The automotive industry refers to the sector that encompasses the production, sales, and maintenance of vehicles. It involves everything from designing and manufacturing cars, trucks, and motorcycles to marketing and selling them across the globe. The automotive industry also includes various supporting services like vehicle financing, insurance, and repairs. It’s an exciting and dynamic field that continuously strives to innovate and improve transportation for everyone. Risk management in the automotive industry refers to the process of identifying, assessing, and mitigating potential risks or uncertainties that could impact the industry’s operations, profitability, and reputation. It involves analyzing various factors such as market volatility, regulatory changes, supply chain disruptions, technological advancements, and safety concerns, among others. By implementing effective risk management strategies, automakers can proactively identify and address potential threats to their business.
Procurement risks in the automotive industry
Component shortages:
One of the important procurement risks in the automotive sector is component shortages, an average car has about 30,000 parts, and components shortages can lead to production stoppages. Production stoppage will eventually decrease the sale of vehicles, which can cause a threat to the profitability and reputation of the automotive sector. The purchasing company must move toward more fact-based supplier negotiations, they should analyze all the vendors available in the market. The suppliers who can confirm the timely delivery of the materials should be shortlisted by the company to eliminate component shortage risk.
Growing supplier prices:
Growing supplier prices are a matter of concern because this rise is leading to an increase in production costs. For the automotive industry increase in production costs becomes an issue and they need to look for a solution to this problem, getting vendors to settle for fair prices is hard now due to the inflation in prices. As new technologies and innovations are introduced in the automotive industry, the demand for specialized components and materials increases. Suppliers may need to invest in research and development, advanced manufacturing processes, and higher-quality materials, which can lead to higher production costs that become a big problem for the automotive industry.
Lack of resilient supply lines:
Resilient supply lines is a must-have for the automotive industry because a lack of this can open the door to procurement disruptions. One of the key risks is the potential for production delays if a critical supplier is unable to deliver necessary components due to a disruption leading to delays in vehicle manufacturing. This can impact the availability of vehicles in the market and, ultimately, the revenue of automotive companies. Lack of resilient supply chains may affect product quality and companies may need to find alternative suppliers or logistics routes, which can be more expensive.
Solutions to risk management in automotive industry (How SpendEdge can help you)
Supplier landscape analysis:
Our experts help you to precisely identify the right supply markets for efficient input procurement, get a clear sight of your supplier base, and track supply chain data and activities. Continuously monitor the performance of your suppliers based on key parameters of quality, delivery, and service to identify areas of improvement through our reports. Our analyzed reports give you the shortlisted suppliers who ensure on-time delivery even at the time of choppy market conditions that eliminate the risk of component shortages when demand is high.
Supplier cost reporting:
Our supplier cost reporting is very precise, quick, and entirely customized, so you can use it as a negotiating chip with suppliers. After the contract is signed, keep an eye on your supplier landscape to make sure you are receiving all you originally asked for. Our thorough cost models, which precisely explain each cost component, will provide you with an advantage. You will be able to respond to risk scenarios quickly and effectively, as the impact of price volatility can be predicted in time. Strengthening negotiations with suppliers will be much easier as the true cost of a product or service is known in advance.
Insights into supplier market developments:
For the automobile industry, resilient supply chains are essential as they may impair product quality and result in production delays owing to sluggish raw material deliveries. Your ability to develop a broad pipeline and add approved vendors will be made possible by our supplier intelligence solutions. Keep abreast of recent changes involving both potential and current suppliers and gain knowledgeable data about current advancements in the supplier market. Support supplier discussions with insightful information about the state of the market and with our expertise you can monitor supplier strategic moves.
Success Stories: How SpendEdge helped automotive company enhance procurement function
The automotive industry must go through a lot of risk elements while they procure the required components such as an increase in supplier prices, delay in deliveries, and component shortages. To tackle the situation the industry needs to go through some necessary advancements.
Similarly, a US-based automobile company hired our spendedge experts to look after their procurement risks, the company was struggling with the lack of resilient supply lines, increased costs due to a rise in supplier price, and stoppage of production owing to component shortages.
Our experts provided the company with insight into supplier market developments and by implementing changes in accordance with it helped them gain resilient supply lines. The experts’ supplier cost reporting assisted as a negotiating chip with suppliers and through our cost model the company was able to predict the market price fluctuations. Our experts’ intelligence reports enabled monitoring of the performance of suppliers for the company so they could shortlist the best-fit suppliers who ensure on-time deliveries.
The company was able to achieve great success with the aid of our expertise and intelligence.
If you are facing any of these or similar issues contact us now!
Author’s Details
Vinodh Kumar Kshathriya
Associate Vice President, Sourcing and Procurement Intelligence
Vinodh manages a research team within Infiniti Research, working closely with some of the largest (Fortune 500 included) clients from the pharma, energy, F&B, and defence sectors. With a total of 16 years of experience in research and client services, he has majorly worked on solving business queries through various analysis including market, financial, risk, costing, etc.
