The automotive landscape has undergone a revolution in technology demands in the last two decades. Today, automakers can integrate cutting edge silicon chips, space and energy efficient electronics, and powerful software into their vehicles. As a result, differentiation in the modern automotive industry is no longer derived from mechanical and physical design, but by the vehicle features and functionality that embedded chips, electronics, and software deliver. Indeed, analogizing today’s vehicles to ‘smartphones on wheels’ has never been closer to reality.
Nand Kochhar and I sat down to discuss these trends in the automotive industry, and how digital transformation will become critical for companies as the develop more and more complex vehicles. Below, you can read a transcript of that discussion.
[00:11] Conor Peick: During the last two decades, the automotive and transportation landscape has undergone a revolution in technology demands. We’ve seen that the true differentiation in automotive development is no longer delivered by mechanical and physical design but by new features with every new product introduction – a phenomenon that is enabled by advanced chips, electronics, and software. Automakers are facing intensified competition to launch products faster to capture market share earlier. And if not, potentially face extinction. Automakers are forced to innovate new technologies faster, more cost-effectively, and with less budget and fewer resources. This is a “Do more with less,” faster mandate. without the ability to embrace this new level of complexity, automakers will jeopardize their position in the automotive landscape. Today, we’re talking with Nand Kochhar, VP of Automotive and Transportation at Siemens Digital Industries Software. Today, we’re going to be discussing the current market situation, the challenges that come along with it, and the path forward to survive and win the future of transportation. So, Nand, welcome back. I want to start off, so as this revolution in automotive and transportation escalates, a key challenge for many companies is how they can support these new and complex product development initiatives. Many don’t have substantial new revenue sources to invest in the development of things like autonomous vehicles, electric vehicles, orADAScapabilities. And as a result, they are reallocating existing budgets and resources to support these efforts. The issue is, obviously, as they reallocate, it tends to dilute or reduce their commitment for new and existing product initiatives. So, for our first question, finally, how does Siemens propose to address this new economic reality to help companies support the revolution and continue to be profitable?
[01:59] Nand Kochhar: Good morning, Conor, it’s good to talk to you again. Very good question. And you can summarize that by saying that the companies need to have a digital transformation strategy for those who don’t have it. And a lot of the companies, they already have a digital transformation, they need to accelerate the digital transformation journey. And let me expand on that, what does that really mean? Look at the several elements of the challenges you post. Companies have to draw a balance between their current product development and get them future-ready. As you know, from the trends electrification has given, everyone is switching into – doesn’t matter whether it’s OEM or what size of the companies, as one example. So, let’s take a look at few key elements. Now, the Accelerating Product Development to get the products out quicker using less resources is not new. It’s been there – the budget pressures. What’s more important is how do we continue to eliminate waste? And our processes – we make them frictionless, all the way from a concept to production into a service lifecycle, and into the end of life in a sustainable way? That becomes the number one priority to address these challenges. What do we do about it? How do we go further into it? Well, we know our product development processes, we end up making a lot of mistakes, and then we have to redo the work. So, basically, we need to look deep into the data flow from end to end again, and we need to see where we need to do an ongoing cross collaborations across different areas of product development – let’s say mechanical, electrical, electronics, and software – and address those issues. One of the other big things you can meet the challenges on the business side – how do you free up resources? And how do you free up budgets to do more with less? – is looking at virtual verification and validation to get the designs right the first time and also to get them in the most cost-effective way. What’s your verification validation is one of the key enablers for that. If you look further into your current product development processes, you will see there’s a lot of physical testing and prototype builds required, which are again expensive from a cost perspective as well as time-consuming. We are not saying that you don’t need physical testing, but as you continue to increase your reliance on virtual verification, validation, you will see those efficiencies are coming within your organization which you can invest back into the new products, new technologies, new ways of doing things. Let’s look at another example. Artificial Intelligence technologies and Machine Learning. Every company, no matter what product or a component subsystem or a full vehicle they’re designing and building, there’s a ton of data information which already exists. How can you do more data analytics and machine learning on that data, and use that to your advantage of delivering the next generation of product, and do it right the first time? So, these are some of the things. And obviously, during this conversation, we’ll have the opportunity to get into the details of some of them can help companies balance between what they need to deliver for today and how they need to prepare themselves for the future.
