Discover Catena-X: A revolution in the Automotive Value Chain?

Whenever someone asks us what Catena-X actually is, it is difficult to provide a straightforward and comprehensible answer, without falling back on fancy marketing buzzwords or industry specific vocabulary. It is however a question we need to answer frequently, because the top explanations found on google like

“... an open data ecosystem for the automotive industry designed to create data chains that will enhance your value chain. But you have to participate to make it work.” (https://catena-x.net/en/)

or

“We understand the biggest problems facing the automobile industry and we know how to solve them. You benefit from our tools that help you become more sustainable, make your value chain more resilient, and increase the quality of your products.” (https://catena-x.net/en/benefits)

are a bit too vague for most people. To make sense of these statements a deep understanding of the automotive supply chain domain is required. In this article we attempt to explain Catena-X as simply as possible by providing examples that helped us understand the essence of Catena-X and more importantly how it could potentially have a major impact on the automotive industry. So if you're involved in the automotive industry in any capacity, sooner or later you'll need to engage with Catena-X in one way or another.

This article is based on the current state of development; Catena-X is still in development, thus minor and major changes to Catena-X are possible and likely.

tl;dr

There is no unified standard for data exchange between partners within a supply chain today. Data is exchanged using various protocols and formats. Transforming, combining and keeping this data up to date leaves us with lots of effort. Other members of the supply chain are doing the same thing to gain the same or similar insights. Therefore we have data redundancy across multiple supply chain members. The goal of Catena-X is to standardize the data exchange allowing each consumer to get data in a unified way from the owner. Insights based on the supply chain data can be moved from an individual participant to a separate service inside the ecosystem and offered as a service.

Today

To fully grasp the benefits that Catena-X offers, we first need to understand how supply chains currently operate. A common model for supply chains is the n-tier model, where each tier is followed by a number (e.g. Tier-1) indicating how many intermediary suppliers a particular supplier is away from the OEM (Original Equipment Manufacturer). For example Tier-1 suppliers provide parts and services directly to the OEMs, Tier-2 to Tier-1 and so on until Tier-n. Suppliers are not limited to one tier, as they can also operate on multiple levels as suppliers for different parts. There are more types of companies in a supply chain but for the sake of simplicity in this article we leave out e.g. recycling companies. Automotive OEM supply chains consist of tens of thousands of differently sized suppliers. They can have thousands of Tier-1 and (even more) Tier-n suppliers. The suppliers themselves have their own supply chains and depending on the size of the company, these supply chains can be very complex, obscure and hard to manage. On top of that, if these companies along the supply chain want to do business with each other, they have to exchange data like technical specifications, requirements, price lists and so forth. Today the data is exchanged in any way possible, meaning it is not specified whether this happens via documents sent through a fax machine, PDFs via email or various APIs. Supplier and customer have to first negotiate what data they need, in what way they want to receive it (protocols, letter, etc.) and which format is required (Prose, Tables, JSON). This leaves us with potentially as many ways and formats for data exchange as there are business relationships. It also implies that some companies will be required to handle a bouquet of protocols and data formats to do their business. This lack of transparency and interoperability between members throughout the supply chain makes it hard to discover comparable services and offers. The result being a strong segmentation within the supply chain, in other words, the formation of information silos (see Fig.1).

Fig. 1: Abstraction of data data exchange within a supply chain as of today

Fig. 1 shows an abstraction of the segmentation in a supply chain: Whole segments of the supply chain can be invisible or inaccessible for some of the suppliers. This isolation and low discoverability can have multiple negative effects and more importantly can limit business possibilities for these suppliers, because of the lack of overview outside their fragment in the supply chain. These suppliers could e.g. potentially supply needed parts or services directly to other members throughout the supply chain in case their regular suppliers are low on stock or are unable to deliver for some other reason (e.g. supply chain disruptions during the COVID-19 pandemic or conflicts in different parts of the world).

Developing and managing supply chains is a costly process which is repeated by each member individually. Most, if not all, suppliers and OEMs could potentially benefit from better interconnectivity between each other. However, currently there are no unified means of communication between members along the supply chain.

