he structured and linear procurement model of the past must give way to a new collaborative approach.
Automakers need to adapt their procurement systematics and acquire new skills in order to source software successfully.
Earlier this year, Mercedes-Benz announced it would no longer be offering a proprietary automotive navigation and map system in favor of collaborating with Google. This signaled a significant change in the company’s software and procurement strategy. The German OEM was effectively announcing that developing, running, and maintaining core elements of its vehicle software stack required new supplier relationships in order to stay competitive with other car manufacturers – including collaboration with companies from non-automotive sectors.
Today, an estimated 73% of value creation in automotive R&D is hardware-related, but before long, the majority of value will be delivered by the software running on it. We can already identify some successful frontrunners today like Tesla and new entrants from China.
In recent years, OEMs have realized that they do not possess the in-house capabilities and resources to develop a full software stack including E/E architectures, underlying operating systems, and consumer-facing applications and services. BMW’s Senior Vice President of Electronics and Software Christoph Grote recently said: “It is completely unrealistic to build almost all software components yourself as a car manufacturer. Those who do so isolate themselves.”
However, the balance of power is also shifting. Large tech companies like Apple, Google, Tencent, and Huawei become essential contributors to software-defined vehicles. Driven by high customer expectations for the standardized integration of their platforms and services across car brands, the bargaining power of OEMs is steadily decreasing.
Consequently, OEMs needed to learn that while in the past, they were in the position to dictate a customer/supplier collaboration with Tier-1 and Tier-2 suppliers, this role may be subject to change in the era of the software-defined vehicle.
Pricing stands as the most potent lever for increasing profitability within the automotive sector. Consequently, it should take center stage for all Original Equipment Manufacturers (OEMs). However, it’s essential to recognize that Revenue Management extends beyond Pricing. It involves a strategic business practice adopted by companies to maximize their revenue and profitability through the optimization of product or service pricing. This discipline entails the application of diverse pricing strategies, data analysis, and forecasting techniques to make informed decisions about price setting, resource allocation, and capacity management. The primary components are depicted in the chart below. Pricing emerges as the most significant lever for enhancing profitability, making it of utmost importance for top management.
This significant role and power shift implies that OEMs will have to source key elements of their vehicle software externally while at the same time ensuring state-of-the-art integration into their vehicles in order to maintain a competitive edge. The traditional “design-bid-build” model, which is characterized by highly specified requirements, strict cost discipline, and high-volume orders, is unlikely to work in this case.
A new collaborative and flexible software procurement framework for design, development, and delivery is needed to enable co-development and partnerships. You cannot plan software development efforts years in advance. As a result, the framework must reflect the needs of the fast-moving and fast-changing nature of software projects where scope, timeline, and technology change more frequently than in classical procurement processes. This will require both internal empowerment and new evaluation criteria to assess software partners.
Figure: Software Procurement is different
Source: Berylls Strategy Advisors
In addition to internal empowerment, OEMs should consider four evaluation criteria when assessing potential software partners:
The move to software-defined vehicles is transforming the automotive procurement landscape and requires procurement professionals to adapt their practices in order to effectively source and manage software suppliers.
This means that the process and the principles of procurement must reflect the business logic of software, which is closer to signing a service contract than buying a product. To establish an innovative and future-proof software procurement organization, OEMs will need a deeper understanding of software development, supplier management, industry standards and regulations, intellectual property, and talent management. The key is self-empowerment: OEMs need to develop the necessary skillset while at the same time creating flexible and resilient organizations to manage software supplier relationships that have broken free of the “captive supplier” model and more closely resemble collaborations and joint ventures. Markdowns will not be the dominant measurement for success of procurement.
This shift will not be easy, but the software-defined automotive future demands it.
n the landscape of the automotive industry, an enormous transformation is underway. The very essence of vehicles is being redefined, not under the hood, but in lines of code and algorithms.
Dr. Juergen Simon (1986) is Associate Partner at Berylls Group, an international strategy consultancy specializing in the automotive industry. He is an expert in sales and corporate strategies as well as M&A and can look back on many years of consulting experience.
Dr. Juergen Simon has been advising automotive manufacturers and suppliers since 2011 and has in-depth expert knowledge in the areas of holistic strategy development, business models and commercial due diligence. He also focuses on market entry strategies and topics related to the „Software Defined Vehicle“.
Prior to joining Berylls Strategy Advisors, he worked as senior consultant at the Droege Group, a consulting and investment firm.
As a graduate economist from the University of Hohenheim, he completed his doctorate at the Institute of Management at the Karlsruhe Institute of Technology (KIT) before joining Berylls.
utomotive OEMs face challenges in sustaining profitability due to escalating product complexity, which in turn results in heightened research and development expenditures.
