As costs associated with manufacturing automobiles continue to increase as a result of the fluctuating prices of raw materials and the need for manufacturers to keep pace with industrial and technological advances, many manufacturers are putting a greater emphasis on cost reduction in order to increase their competitiveness, sustainability, and overall profits. Here are four ways that the automotive industry will be able to cut costs and save money in the near future:
1. Consider the impact of employees: Having a highly skilled and trained workforce is essential for cost reduction. Employees that introduce errors, do not adhere to company spend policies, or who are not trained on procedures and practices properly can cause a company to incur significant costs. It’s important that employees receive extensive training and are regularly assessed to determine their qualifications, suitability, and competency regarding their day-to-day work activities, especially for jobs with a higher risk of danger. Reducing employee errors, increasing employee satisfaction for automotive jobs, and ensuring your workforce is appropriately skilled will help to reduce costs as well as increase safety and employee retention.
2. Introduce remote software updates: Enabling wireless, over-the-air software updates to telematics and infotainment systems has the potential to save the automotive industry more than USD 30 billion (in America alone) by 2022, according to a study by IHS Automotive. This method of remote software fixes is significantly less expensive than updates done using a cellular network. Over-the-air software updates—which are possible for any vehicle that has built-in Wi-Fi capabilities—will reduce warranty costs, increase convenience for software recalls, and make it easier overall for customers and manufacturers to ensure that their software stays up to date. This will also reduce costs for OEMs and add value to vehicles and related products. Many auto manufacturers are already using over-the-air updates, and the practice will most likely become an industry standard and norm over the next five years.
3. Collaborate and cooperate: Manufacturers should work in close cooperation and collaboration with both suppliers and customers in order to effectively deliver a product that meets customers’ needs and wants. This collaboration should begin as early as possible when developing a new vehicle or product so that the customers’ demands are clear and integrated into the rest of the development process and the supply chain. This will ensure that manufacturers do not waste time and money developing a product that customers will not find appealing and will help them to make appropriate procurement decisions.
4. Cut material costs: The high price of raw materials is one of the biggest cost drivers in the automotive industry, accounting for almost half of the total cost of manufacturing a vehicle. Vehicle manufacturers’ dependence on these raw materials—especially steel—leaves them vulnerable to the negative effects resulting from global fluctuations and hikes in prices. To combat this, rather than simply maintaining their traditional supplier relationships, manufacturers should shop around for suppliers who will offer them the best price. As the industry shifts towards the use of aluminum, which is twice as expensive as steel but considerably more lightweight, reducing the cost of materials will become even more important, so auto manufacturers should begin to prioritize, make procurement decisions, and begin negotiations now.