Automobile players have to maintain extensive supplier relationships due to their diverse requirements in terms of components. Manufacturers do not rely on just a single supplier; instead, they have to work with several suppliers in tandem. As a result, automobile industry sourcing is one of the most complex sourcing networks. Without complete information on how automotive sourcing works or when not managed properly, it can lead to procurement challenges which can disrupt normal operations.
Here, we take a look at the sourcing trends in the automotive industry and how the situation can be improved in the wake of a recovering market.
Overview of automotive industry procurement
As stated above, the automobile industry heavily relies on supply chain and procurement. Due to the diverse requirements of assembling a vehicle, no manufacturer has the capacity to produce every single part under one roof.
For instance, the German automotive giants BMW rely on companies like Brembo, Dräxlmaier Group, BorgWarner, Bridgestone, GKN Driveline, Johnson Electric, Delphi, etc., for various parts of its line of vehicles.
Supply chain complexities primarily arise due to the manufacturers strictly adhering to the regulatory and compliance frameworks, inefficient supplier networks and relationship management, rising competition, quality check issues, and growing risks, among others.
In addition to the issues mentioned above, automotive industry sourcing is also subject to the normal supply chain management issues like ensuring timely deliveries, optimising logistics, and procuring innovative technologies to improve customer value.
How automotive players can overcome these issues?
Similar to other industries, automotive players also need to invest time and resources towards improving procurement intelligence. Better spend analysis and contract management tools will help filter our suppliers with poor performance and improve the efficiency of the procurement cycles.
• Shift focus from cost to quality
When looking for suppliers, manufacturers cannot look only at cheaper alternatives. Going forward, automobile industry sourcing will need to emphasise sustainable procurement by diversifying supplier networks to emerging markets. Focusing on product quality will allow them to improve product safety and adherence to the global quality standards.
• Monitor supplier performance
Procurement teams also need to monitor supplier performance closely using advanced tools that segregate suppliers based on metrics unique to the organisation. In the worst-casescenario in this recovering market, these players may need to sever ties with a particular vendor with poor performance or defects in the outsourced products.
• Improve product design methods and protocols
In the case of in-house manufacturing teams, automobile firms will need to rework their R&D protocols for improved efficiency and cost-effectiveness. Better cost management technologies are required when sourcing raw materials and the design protocols need to be updated for maximum production with minimal input. In addition, contingency plans must be established to compensate for the reduced workforce.
Automotive procurement teams must also be empowered with sourcing intelligence and spend analysis tools to improve profitability going forward. This will help cut down unnecessary production costs, measure manufacturing expenses, and guarantee product safety with the latest compliance standards.
Brings back memories: pioneering days of strategic sourcing I was sent ( by ATKearney) to GM Europe in Germany to transform procurement function. Cultural resistance to many new concepts: organizing by component groups; engaging many stakeholders; considering foreign suppliers, etc.