What Catena-X proposes

Taking a step back, we see Catena-X as a Gaia-X compatible implementation of a dataspace. Simplified, a dataspace is a domain that is focussed on standardized and secure data exchange within an economic sector. Gaia-X is the initiative that defines infrastructure specifications for these domains in Europe, whereas Catena-X uses these specifications to define standards and suggests reference use case implementations for the automotive value chain. Catena-X resulted from a collaborative effort between the biggest automobile OEMs in Germany and could lead to a fundamental digital transformation in the automotive sector.

The main goal of Catena-X is to propose solutions for some of the main supply chain challenges that the automotive industry faces today, but it also presents new opportunities for all in the industry. Some of the challenges mentioned above are being addressed by Catena-X. Let’s give those challenges names and have a look at how Catena-X offers a potential solution.

Standardization & Interoperability

One of the key challenges for the automotive industry today is the absence of universally adopted standards for communication between participants within the supply chain. Data is modeled freely and exchanged in many different ways e.g. digital data exchange protocols, plain paper documents, PDFs. Basically each manufacturer and supplier pair has to negotiate how they provide requirements, specifications, prices, etc and in what form. By using common standards defined by Catena-X, a supplier can offer the same products to multiple manufacturers using the same set of data, whereas the manufacturer can rely on the actuality and completeness of the provided data.

The figure below (Fig. 2) shows the same supply chain and members as in Fig. 1. Common standards prevent information silos and segmentation throughout the supply chain, resulting in a network with better interconnectivity, better availability of data and thus better discoverability and transparency along the supply chain.

Fig. 2: Interconnected supply chains due to standardization

Another good example use case would be the need of mobility OEMs to calculate the carbon footprint of the end product. Currently there is no standard methodology for how this could be done precisely. The final value is roughly calculated based on the sum of the values of all other subparts, but these values are often calculated differently and require a lot of effort to be obtained in the first place. Catena-X introduces a common methodology and a framework for the precise calculation of the carbon footprint. This allows each member of the supply chain to accurately calculate and provide the CO2 values for their product. Access to this information is granted for everyone. The whole process is now easier and more efficient. This is of particular interest not only to OEMs, but also to other members along the supply chain. The introduction of the German Supply Chain Act (and soon the European Corporate Sustainability Due Diligence Directive) requires, among other things like compliance with human rights laws, OEMs to be able to provide information on the compliance with environmental protection laws. However, this could also be seen as an opportunity for businesses to achieve tax benefits more easily. Automated calculation of the CO2 values could reduce the hurdles of doing the same manually.

Traceability

The complexity of modern cars is growing with each new generation, leading to a bigger and more intricate list of materials, parts and components required to manufacture a product; the so-called Bill of Materials (BOM). On average, a modern car is made up of tens of thousands of different parts, making it extremely challenging to keep track of all the modules, components and parts used in the manufacturing process. It is even more challenging to determine which specific product was provided by which supplier, not to mention tracking all the sub-components used by that respective supplier. Therefore, if any part deep within the complex hierarchy of the BOM for a specific car model is found to be defective, assessing the risk in the assembled products quickly becomes a complicated and expensive task, which in the worst case, can result in global recalls by the manufacturers. Catena-X addresses this issue by enabling manufacturers to trace every single part and its related sub-components throughout the entire supply chain. To facilitate this, each part is given a digital representation, the digital twin, which contains comprehensive information about the specific part and is referenced within the context of the product it was integrated into.
Let’s consider a real-world scenario: A vehicle utilizes numerous steel screws to maintain its structural integrity and keep things from falling apart. If at some point it turns out that one specific screw used in a specific vehicle is prone to failure, this information could instantly be shared within the Catena-X dataspace. The screw manufacturer could then swiftly identify and inspect the entire batch from which the defective screw originated, as well as other batches produced with the same steel or machinery. If it turns out that an entire batch was made from steel containing impurities, the screw manufacturer could notify all businesses that received screws from this batch. These businesses, using the metadata of the digital twin, would then be able to instantly and precisely determine where the defective screws were utilized. And since the OEM would implicitly know, if a defective screw was used in one of its products, steps to ensure product safety can be taken - e.g. check if the adjusted stress specs are still within safe ranges, assess risk and if necessary optimize recalls or completely avoid them.