[05:35] Conor Peick: I noticed that one of the first concepts he brought up was acceleration – accelerating digital transformation and doing everything faster. So, I’m curious, why is the speed of innovation such a critical element for automotive companies as they move forward?
[05:49] Nand Kochhar: Yeah, again, well, we started with everyone wants to get products to market quickly and as soon as possible before their competitors bring them to the market. So, let’s take a look at the trends in the auto industry and pick one of the trends. As you know, we have trends around connected vehicles, autonomous electrification. Let’s pick electrification as a trend. Now, you see the technology advances are happening in vehicle electrification for the past few years. Now, accelerating that at a pace will address all the other customer requirements coming in, whether it’s coming from customer trends, or there’s an urgency to address the climate change issue. So, that tells that innovation in the electrification, both at the product level, at a process level, and implementation is absolutely key. And that’s why the speed of innovation, as you know, Tesla pioneered and got started on the electrification journey. But by now, everyone, every OEM, every supply base has to do that. So, the speed becomes critical because in a way, you could say, you’re already behind the eight ball. So you don’t want to be any further. Now, if you look at what else is happening, well, there are climate mandates for CO2 emission reductions. You look at what’s going on around the globe; the governments and the regulatory authorities in so many different countries are already declaring when they’re going to eliminate internal combustion engines. Companies and the countries are declaring their plans when are they going to go 100% electric. A lot of them, as soon as in 2030 timeframe, which is not far at all when it comes to automotive. A lot of other examples; restrictions of vehicles in the city, countries are adapting that, cities are adapting that. So, there’s a lot of business at stake, in terms of pure economic standpoint that you better adapt to this change, otherwise, you run the risk of being not relevant a few years down the road. And you and I, we both have seen in our industry and other industries, if you don’t adapt to the changes fast enough, there’s always a risk of running out of business. So, that puts the pressure on the speed of innovation is absolutely critical element of what we’re talking about.
[08:18] Conor Peick: So, I’m hoping we can dive maybe a little more into this idea of accelerating the pace of innovation, and maybe some of the challenges you see that the companies will face.
[08:28] Nand Kochhar: Let’s, again, take a look at electrification – that starts with the requirements. So, whether the are requirements coming from a pure business sense, or a social requirement, or a regulatory requirement. But at the end of the day, it is a requirement. So, now, you need a system around, which can take that requirement, start to develop processes and products supporting that requirement, and deliver to those requirements. And you need to do that in a very systematic way. As you can imagine, if it is not done with a systems engineering approach, you would be either inefficient, then you will need more people, you will need more budgets. It’s the opposite of the problem we are trying to solve. So, to solve that problem, how to remain most efficient? How to still deliver value, still deliver cost-effective solutions, and continue to innovate for products which our customers are accepting from us? And it applies across the board. It could be a tier-one supplier, customer for them is the OEM. It could be an OEM. And OEMs customers of the end customers, everybody is expecting that next generation of innovation coming out in their product because they’re putting their hard-earned dollars towards that.
[09:52] Conor Peick: So then what do you see as the key elements, the things that companies are going to need to accelerate their innovation?
