By: Arthi
Indeed, there was a splurge in automotive ad spending post the pandemic, with a significant uptick in ad dollar spends by makers of recreational vehicles (RVs) and luxury cars. Besides, auto makers have revamped creatives to play directly into “memorable ride” and “holiday road trip” trends. Overall, the automotive industry takes the top slot as the biggest advertiser. However, a closer examination of the sector’s ad spend data reveals a different story. For the last more than seven years, automotive ad spend has been coursing a downward trajectory. This may not be music to the ears of ad professionals, and ad spending is, by no means, an unjustified expenditure. It’s just that there are other larger issues at work here, preventing automotive procurement teams from acting the way they might have wanted to. In the face of shrinking margins and rising input costs, automotive businesses must push discretionary costs to the back burner. That’s a sure-shot way procurement in automotive companies can be more profitable and effective in the near-to-medium horizon. Cost reduction is an ongoing journey of continuous learning and improvement, not a one-off project, and successful automotive procurement organizations are always ones that bake in cost consciousness as a core belief.
Reduce business costs to drive margins (Yes, it might sound a bit preachy)
Global auto sales have been consistently looking up since 2020. Even so, unit sales in 2023 are unlikely to reach 2019 levels (77 million). So, with margins under pressure amid sustained inflation, in the short term, automotive procurement organizationsmight have to persist with the policy of cutting back avoidable costs (“discretionary costs”), including ad, maintenance, and training expenses.
Sustain momentum with cost savings
High interest rates and squeezed supply lines, bugbears that the industry struggled to fix last year, are far from over. Inflation and energy costs, coupled with lurking recessionary fears in consumer minds, are certainly resulting in some active demand destruction in the sector. The mood among industry watchers is one of tepid optimism. On one hand, auto businesses have ramped up production. But, with showroom prices hitting record highs, auto makers might have to dangle profit-draining discounts to get buyers. Therefore, saving costs to avoid margin shrinkage and shore up profits assumes greater importance for automotive procurement organizations now more than ever before.
Elevate “cost consciousness” into an organizational core value
The long-term profitability and sustainability of the auto industry hinges almost entirely on cost. Predictably, cost reduction trumps almost everything else on the C-suite agenda these days. That said, businesses that meet with high success rates in their cost-saving journey are ones that have managed to solder in cost paring as a shared value into the collective psyche of their procurement workforce. Encouraging employee participation in the run-up to the decisions around cost and involving as many hands as possible in the business’s cost budgeting are real ways in which CPOs can foster a culture of cost awareness. Rewarding cost-saving actions is also key to sensitizing automotive procurement teams about their organization’s cost footprint.
How SpendEdge can help
Get fog-free views of your supply base
Businesses across industries work with our experts to identify the most optimal supply markets with high precision. With our curated supplier databases to back them up, organizations, including automotive procurement organizations, have succeeded in more efficiently tracking supply chain data, activities, and overall performance. Up-to-the-minute reports from SpendEdge provide CPOs with the information they badly need to onboard suppliers and eliminate supply-side distortions in times of demand.
Respond to risk scenarios at lightning speeds
Signing a deal with the supplier is just half the game. The other half is about keeping an eagle eye on the supplier landscape to make sure you are getting what you bargained for in the first place. Our cost breakdown models shine a light on every single cost element in a product’s price, and these come handy for clients as bargaining chips when they are in the negotiation room with powerful suppliers. Furthermore, these mathematical models help automotive procurement organizations to respond quickly and more effectively to a plethora of risk scenarios.
Get not just in-depth but “inside info” on the supplier landscape
It’s next to impossible for the auto industry to get by without robust supply chains to avoid potential raw material disruptions and shop floor delays. SpendEdge’s veritable store of supply market intelligence is designed to help automotive procurement organizations fill out their supply network with expert vendors whose performance across critical KPIs, including the environmental, social, and governance (ESG) pillars, is beyond a reasonable doubt. Our supply-side intelligence puts timely insights at the fingertips of automotive procurement professionals, and this is data that is not just deep and accurate, but also hard-to-find on the clear web.
Success story: A straightforward American success story of an automotive procurement organization
Our client produces a high-quality and long-lasting range of parts for light-duty trucks. The US-headquartered business’s product line features brakes, wheel-ends, clutch and flywheel, drivetrains, engine systems, heating and AC solutions, spring and suspension, steering, and transfer cases. The global auto parts industry is expected to reach $650 billion in revenues in 2023, and our client is expected to draw rich benefits from this traction. To tap emerging revenue streams, the client has invested heavily into the capex required to capture emerging revenue streams in parts manufacturing (e.g., 3D printing, connected vehicles, advanced driver assistance). Rising vehicle emission norms and electrification will likely bump up revenue for parts manufacturers by increasing the content per vehicle. At the same time, regulations might increase the vehicle cost for buyers, and persistent high prices could result in some off-putting of demand in the sector. So, amid input inflations, rising wages, and higher energy bills, supply-side risk management has become a top priority for the client. The auto parts business looked to identify and control potential threats to its earnings and reputation with SpendEdge’s proven acumen in fact-based supply and demand forecasting. Getting demand forecasting right is a tough call. Even so, working in tandem with SpendEdge experts, the client’s automotive procurement teams hoped to make more informed decisions on customers’ future demands to ease the supply-demand mismatch. Nothing short of this would help the client ensure on-time and seamless delivery of products to downstream customers, while avoiding stockouts and missed sales opportunities.
At SpendEdge, our experts put in motion a comprehensive approach to enable the client’s procurement teams to carry out a thorough supply and demand forecasting. A key element of this line of action was the creation of a supply and demand forecasting chart for various addressable markets. This supply and demand forecasting model would generate deep and accurate data on product development, market demand, and supply chain risks, which would then serve as inputs for the decision-making process in automotive procurement. Leaning on this model, the client was able to weigh up the impact of prevailing automotive industry trends, seasonality, and the cost of production. This has significantly decreased instances of stock-outs. With our solution in place, the client is now better placed to manage inventory, drive dramatic performance improvements for supply chain participants, and ensure continuous cash flows.
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Author’s Details
Arthi
Associate Vice President, Sourcing and Procurement Intelligence
Arthi is an Associate Vice-President with Infiniti Research. She leads one of the procurement intelligence groups within the organization supporting global pharma, life sciences and FMCG companies by proving data-driven procurement insights.
