order to help enterprises get out of the predicament and better cope with similar uncontrollable risks in the future, McKinsey based on its experience in supply chain management, omni-channel marketing, and factory construction and operation, has proposed a number of countermeasures, hoping to help domestic auto companies and supply chain partners in order to overcome the difficulties together.
Since March 2022, the outbreak of the new crown epidemic in China has brought a huge impact on China's automotive industry and interrupted its normal operation. Changchun, Jilin, Shanghai and their neighboring Jiangsu and Zhejiang regions are crucial to the sound operation of China's auto industry. Taking Shanghai and its surrounding areas as an example, the vehicle production in the region accounts for about 15% to 20% of the country, and the scale of the parts industry accounts for about 30% of the country. In addition, under the tight supply chain transmission, many mainstream parts and components enterprises in the region are densely laid out, and the radiation range to downstream vehicle manufacturers far exceeds the yangtze river delta and spreads throughout the country. In view of this, the suspension of work and production caused by the sudden epidemic is likely to have an impact on China's automotive industry more than the epidemic in early 2020.
And the impact of the epidemic is not limited to the production side. Before the outbreak of the epidemic, the market was widely expected to hold the Beijing Auto Show scheduled for April 2022, because it is expected that a number of global and Chinese brands of blockbuster smart electric vehicles will be collectively unveiled at the auto show; but the epidemic has forced the auto show to be postponed, which not only affects the subsequent Chengdu and Guangzhou auto shows, but also has a huge impact on the implementation of new brands, new models and related marketing, production and listing strategies of car companies.
At the same time, the rising prices of raw materials and energy, which began in the second half of last year, superimposed on the continued impact of "lack of cores", have put huge operating pressure on the automotive industry (see Figure 1). Many OEMs, represented by new energy vehicles, have also opened a wave of price increases. The overall environment is uncertain and the rise in car prices has inhibited the growth of demand for new cars, and the sudden shutdown has made the already suffering automobile industry worse.
In view of the current dilemma of China's automotive industry, we propose countermeasures from the three aspects of supply, marketing and production, which are not only aimed at this round of "black swans", but also have reference significance for car companies to deal with other similar uncontrollable events in the future.
First, the supply side:
From cost and efficiency optimization to supply chain resilience
McKinsey 's research found that sudden shocks to the automotive supply chain, while difficult to predict, are regular (see Figure 2).
The impact of different scales and frequencies on the supply chain cannot be accurately predicted, let alone avoided; but enterprises can not only "do nothing". We believe that to achieve a proactive approach, the industry needs to gradually change the traditional academic supply chain strategy of pursuing the best cost and efficiency, and instead focus on enhancing supply chain resilience as the core goal. In the face of the ensuing emergencies, the LONG-standing JIT concept of suppliers at all levels and OEMs may no longer be able to meet the requirements of business sustainability. In the past two years, in the course of repeated epidemics in other parts of the world, some foreign companies have taken the lead in carrying out many supply chain transformation practices in an effort to improve supply chain resilience and sustainability (see Figure 3). For example, a McKinsey Global Supply Chain Leaders Survey showed that 73 percent of companies were dissatisfied with the pre-pandemic supply chain layout and said they would respond by increasing the inventory levels of key materials and multi-source procurement, while 89 percent realized the importance of improving supply chain resilience and would continue to monitor the risks at both the supply and demand ends to respond in advance.
Specifically, we believe that companies can gradually shift from "fire-fighting" emergency response to "normalized, high-resilience supply chain management" through a three-step strategy (see Figure 4):
Short-term – emergency management: Emergency management by crisis command centres to minimize the impact of short-term shocks on operational sustainability;
Medium-term – business continuity management: proactive layout of difficult situations that may be faced through regular business continuity planning;
Long-term – Building a New Normal for Supply Chains: Develop a strategic understanding of supply chain resilience to achieve a new normal in supply chains.
In addition, enterprises should also actively intervene in the upstream core components industry. In order to create a highly resilient supply chain, car companies can consider changing the original simple external procurement strategy, and more actively layout the upstream core components to enhance the ability level of related links and enhance the discourse power of the industrial chain. At the same time, we will carry out more dynamic management of various categories of procurement and intervention strategies. Taking the high-profile automotive semiconductor as an example, car companies have long pursued the traditional value chain model, and in the context of "lack of core", this model has appeared to be left and right. Different car companies should explore the possibility of participating in the semiconductor value chain in light of their own business realities, and more actively respond to the challenge of "guaranteeing supply" of automotive semiconductors (see Figure 5).
Second, the marketing end:
Accelerate the construction of omni-channel marketing system and capabilities
(1) Market side: According to McKinsey's China Auto Consumer Survey, the initial brand menu before consumer purchase is highly focused, usually containing only 2 to 3 brands, and nearly 50% of the final choice comes from the initial brand menu. Combined with the current epidemic situation, through targeted online marketing activities, it is increasingly important to enter the initial selection of consumers. Because even if the epidemic eases, the previous common car purchase decision process is likely to change: that is, consumers may no longer be inclined to actively visit multiple brand stores to understand the model, but move to online channels. In fact, according to our research, online channels have become the main channel for consumers to actively obtain information, with non-vertical online channels growing the fastest. Therefore, automakers should develop a comprehensive online touchpoint strategy to significantly optimize effective information reach to end customers (see Figure 6).
