For over a century, the global automotive industry has been focused on one central technology: the internal combustion engine. But now, the digitalization of the modern car is revolutionizing the industry, with enormous repercussions for the end-to-end supply chain.

As cars become more connected, autonomous, electric and configured to order, automotive manufacturers are increasingly becoming software companies. Software companies operate much differently than traditional manufacturers. Automotive companies must make this shift by increasing their agility and responsiveness, so they can continuously deliver state-of-the-art features and functionality that represent a competitive differentiator. They need to take a nimble stance that allows them to pivot instantly as automotive technology and consumer needs continue to evolve. This represents a significant change from their historic approach.

Automotive original equipment manufacturers (OEMs) have traditionally followed a “push” make-to-stock (MTS) model based on long-term demand forecast and then sell those cars in stock through a distribution network. The car business has long operated on a flood-the-zone system: stock enough models with a range of features, trim levels and colors, so that shoppers are likely to find what they want from the dealership’s ground stock. This model has prevailed in the industry due to the long manufacturing lead time and the intense competition and remains the dominant one in North America where customers want instant gratification and expect to buy the car off the lot. However, the risk of this business model is the disconnect with the market it serves — which results in massive incentives to clear out vehicle inventories. This problem has been exacerbated with the recent chips shortage when the dealership lots were so bare or did not have the right mix of options that shoppers had little choice but to order their new wheels and then wait, sometimes for months, to take delivery. With the current volatile, uncertain, complex and ambiguous (VUCA) environment with unexpected demand and supply swings and supply disruptions on the rise, OEMs want to manage the shortages by allocating scarce materials and chips to higher-demand and higher-margin vehicles.

MTS means cars are manufactured based on forecast, with average forecast accuracy — depending on the car maker — being fairly low. To add to this complexity, today’s consumers are demanding and craving product customization. As new smart features, electric powertrains, and hybrid models are introduced, and consumers have more options to choose from, this trend will only increase. With the plethora of options, it’s difficult to forecast the diversity of configurations according to market need, which results in overproduction of vehicles and options, resulting in inventory of hard-to-sell models that end up collecting dust at dealerships and lead to profit-sapping discounts. Only those OEMs that can accurately identify consumer needs and intelligently configure (and reconfigure) the supply chain will be profitable.

The industry is pivoting from this traditional “push” make-to-stock model, where dealers maintained 60 to 80 days of inventory, to a hybrid “push and pull” configured-to-order model with lower inventories. The configure-to-order model will assist in minimizing dealer inventory to safeguard margins, anticipating potential margin compression arising from the prevalence of battery electric vehicles (BEV). It is anticipated that by 2030, 80% of new vehicle purchases will occur online, and a significant portion (60% to 80%) of new cars will be directly sold to consumers. Present-day consumers are increasingly seeking a B2C experience akin to Amazon. Due to the adoption of the business-to-consumer (B2C) model, as opposed to the business-to-business (B2B) model, not only is there a wider move from customers to make their vehicle purchases online, but there is a greater demand for customization. This includes the flexibility to make specific changes to the configurations, models, and trims for their car. Knowing how these configuration changes will impact timeframes for manufacturing and deliveries as well as pricing in real-time is also equally important to customers.

Based on some of the industry trends noted above, the acquisition of flexis strengthens Blue Yonder’s portfolio, particularly within the automotive and industrial manufacturing sectors so that Blue Yonder can better serve its customers. During the customer’s vehicle ordering and configuration process, the Blue Yonder Platform can offer real-time inventory and pipeline search. This enables customers to check the availability of a vehicle with the desired configurations within the dealer network or in the pipeline, providing them with a real-time estimated time of arrival (ETA). Should the desired vehicle and options not be available in the dealer network or pipeline, customers can obtain real-time quotes. As a result, manufacturers will be better positioned to deliver a superior customer experience with enhanced personalization, fulfillment, and planning capabilities. Learn more about how S&OP can support sales planning.

The addition of flexis further strengthens Blue Yonder’s already market leading position in the automotive and industrial sectors with an unprecedented end-to-end capability, ranging from volume planning, feature and mix planning, forecast order generation, parts requirements planning, order slotting and sequencing, configure to order, to transportation capacity planning and logistics fulfillment. Through this acquisition, Blue Yonder will continue to be able to fulfill its mission of building more sustainable, profitable end-to-end supply chains.

Read more about Blue Yonder’s acquisition of flexis in our press release.

Interested to learn more about how we’re powering the future of the automotive industry with connected, cognitive supply chains? Meet with us at the Automotive Logistics & Supply Chain Europe event.