I recently had the opportunity to sit down with Farhan Mirza, President of BAFF Consultants Inc., to discuss vehicle customization by original equipment manufacturer (OEM) automakers and its impact on the supply chain of the future. Mirza notes that customization is a significant market trend and believes the entire supply chain will require transformation as the customization of vehicles becomes a mainstream approach to production. In the interview that follows, Mirza will introduce some of the supply chain challenges which will need to be addressed to reap the profit potential.
Dustin Mattison (DM): What is the customization of vehicles trend?
Farhan Mirza (FM):
In the US market alone, of the vehicles sold, 17 million are new. China, obviously, is a formidable force and is overtaking the US now. And then there was a McKinsey article, which commented recently, that in the next four years, India would be the third biggest manufacturer, just lagging after China and the US. With so much manufacturing happening and so much cut-throat competition, the money to be made in the automotive world is not just in producing the cars by the thousands. You've got to have more telematics. There must be more things in the car which provide the “wow effect” and things which people say, "This is something which I'm going to benefit from, or it's going to be a value-add for me."
DM: What kind of customization are we talking about?
For example, in the past, not much was happening within the OEMs for wheels. There were not many options. They would just have the after-market outside manufacturers make them and sell as them as accessories. But there's so much margin in certain accessories that it’s hard to ignore. Accessories, customized products, and making something to the taste of a select few, has value. “Bespoke” would be the experience you go through, from what was a concept you wanted to be unique or different, to the point of where it's going to become completely designed and developed for you, as an individualized customer. This can be done for a select few or just you as an individual. When I was with Karma Automotive, I helped them find ways to use an already very unique vehicle, a truly sexy product, and get people to look at, and it’s a head turner, and say "I want to customize it fully." We start by focusing more on the interior where you can do some cool stuff. It's easily visible. Less impact on various hard trim changes and easy changes can be made. And at the same time, you're able to get a quick turnaround to be able to sell to the customer. Paint is one thing you can really play with. Though it generally takes three to four months to develop a specialized paint, sometimes a little bit longer. Telematics combined with, individual personalization, combined with what the automakers are able to deliver; this is where “you the customer bring a dream, and we as the automaker will make it a reality for you.”.
DM: Is customization only for luxury cars?
The trend also applies to common cars that are customized to speak about you as a person, about you as a personality. And that's what is being delivered. This is a game changer. No matter whether you go, electric vehicles, hybrids, or conventional gas engines, personalization and customization is a big moneymaker. It is a profit and loss (P&L) function within a company itself, and it is where things are going more and more as a trend. Nowadays, we are catering to people coming out of college. Even they want customization. So on a, say, $10,000 or $15,000 Toyota Corolla, you could still have customization where you could have some features which will stand out for you. Maybe there's going to be a few hundred people all like you, but they want to pay for that. And then as you grow, in your life, your needs, and your situations in life change. You may want to go to different products, some at the same price level. Some at a high level. It just doesn't mean that customization should be restricted to the top echelon of society. It's become mainstream.
DM: I'm looking forward to our next chat. But before then, can you summarize why vehicle customization will drive the supply chain of the future?
Absolutely. First, as India becomes the third largest vehicle market over the next five years, a shift to supplier footprint optimization (SFO) will result. We have seen demand for SUV and pickup trucks soar in India, where people are spending $150,000 to $200,000 on stock (from the factory) SUVs like Range Rover. Likewise, exotic performance cars are growing in demand. Imagine the opportunity to customize in this segment and providing the customer, who is hungry for differentiation, from the rest of the crowd. This is where supplier footprint optimization (SFO), will come into play, wherein the suppliers from the developed markets where customization has matured, can move their “footprint” in India and offer to mitigate the cost creep of importing components, redesign lead time reduction, etc., to a great extent. Of course, there are several intricacies involved, which will be discussed in subsequent articles. Second, the bespoke world of customization is a challenge to the supply base from concept development, to production costs amortization, to validation in a short and at times a one-piece production run, to logistics costs. For example, a customer may want a panoramic glass roof with auto dimming option on a customized low volume vehicle which does not have this option as part of the offering. Although customers are willing to pay higher for the customized product, “economies of scale” and the “law of diminishing return” has to be kept in check. Therefore, the agility of the supply base, quick development and reduced testing criteria without compromising the required level of safety and quality, are a constant challenge. Work is being done to overcome these challenges, and one area of focus is SFO, as it helps in overcoming many of these challenges.
About Farhan Mirza
By profession a mechanical and industrial engineer, Farhan Mirza has worked several years in General Motors from manufacturing to purchasing, supply quality and launch. A certified Six Sigma black belt as well as various quality certifications, Mirza moved into the wind turbine industry, working for manufacturers in the US as well as in Europe. Mirza has also spent time on assignments within the consulting world with private equities and also in Russia with the largest automaker there. Most recently, Mirza spent two years with hybrid battery-operated vehicle manufacturer Karma Automotive (previously known as Fisker). At Karma, Mirza was responsible for all of the supply quality function before moving into customization of vehicles.
Dustin’s key takeaways
The opportunities and challenges presented by telematics combined with individual personalization and supply chain excellence is something we need to continue to study. Upcoming interviews with Mirza will uncover more actionable insights into the customized vehicles supply chain. Upcoming blogs will investigate the following in regards to product customization:
- Supplier Footprint Optimization (SFO)
- Designing the supply chain network
- Planning and coordinating demand and supply
- Planning and managing inventories
- Managing cross-functional drivers
- Pricing and revenue management
- Information technology
Looking forward to your thoughts and feedback in the comments.