[09:59] Nand Kochhar: Since we are talking about Accelerating Product Development and innovation is a big part of it, you can take a look at it. Now we are going a little bit deep into the technical part of it into three key elements. First, you need to focus on that we need to have next generation of design, simulation, and technology introduction into our product development processes. And the reason for that is, as you know, technology’s been on a growth path, we need to adapt to the new way of doing things. So, if you’re expecting a different result, we need to change some of those things underneath. Second, what’s absolutely critical in my experience of working in the industry of over 30 years, the entire product lifecycle management with a strong data analytics to provide insights and to develop the sustainable products is absolutely key. Getting the right information to the right people at the right time is absolutely critical. And having a closed-loop process of all the lessons learned from previous generations of vehicles to define and design and build the next generation, that all comes into how do you do the entire product lifecycle data management, and that becomes the key. And the third element we kind of touched on in terms of virtual verification validation, and I can maybe elaborate on that a little bit, the cost of doing business in a traditional way where you design, then you build a prototype – physical prototype – then you test, and you validate that, and close the loop. If you made any mistake, you repeat that cycle. In today’s environment, we can’t afford to do that. And the reason for that is because it’s time-consuming, so it doesn’t meet our target what we established above that we need to increase speed of innovation. And also, it’s not very cost-effective by the nature of the way the business is done. So, now let’s go back to our first element. So, what is that next generation of design? Simulation – we need to incorporate in our processes so that we get out of the cycle of going the old way of doing business. And that’s what is kind of a part of the digital transformation strategy. So, you have your next generation of design, where your CAD and CA simulations work hand in hand, that allows engineers to do a lot of evaluations upfront during the concept phase of development, whether it is taking the systems requirements, cascading them to design, and then doing all kinds of artificial intelligence-based data analytics, and picking those designs, doing some of the things like cross attribute optimization way upfront so that you’re picking the right design. And that is all part of Accelerated Product Development. And that’s how it feeds into the first phase of it. And then, obviously, once you have that information, generating data is just part A of the problem solution. Part B is, what do you do with that information? And at that point, it all becomes about decision-making. Once you have the data, you have to analyze and you have to decide; you have to choose one design versus the other; you have to choose one supplier versus the other, or you might have to pick even a location of that where you’re sourcing that part from and what would be the most cost-efficient. Now you can do all these trade-offs, these studies way upfront.
[13:41] Conor Peick: And then, of course, these companies are going to have to incorporate software development into this whole strategy as well. Don’t you see that being an issue as well?
[13:51] Nand Kochhar: Very, very important point. So, when I said cross attribute optimization – working cross-disciplines, that’s the key fundamental. So, we are not talking about a traditional mechanical design working in silos. So now you have to work mechanical, electrical, electronics, and software. And by the way, to deliver the trends, we just touched on electrification or autonomy. Software is becoming a predominant player in the design and development processes. So, definitely, that software integration is absolutely key. In fact, in the automotive industry, there are so many quotes around softwares eating the car. In other words, if you look at the revenue or the amount of money it takes to develop a car, software is becoming a predominant part of the overall business equation. A lot of other things happening. Traditionally, companies have been used to working with the bill of materials. Well, now companies are looking at the bill of features because, at the end of the day, customer pays for the features. So, it’s not that bill of materials is not important anymore, but there are other things in the modern way of doing things. Bill of features is becoming very important for all auto companies. And that works cross-domain with software, electronics, and beyond things like IoT, connecting the information technology and operational technologies together in the manufacturing side. So, it’s a whole gamut of things, which is then covered as part of the Accelerated Product Development.
[15:38] Conor Peick: So, we’ve already talked a little bit about challenges, but I think we have more to say there. Can you describe the biggest challenges that OEMs are going to be facing as they move towards this future of transportation?
[15:49] Nand Kochhar: With the new trends that are driving a fundamental change in our industry, we haven’t seen in decades. So, challenges start with, first, embracing the new technology introduction, selecting the right technologies. So, let’s, again, keep using the vehicle electrification as an example. The entire architecture selection for your electric vehicles and what battery technologies, those are an example of technology selections at the component or system level for delivering your vehicle and defining the radar architectures. So, the introduction of new technologies, as you know, in electrification, getting your range is a very important thing and a lot of it comes directly from what battery technologies you have in there. So, those are the fundamental technologies. Then in our product development, we are going more digital. So, what that’s doing is a skill set up of workforce that is changing. So, for the industry, that is a big challenge as well; getting the right skills, or training the existing people to those skills. Third, I think, as you said, industries going through this transformation while we are preparing for the future products, we still have to maintain – or the industry has to maintain – their current products and revenue workstreams. So, in other words, you still got to pay the bills. So that means you got to have the current product development. What is that doing? That’s increasing the complexity, the OEMs or suppliers need to manage because now they have the, so to say, current processes, current way of doing things, and they’ve got new ways of doing things. So, it could include all the way from new solutions, new tools, new setups in their factories, new setups in their product development offices. So, complexity just continues to increase as we go. So, it becomes a huge challenge for our customers, which we are there to help them to go through that journey of addressing complexity.
