Originally Published on: SpendEdge | Recent Trends in Automotive Sourcing & Procurement

Lack of semiconductors and microcontrollers is one of the most pressing issues facing the automotive industry today. Due to a shortage of raw materials, some of the leading auto part producers decided to halt manufacturing. It is advised to make investments in data-driven solutions and automated methods to reduce it. Using advanced analytics to estimate demand and guarantee proper resource allocation, for example, providers can increase the transparency of the entire supply chain process.

The geopolitical dangers and pandemic that have recently occurred have made the car industry's procurement process unstable. Short- and long-term demand planning is now the primary concern of automotive procurement professionals rather than just-in-time manufacturing strategy.

   
Major developments in sourcing and procurement (best practices) for the automotive sector
   
•Examining local sourcing as a cost-saving measure: Cost optimization is a major area of focus in the automobile procurement process. Companies involved in the automotive supply chain are using tactics to save costs, including renegotiating contracts, introducing lean manufacturing, and taking advantage of economies of scale. To lessen reliance on a single source or location and to prevent disruptions in transportation during the procurement process for the automobile sector, businesses are switching to low-cost local sourcing. By lowering lead times and transportation expenses, it also increases efficiency. For instance, several businesses ship their vehicles totally built up, partially torn down, or both to save on taxes. Contract renegotiations, the application of lean manufacturing techniques, the optimization of transportation routes, and the use of economies of scale are further cost-cutting techniques.

 
•Including green procurement strategies: Adopting sustainability efforts has become more important across all businesses, and the automobile sector is no exception. To lessen their influence on the environment, participants in the automobile industry are implementing green procurement techniques. Additionally, suppliers are being chosen based on their environmental credentials, such as their usage of renewable energy and waste management.

Another development in the automotive sector that is picking up steam is the switch to electric vehicles and making sure they are actually sustainable. According to estimates, when using renewable energy sources, electric vehicles will reduce operating emissions by less than 80% and the greenhouse gas footprint of passenger vehicles by almost 40%.

 
•Adoption of digitization and data analytics: As electrification, shared mobility, driverless vehicles, and connectivity gain popularity, some of the biggest auto part makers are quickening their digital transformation. They are utilizing the Internet of Things, real-time connectivity, data management, and analytics to improve their business operations. For instance, margin-based sourcing can be enhanced by automating and standardizing the purchasing procedures.

Adopting these technologically driven procurement methods will increase flexibility and agility, allowing automotive businesses to react swiftly to market changes and adapt to new trends, staying one step ahead of the competition.

 
Why and how should your company change to keep up with these trends?
 
A typical car contains approximately 30,000 parts, and no manufacturer is able to build every single one of them in-house. Additionally, even the smallest problems in these areas, such product recalls, can have a Bullwhip effect. As a result, while sourcing and purchasing parts, quality must always take precedence over expediency and cost.

The automotive industry's players will be able to ensure quality and consequently prevent recalls by using technology-driven solutions to improve their procurement process. These solutions will also assist firms in streamlining supplier data and enhancing supplier intelligence as well as performance management.

 
Organizations roadmap for acquiring vehicles:
Supply chains, transportation, and demand have all been affected by the pandemic and geopolitical unpredictability. As a result, automakers have had to reconsider the structure of their supply chains, and many automotive benchmarking firms support localization to avoid potential risks associated with international supply chains and legal requirements.

The industry is also experiencing cost increases as a result of inflation and rising raw material prices, among other things. The emphasis must be on lowering discretionary expenditure and implementing other cost-control measures because the price increase cannot be passed on to customers given the current economic conditions.

In order to cut expenses, the enterprises should also revamp their procurement strategy, build up their capacity to source environmentally friendly products, and set net-zero objectives for the entire value chain. Automotive businesses will be better able to respond to market developments and streamline their operations as a result of the implementation of Industry 4.0.

 
Why Should I Use SpendEdge?

•Engage the most suitable suppliers:
 The selection of the proper supplier—one who is dependable, trustworthy, and who offers high-quality products at a fair price—becomes crucial when an average car requires more than a thousand parts and even a small mistake in these can lead to product recalls.

For their products to be released smoothly, an automotive manufacturer must work with numerous raw material suppliers and logistical partners, among others. In addition to assisting automakers in choosing the ideal suppliers, we also provide cost-reduction techniques.

 
•Boost the effectiveness of the purchasing process:
The current shortfall of semiconductors and chips has highlighted a weakness in just-in-time inventory management, which is still necessary to stem rising costs. The ideal SRM system and technological solutions, among others, can be recommended by our team of specialists to increase procurement efficiency while containing production costs.

 
Success Stories: SpendEdge assisted clients in the automotive industry with procurement transformation so they could keep on top of trends in the sector.
 
The performance of their procurement departments, their spending effectiveness, and the criteria they employed were all of particular interest to a top auto part maker wanting to benchmark its peers. In order to evaluate them, we used KPIs such as cost, quality, service, and operational measures in addition to procurement costs. Important trends in procurement were also found. Our analysis led us to make certain recommendations, including centralizing indirect goods and services to increase procurement efficiency and implementing big data and blockchain technologies to streamline supplier negotiations and enhance traceability. Within a year, the customer was able to enhance its purchasing department thanks to these recommendations and outperform its competitors.

 
Concerned about the current supply chain interruption that has severely impacted the auto industry? We are able to assist you in finding and working with the best-fit suppliers, create sourcing strategies that are tailored to your needs, and suggest solutions that can help you save costs while maintaining quality. Now is the time to speak with one of our specialists.