The automotive industry is a competitive market that requires companies to stay ahead of the curve. To remain competitive, automotive businesses must regularly review and revamp their procurement strategies. A strong procurement strategy can lead to longer-term gains and cost savings while improving supplier relations and reducing risks.
Today’s Procurement Issues in the Automobile Industry
Efforts for automotive industry sourcing are facing a multitude of challenges today, some of which include the following:
- Geo-Political Challenges – The auto industry faces several geopolitical issues affecting how it buys things. One of the biggest challenges this industry faces is trade wars between countries, which can result in increased tariffs and restrictions on importing and exporting goods. This makes things uncertain for companies that make cars because they use global supply chains to get raw materials, parts, and finished goods.
- COVID-19: disruption to supply chains – Due to the COVID-19 pandemic, there are fewer raw materials, less production, and problems getting things where they need to go. These challenges have forced companies in the automotive industry to rethink their procurement strategies.
- The Semiconductor Crisis – Electronic parts and semiconductors are very important to the smooth operation of cars, and when there aren’t enough of these parts, it sends ripples through the supply chain. The pandemic has caused the demand for semiconductors to go up as more and more people use electronics to work and have fun from home. Because of this high demand, automotive companies have a shortage of semiconductors.
What are the Best Ways to Deal with Problems in Automotive Industry Procurement?
Revising automotive industry sourcing strategies is crucial for companies that want to reduce costs and improve efficiency.
- Improving Suppliers’ Collaboration and Co-Innovation – Collaboration with suppliers can lead to new ideas, a faster time-to-market, better-quality products, and cost savings. To foster cooperation and co-innovation with suppliers, companies should establish clear communication channels that encourage open dialogue.
- Shift Your Focus from Global to Local – As a result of globalization, companies now get their materials from all over the world. This can cause problems in the supply chain if something unexpected happens, like a natural disaster or a pandemic. By shifting the focus from global to local procurement strategies, companies can reduce risk and ensure they can get the needed parts during a crisis.
- Adopting Risk Mitigation Strategies – Managing supply chain risks is one of the most difficult things for people who work in procurement in the automotive industry. This is because the automotive value chain involves multiple tiers of suppliers, each with its own set of risks. If something goes wrong at any point in the supply chain, it can affect production and lead to delays and higher costs. Companies must adopt effective strategic procurement practices focusing on supplier relationship management and risk assessment to mitigate these risks. One way to do this is to set up a supplier risk assessment process that looks at suppliers’ financial stability, operational skills, and overall plans for keeping the business running. This will help companies find potential risks early on and take action to reduce them.
- Utilizing Technology to Enhance the Process of Procurement – With the help of technology, the automotive industry can improve how it buys things to make the supply chain more efficient and productive. One of these solutions is e-procurement, which lets organizations automate the whole buying process, from putting in a request to getting paid.
The automotive industry is changing quickly and in big ways, meaning that procurement professionals need to change their strategies to keep their clients ahead of the competition. Traditional procurement practices are no longer adequate as suppliers become more sophisticated and globalized. Therefore, automotive sector businesses must adopt advanced technologies like AI and machine learning to enhance their decision-making processes.