SAP for the Automotive Industry – Is It Really That Different?

Many automotive companies turn to Hicron late in their SAP projects – often when their vehicle related functionalities are on the verge of failure. This scenario is far from ideal and highlights a recurring question: Why trusted consulting companies and system integrators with limited automotive experience often overlook purpose-built industry solutions like IS-Auto, opting instead to reinvent the wheel with core ERP modules?

The consequences can be significant. Mistakes made early in solution design often remain unnoticed until the end-user testing – when time and budgets are already stretched thin. Could these pitfalls be avoided? Absolutely. The key lies in adequate architecting of the solution, rather than subsequent implementation.

SAP IS-Auto is an industry-specific solution to simplify the architecting process. It includes a set of standard SAP functionalities, the Vehicle Management System (VMS) included. Unlike generic ERP approaches, IS-Auto enables precise, end-to-end tracking of individual vehicles throughout their entire lifecycle – from production and supply chain to after-sales services and fleet management. This capability is foundational for the automotive industry.

For instance, modern automotive clients expect excellence in three critical areas:

• Easy vehicle configuration (or self-configuration).
• A specific delivery commitment from a local representative.
• Seamless delivery of the vehicle to both: dealers and end-customers.

Then, each brand defines their core competitive edge by focusing on what sets them apart. For example, Porsche drivers won’t turn to Kia for better performance or high-end customer service, because luxury brands build their success on entirely different value propositions. Across the industry, however, a common denominator remains: the agreed customer price, delivery time and its associated cost.

Today, the automotive market faces immense pricing pressure, especially from Chinese competitors like MG, BYD, and Deepal. This has become a significant challenge for established brands. The only viable way forward for importers and distributors is to reduce costs and maximize profitability by analyzing the profitability of each vehicle rather than a batch of identical cars. Achieving this level of precision is crucial to maintaining competitiveness in such a challenging landscape.

At Hicron, we observe that some senior consultants not experienced in the industry fail to recognize that while processes like demand planning, inventory control, and warranty claims may appear similar across all industries, these functions are fundamentally different in the automotive. Below is a sample list of process steps for importing, distributing, and servicing high-value automotive items throughout their lifecycle:

As shown above, core ERP modules are simply not designed to address automotive-specific requirements. Therefore, SAP IS-Auto is built to bridge this gap and provide tailored functionalities for operational excellence.

What does it mean for ERP in the automotive industry?

For ERP systems in the automotive industry, the greatest risk lies in underestimating the significance of tracking vehicles individually – a clear advantage for most efficient industry leaders.

At first glance, non-automotive SAP experts may trivialize some processes, because they appear similar to processes in other industries. This can lead to a dangerous assumption: some functions can be replaced by SAP “best practices” and adopted in the automotive industry.

Why? Because the automotive industry doesn’t just track batches of identical items – it tracks individual vehicles throughout their lifecycle. This distinction creates an entirely different set of requirements, as the level of granularity and control demanded by automotive clients far exceeds that of many other industries.

Understanding and addressing these differences is critical to designing ERP solutions that empower automotive companies to maintain their competitive edge. Let’s delve deeper into the most significant distinctions.

Vehicle is NOT a Widget!

A vehicle represents a highly configurable high-value item, such as a car, motorbike, yacht, tractor, construction equipment, bus, train, or even a light aircraft. Unlike widgets—generic items managed via Stock Keeping Units (SKUs) – vehicles require individualized tracking throughout their lifecycle.

Consider this: Volkswagen produced an average of 25,000 vehicles daily in 2023. No two vehicles on the production line were identical, as each was purpose-built for a specific destination. Even if your production volumes are smaller, the ability to track profitability and optimize operations for each unit becomes essential to staying competitive and efficient.

Each vehicle must be individually tracked – from the moment a customer order is placed, through production, delivery, ownership changes, service history, and even decommissioning. For example, brands like Cupra allow customers to choose online between vehicles available for immediate delivery and customized options that require longer lead times.

In contrast, a widget, like a phone or spare part, is interchangeable. Its origin, destination, or final customer is irrelevant. Widgets can be ordered in bulk, stored, and shipped without concern for their specific path.