Data Sovereignty & Legal Compliance

You might get the impression that in this data economy, manufacturers will benefit by requiring suppliers to provide data, while suppliers must comply to remain in business. This may hold some truth, but in reality, suppliers could also benefit from Catena-X, as it has the concept of data sovereignty at its core. This means that the data creator retains ownership and can decide who gets access, under what conditions (whether for free or not), when access is granted, and can even provide granular access based on specific use cases. Third parties may be interested in specific data. This potentially creates new business opportunities and models based on often overlooked data.
Another aspect of data sovereignty is that the data owner serves as the single source of truth for their datasets. This means that consumers of data do not need to maintain copies of the data associated with a part; they only need to store the reference to its digital twin. If there is ever a need to trace a part or one of its properties back to its origin. This can be done using the referenced digital twins within the supply chain. This mechanism allows participants to avoid archiving extensive documentation for each part, as the data is readily available in Catena-X. This can potentially free everyone from legal obligations in regards to long term storage of data for legal compliance. If for example all digital twins have their carbon footprint as a property it’s also easy to calculate the Product Carbon Footprint (PCF). Given laws like the implementations of the EU Supply Chain Act that require companies to provide this data, this makes compliance with such laws effortless due to automation.

New possibilities

With the features mentioned above it is possible to explore new ideas. The sections above already touched a couple of ways an interconnected supply chain can be beneficial. Today many supply chain members painstakingly collect data from other parties and create insights from the gathered data. However, it could be more cost effective and desirable to simply purchase the same insights. A supply chain member which has generated such insights could provide them as a product/service on the Catena-X network. The figure below shows such a service provider connected to multiple supply chain members. A service like this is created and maintained by the service provider, a specialist in their field, providing the latest information in a reliable way.

Fig. 3: Services / Applications on top of supply chains

To name a few more possible services complementing the supply chain:

• Tracing service: The concept of traceability, as described above, but implemented by a third party and provided as a service
• Carbon footprint calculation for a product as a service
• Golden record for business partner data management (BPDM)
• Part manufacturer discovery or availability service
• Predictive maintenance service to determine potential issues before customers become aware of the issue (e.g. by using artificial intelligence to determine causes for issues in the supply chain and mark potentially affected products)
• Early warnings for possible supply chain disruptions due to natural or other types of events (boat stuck in Suez Canal, tsunami, etc.)
• Service to estimate delivery dates for products using historical data (machine learning)

Making services like these available and discoverable requires a marketplace where services can be offered and purchased just like apps in other ecosystems. Currently the only such marketplace for Catena-X is maintained by Cofinity-X.

This doesn’t mean suppliers or OEMs have to put in lots of effort to make data freely available just so that third parties can make a profit from their data. The idea is that you as the sovereign owner of your data can sell your data to such interested parties. With this in mind Catena-X allows for a whole new data economy in the automotive sector by enabling all supply chain members to trade their data and offer services around them.

Why you should care

You’re probably safe when the company you work for has nothing to do with the automotive sector. At least in regards to Catena-X – there is a good chance that other dataspaces and their implementation might affect you in the future. Assuming your company is part of an automotive supply chain, you should consider the following two things to answer yourself the question why you should care about Catena-X:

1. You might miss out on opportunities for business. Discoverability will make your company more visible to potential customers. Initial investment aside, you’ll profit from standardized data exchange, because this will have an effect on the amount of manual work your company has to do to sell your products.
2. You might get buried by a wave. Currently all four big German car manufacturers are working together to get Catena-X set up. It is highly probable that in the near future, these companies will mandate that suppliers provide their data according to the Catena-X standard. If that happens you will want to be prepared or even better: have a competitive advantage.

Some suppliers are still living in the age of industrialization, a time long before the digital revolution (Industry 4.0). To produce one part after another might have worked in the past. In the future, you will need to track each individual part as a digital twin and ideally be able to provide manufacturing data for each part upon request. If your company hasn’t started to digitize manufacturing, it might be time to get started since this is the prerequisite for participating in Catena-X. Don’t be that company that gets crushed by trying to catch up not one but two revolutions at once.