[17:56] Conor Peick: So, we’ve done a good job of laying out roadblocks or the challenges that are ahead of these companies. I’m curious what your thoughts are and where you see the path forward?
[18:06] Nand Kochhar: We need to approach these challenges. And let’s say complexity, anyone who is afraid of complexity is not going to survive in this environment. So, what does that really mean? That means you have to convert complexity into a competitive advantage. And to do that, you need to manage your product development and manufacturing processes in a very structured systems engineering approach for addressing those. And the systems engineering approach starts from understanding the requirements, and then having a flow of information from requirements into concept designs, into product design, into development, into virtual testing, and verification and validation all the way. So, you need to apply all these approaches which include not only mechanical but as we touched on electrical, electronics, and the software as a holistic system. And that’s what will help the companies to address that complexity and turn that into a competitive advantage.
[19:13] Conor Peick: And of course, while you’re doing all this, you also need to focus on accelerating as we’ve talked about previously.
[19:19] Nand Kochhar: Yes, of course.
[19:20] Conor Peick: So, then could you get into a little more detail, talk a little bit more about this idea of Accelerated Product Development?
[19:27] Nand Kochhar: Let’s see a few examples. There’s a concept of generative design, where rather than a traditional way – starting with CAD and designing something – you’re using a lot of Artificial Intelligence or Machine Learning to develop new concepts in a very time-efficient way. So, that generative design gives you a product which will be successful or meet your requirements upfront. So, those technologies, asa good example, are covered under our Accelerated Product Development. Let’s pick Additive Manufacturing as a technology. So, instead of waiting for building tools and building prototypes off of that, as I’m sure our listeners are very familiar with integrated additive manufacturing technologies help them do a rapid simulation and development – that’s another example of how you take a design and you can manufacture a part with additive technologies, which, by definition, is a lot more efficient than doing it in a traditional way. The things I touched on are all of the optimization tools, whether it’s cross attribute or it’s optimizing the entire supply chain from concept all the way into end of life of the product, there are so many different optimization techniques used within our Accelerated Product Development approaches. Virtual verification and validation – again, a key. So, instead of doing a CFD simulation, Computational Fluid Dynamics, in the wind tunnels, you’re going it on the computer and you getting the level of accuracy which you can make your decision on for the upfront phase. And if you have to do any testing, it’ll be only for final validation, etc. So, that’s a great example of Accelerated Product Development, how it increases your reliance on virtual verification, virtual way of designing things, and progressing the products faster with those kind of approaches. Doing all that is also making sure, since we have the data, there’s a traceability. So, all that is auditable. So when there are new regulatory requirements or when we need to certify, you could use all that information instead of recreating the data. So, our entire product lifecycle management core offerings help deliver that; the traceability and tracking of all of the information. And that ends up delivering integrated end-to-end development, including our ecosystem. And your ecosystem might include, for an OEM, the tier one or tier two suppliers. And for our tier suppliers or small and medium businesses, it might include their suppliers. You can cover the entire ecosystem to deliver in that efficient way. And you could also do the vertical integration all the way from raw materials to part generation, into a system generation, into a full wrinkle generation in that way. And that’s how you accelerate your product development.
[22:36] Conor Peick: So, it sounds like an excellent solution. But how are you sure that this is the right path forward?
[22:42] Nand Kochhar: Well, again, if you look at the principles we laid out, it is, you start with what your requirements are, and you want to eliminate waste, and you need to make your processes frictionless, and you need to leverage all of the data you have generated in the past or you’re generating today to do the lessons learned and put them back into your next generation of design. So, having said that, you have automated some of the workflows; you streamline the data – the procedures, the processes – and in a traditional way when you’re waiting till the end to validate, you are validating products while you are developing so that there’s no or real minimum number of mistakes at the end of it, so there is no wasted system. I think that’s the key that convinces me – and based on experiences – following those processes, that is the right way and the only way of product developments of the future. Now, this allows you that your designs are right the first time, you build them right in the most efficient way, and more importantly, in a very sustainable way. And that’s the ultimate goal of delivering through our Accelerated Product Development.