This individualized management significantly impacts operations. Customers demand precise delivery timelines, robust warranty and service histories, and competitive pricing. Without proper tracking, companies risk inflated costs, excess stock, unforeseen depreciation, write-offs, and inaccurate profitability analysis.

How to Track Each Vehicle Individually?

Standard ERP systems are designed to manage stock in bulk using SKUs for identical items, or “widgets.” However, in the automotive industry, each vehicle is a unique, high-value, configurable product that demands individualized tracking.

When a customer places an order, the ERP system must create a unique “object” (in SAP terminology) for the vehicle. This object acts as a digital record containing critical details such as model, variant, configuration, color, options, accessories, manufacturing year, warranty conditions, delivery timeline, customer information, and more.

The process unfolds as follows:

1. Customer Order Creation: A unique object is generated for the vehicle, which may be sourced from stock or scheduled for production.
2. Vehicle Assignment: If the vehicle exists in stock, it’s directly assigned to the object. If not, the manufacturer (OEM) receives the order, confirms production, and ships the specific vehicle.
3. Reassignment Flexibility: Distributors can reassign vehicles to match customer priorities, ensuring optimized delivery without unnecessary delays or costs.

This granular tracking enables automotive businesses to commit to precise delivery dates, manage costs, and maintain customer satisfaction. Generic ERP tools like backorder management or serial number tracking fall short because they’re designed for identical items—not unique, high-value machines requiring detailed tracking across production, quality checks, customizations, and logistics.

Without an automotive-specific ERP system, distributors risk chaos: bloated stock levels, price depreciation, and delayed deliveries. They cannot forecast demand accurately or manage profitability effectively.

For example, committing to a delivery date in Australia for a vehicle produced overseas requires precise coordination – tracking each vehicle from production to quality checks, modifications, transit, and final delivery. With the right ERP system for automotive, this complexity becomes manageable, enabling businesses to operate efficiently while meeting customer expectations.

In summary, tracking individual vehicles is foundational for:

• Setting retail prices and delivery dates,
• Forecasting demand and managing orders,
• Monitoring profitability,
• Maintaining customer trust through warranty and recall management.

Vehicles are not widgets—they are high-value, configurable items requiring specialized processes and robust ERP solutions to streamline operations and ensure success.

Vehicle Lifecycle End-to-End

Tracking the lifecycle of each vehicle end-to-end is essential in the automotive industry and requires more than serial number tracking. It involves managing data across the entire supply chain—both before and after a vehicle is processed by the distributor.

Why End-to-End Tracking Matters?

1. Regulatory Compliance
   Ensuring vehicles meet legal standards helps avoid fines or legal issues. For example, recall campaigns must be handled at no cost to customers.
2. Supply Chain Efficiency
   Streamlining processes ensures timely delivery, minimizes delays, and reduces operational costs.
3. Cost Optimization
   Lowering inventory levels and holding costs improves cash flow. Detailed tracking of individual vehicles also provides insights into profitability for different variants.
4. Customer Loyalty
   Accurate delivery timelines and reliable post-sale services enhance customer satisfaction and retention.
5. Business Continuity & Reputation
   Efficient tracking mitigates risks related to compliance issues, shipment delays, or market fluctuations, safeguarding the brand’s reputation.

The Key to Success in the Automotive Industry: Leveraging Dedicated ERP Solutions

In the automotive industry, tracking each vehicle individually is no longer a luxury—it’s a necessity. Standard ERP systems fall short when handling the unique demands of the automotive sector. SAP IS-Auto offers a tailored solution that ensures precise tracking of each vehicle, optimizing pricing, demand forecasting, and profitability analysis. Automobile businesses can significantly improve their operations and maintain a competitive edge by implementing such specialized functionalities.

At Hicron, we have unparalleled expertise in the automotive sector. We don’t just implement ERP solutions; we provide valuable advice, ongoing support, and continuous process improvements to help automotive companies thrive. Our deep understanding of the industry, combined with our proficiency in SAP systems, enables us to streamline complex processes, reduce costs, and enhance overall operational efficiency. With Hicron by your side, you can confidently navigate the challenges of the automotive industry and optimize your business through the power of ERP.