In addition, in view of the impact of the epidemic on the overall product release cycle (from market promotion to product production), car companies need to explore more flexible and agile release methods, in addition to the traditional auto show release, they can also consider online launch and other forms. For example, during the epidemic lockdown period, a Shanghai car company completed the listing of its high-end intelligent electric vehicles with an online conference, and used its strengths to avoid shortcomings, because the online conference did not have the limitations of offline venues, the car company effectively conveyed the product positioning that focused on the sense of control through the racing video recorded in advance. Of course, even if it is released online, car companies still need to consider issues such as venues, on-site staff, vehicle scheduling, etc., and the difficulty of these problems in the case of complete sealing and control should not be underestimated; but preparing multiple sets of model release plans in advance may be a measure that car companies should consider in the future.
(2) Sales and service end: In view of the special product attributes of automobiles, test drives and other links are indispensable, although automobile marketing and new car delivery cannot achieve 100% contactlessness, the omni-channel model is still an effective means to deal with the epidemic.
On the one hand, through channels such as live broadcasts and official apps, car companies have been able to maintain uninterrupted sales and services during the epidemic. For example, a new car-making force has ensured the normal operation of the new car experience and communication activities through the UGC content in its highly participatory official APP.
On the other hand, through omni-channel, especially the direct connection model, some car companies can directly grasp and interact with customer touchpoints. At the same time, it is also thanks to these direct customer touchpoints that enterprises can better serve users during the epidemic and build long-term brand loyalty through customer care in the snow. For example, during the epidemic period, the sales service team of a new car-making force in Shanghai maintained close communication with users in Shanghai and delivered materials to users who needed help, which greatly improved user satisfaction. If it is not through direct customer contact, even if the car company has the intention to do similar care activities, it is difficult to cover it, at most it is only a few 4S stores of dot-like care.
According to our experience, to create a successful direct car connection model, enterprises need to carefully polish from seven aspects, including: open and inclusive learning mentality; online and offline integration of user experience; big data collection, screening and analysis capabilities; it is the systematic transformation of IT architecture and capabilities; transformation of organizational structure, value concept and positioning; win-win solutions with existing dealer partners and rapid and agile action plans (see Figure 7).
In order to create a smooth automotive omni-channel model, enterprises need to comprehensively consider the four modules of strategy and business model, operation, technology, and organization. Under the impact of the epidemic, car companies should accelerate the optimization and promotion of customer digital journey transformation, and improve the user experience through online user operation and marketing combinations (see Figure 8).
Third, the production end:
Introduction of advanced production technology and black light factory
Advanced production technology has always been a weapon for enterprises to effectively cope with the impact of the epidemic. In McKinsey's "lighthouse" practice, we see advanced automation construction playing a significant role (see Figure 9). For example, a steel product lighthouse and an electronic lighthouse have ensured production continuity during the special period of the epidemic by putting into and operating a highly automated production line and a black light factory.
It is true that the realization of black light factories in the automotive industry is not achieved overnight, but "the journey of a thousand miles begins with a single step", and auto companies that are interested in building black light factories may start from the following aspects:
Innovative product development: improve product design to create products that are "easier to manufacture and more suitable for automated manufacturing";
Optimize the production process: simplify or even realize the integration of existing production processes;
Create dynamic lean management: use digital twins to model and simulate the production process, iteratively calculate the optimal process design, production line layout and parameter configuration of different types of products, and optimize production schedules in real time;
Build a digital thread: open up a digital main line connecting multiple systems such as ERP, PLM, AND MES, and realize multi-dimensional information binding and traceability at the product level and end-to-end process;
Realize unmanned flexible automation: Deploy a process production and logistics automation system that can be quickly switched and adaptable, and realize safe real-time interconnection and one-click production change between equipment and equipment and information systems, so as to realize unmanned operation of the whole process;
Worry-free process quality and equipment management: Predictive management and closed-loop adjustment optimization of devices, quality and energy consumption driven by advanced analytics and ioT to ensure "worry-free" equipment and quality throughout the process.
The sword blade came out of the grinding, and the plum blossom fragrance came from the bitter cold. In the face of the raging epidemic and more unpredictable potential risks and challenges, auto companies need to quickly step out of the "comfort zone", improve the resilience of the supply chain, expand the layout of core upstream components, continue to invest in omni-channel marketing and user operations, and accelerate the creation of advanced production capabilities. Every major crisis in history is often accompanied by accelerated industrial upgrading and management model innovation; those car companies that can successfully pass this round of "stress testing" believe that they will become more powerful and mature, and become the mainstay of the future wave of industrial development.