[24:02] Conor Peick: So, if we could distill that into a soundbite, do you think it’s mostly about reducing waste in the development process?
[24:08] Nand Kochhar: That’s one big piece of it. It is innovating, coming up with new concepts, new ideas, what customers want. And once you have that, doing it in such a way that you’re eliminating waste of repeating, or making mistakes and coming back to those, as well as any mistakes you might have done in the past while developing leveraging that information and bringing that in there. Let’s use an example. If you can use common parts – if you could increase commonality – if you can increase reusability, the return on investment for doing the next generation of innovations to virtual way of doing is going to be a lot higher than you did it the first time. So, those are some of the examples that you will see when you start your digital transformation journey or If you’re already on that path and you speed that up for the areas where you haven’t done it, and that allows you to further optimize your return on investment and deliver the efficiency. The reason I’m convinced that I’m telling you it is so important to do this, there’s been several studies by research organizations and so on, it is less than 10% of the automotive companies – both in the supply base and overall – have a digital transformation strategy, which is the fundamental starting point; at least have a strategy. And then if you have one, then put it on this path of accelerating because technology continues to change and new ways of doing things continue to come. And we learn lessons and everyone who’s adapting those learn lessons, and we have to continue to enhance those. That is the important point in making sure that that is the right way of doing things.
[26:01] Conor Peick: That’s a surprising number. They’re less than 10%. So, to follow up on that, what is keeping OEMs – or automotive companies, more generally – from embracing these new ways of working and accelerating their product development?
[26:15] Nand Kochhar: You started that with first is the balance as they have current ways, it’s easy to say but it’s very important because, at the end of the day, everyone wants to be a very sustainable business from a cost perspective or sustainability from their perspective. There’s a finite amount of money you got to invest, and that’s why it becomes a challenge; how do you have your one foot and your current products, and how do we go into the future. So, it becomes a very balancing act from that matter. The skill sets is another one. So, when the new technologies are coming. You talked on software; software skills are not as common as the traditional engineers and the mechanical space have been doing. Having those skill sets, either that you achieve that by hiring fresh people into your organization or by reskilling the current ones. As you can imagine, when you bring in a change of that level, that reskilling is not all that it comes in a natural way; it needs a lot of effort. So, those are some of the things happening in that area.
[27:24] Conor Peick: We’ve covered a lot today. So, maybe we could just sum up really quick. To bring it all together, what are things that companies should look to start doing?
[27:32] Nand Kochhar: My view is you have to look at product development processes in a holistic and a systemic viewpoint, from concept to product development, to manufacturing, to service life, and to the end of life. And obviously, you’re doing that starting with what the customer requirements are or what the trends are telling you what those requirements are. So, these things kind of go hand in hand, and that’s where you have to start, and that’s how you build your digital transformation journey off of that. So, of course, when you look at Siemens, we are a leader in technology. And it’s not only technologies, and it’s not only software. It is the knowledge we have as subject matter experts, industry experts, they help our customers on several product developments and manufacturing processes to manage the entire end to end. So, that tells Siemens is a strong partner to help our customers being successful.
[28:41] Conor Peick: So, Nand, what’s your call to action?
[28:43] Nand Kochhar: Look at your end-to-end processes and your business objectives. Then you overlay the solutions – what we talked about above in Accelerated Product Development – and see how they fit into your end-to-end processes. And what you will notice is how that full integration provides value greater than some of the individual components to save you time and cost because everyone is on a digital transformation journey and then there are certain elements. So, you’d have to do this overall end-to-end process, look into it, and see how it can help you deliver further efficiencies. That’s what we really mean by how an organization can do more with less even faster because now you’re looking at not at point solutions but at end-to-end solutions.
[29:36] Conor Peick: Excellent. Well, Nand, thank you so much again for your time. And thanks for joining us on The Future Car Podcast. Once again, we really appreciate your insight and your expertise on these very broad and challenging topics sometimes.
[29:49] Nand Kochhar: I want to thank you, Conor. Thank you. It was good to talk to you again.