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Sebastian Böswald (1991) joined Berylls in April 2021. He is an Associate Partner and an expert in both transformation and operations. Over the last decade, he has focused his work on strategy and organizational design, as well as on two megatrends shaping the automotive industry: software-defined vehicles and CASE (connected, autonomous, shared, and electrified mobility). In these fields, he has advised our global OEM clients as well as Tier-1 suppliers and tech companies.
Prior to joining Berylls, he worked for PwC Strategy& and started his career at BMW as a project manager for product strategy and digital charging services.
He received a Bachelor of Science in Automotive Computer Science at the Technical University of Ingolstadt as well as a Master of Science in Management from the Technical University of Munich.
ew things shape modern life as much as individual mobility. Be it as an expression of freedom and individuality, or as an economic driver.
To reflect this, we have developed the WisdomTree Berylls LeanVal Global Automotive Innovators Index – the WTCAR. It tracks the performance of the 100 most relevant publicly listed automobility players worldwide.
By design, the WTCAR covers the industry’s entire value chain – from vehicle manufacturers and suppliers, to dealer groups, and providers of mobility services or infrastructure.
The automotive industry experienced a severe blow from the capital markets in 2022, and the recent decline in stock prices has wiped out most of the gains that the sector had made from the pandemic lows.
Now, there are still several major effects impacting the global capital markets. First, central banks remain committed to fighting inflationary pressures and have incrementally raised interest rates as a strategic countermeasure over the past months, slowing down the recovery of the economy. Second, supply shortages caused by the Covid-19 crisis is continuously moving into the rear-view mirror, allowing for a more opti- mized production utilization. Third, political influences like the Inflation Reduction Act in the US, the war in the Ukraine, and the pressures bet- ween China and Taiwan are continuing to influence the developments at the global capital markets.
Dr. Jan Burgard (1973) is CEO of Berylls Group, an international group of companies providing professional services to the automotive industry.
His responsibilities include accelerating the transformation of luxury and premium OEMs, with a particular focus on digitalization, big data, connectivity and artificial intelligence. Dr. Jan Burgard is also responsible for the implementation of digital products at Berylls and is a proven expert for the Chinese market.
Dr. Jan Burgard started his career at the investment bank MAN GROUP in New York. He developed a passion for the automotive industry during stopovers at an American consultancy and as manager at a German premium manufacturer. In October 2011, he became a founding partner of Berylls Strategy Advisors. The top management consultancy was the origin of today’s Group and continues to be the professional nucleus of the Group.
After studying business administration and economics, he earned his doctorate with a thesis on virtual product development in the automotive industry.
Malte Broxtermann (1986) joined the Berylls team in 2014. After extensive experience as emergency medical technician, he has been working in consulting since 2012. He helps customer to leverage digital strategies & products across the entire automotive value chain. He is an expert in deploying machine learning-powered applications. As Partner at Berylls’ own unit for digital solutions, Berylls Digital Ventures, he focuses on scaling start-ups as part of our venturing practice.
Studied economics and international business at Maastricht University (Netherlands) and Queen’s University (Canada).
he trucking industry is currently grappling with significant pressure induced by an ongoing transformation predicated on three fundamental changes to its long-standing operations.
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Steffen Stumpp (1970) joined the Berylls Group in October 2020 as Head of Business Unit Commercial Vehicles. At this point, he already looked back on extensive professional and leadership experience in the commercial vehicle industry. Stumpp started his career in an OEM and went through different roles in research, marketing, product planning and after-sales service. When he switched to the automotive supplier industry, he took over the responsibility for worldwide sales and marketing of a medium-sized tier 1 supplier. After another step as head of sales he decided to join Berylls, where he is now responsible for the commercial vehicle business.
Stumpp is a graduate engineer and has studied industrial engineering at the KIT in Karlsruhe and the Technical University of Berlin with focus on logistics.
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As we set out in two publications last year, the Web 3.0 applications – namely in „the Metaverse“ – are high risk, uncertain reward opportunities that are not for every OEM.
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Henry Lundt (1984) is a Principal at Berylls Mad Media (part of Berylls Group), the experts for transforming sales & marketing in the automotive industry. He is an expert in digital automotive commerce as well organizational transformation and can look back on many years of consulting experience in various roles.
Henry Lundt has been digitizing automotive sales & marketing for manufacturers and suppliers since 2009 and has experience in the areas of holistic strategy development, digital product development & applying and optimizing agile working models. Beyond this, Henry Lundt built expertise in digital automotive commerce, consulting our clients to build and optimize transaction journeys. Prior to joining Berylls Mad Media, he set up Berylls Digital Ventures as first Berylls Group entity – prior to joining Berylls, Henry Lundt was Head of Automotive at TD Reply, a marketing & innovation consulting firm, focused on digital business.
He graduated as business economist from the University of EBC Berlin in marketing & media with a combined studies in Business Management in University of Sunderland & University of Newcastle upon Tyne (UK).