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Procurement Challenges in The Automotive Industry

Sep 12, 2017

Players in the automotive industry have an extremely diverse requirement in terms of materials, components, and auto parts that are procured from multiple suppliers. This results in a higher sourcing complexity and gives rise to several procurement challenges. In the automotive industry, the manufacturers don’t rely on one single supplier; instead, they have multiple suppliers and vendors for the same part so as to avoid worst case scenarios such as product recalls, defects, and other SE_Demo2unfavorable occurrences. The chief procurement officers (CPOs) across organizations believe that the procurement team must have professionals from diverse backgrounds, which helps them to leverage a wide range of skills and capabilities that enables them to conduct business with fair-minded suppliers and ensure effective supplier relationship management.

Automotive Industry and its Procurement Challenges in A Nutshell

Several procurement challenges faced by the automotive industry are a result of adherence to strict regulatory and compliance frameworks, the changes in market conditions, inefficient supplier relationship management, growing competition, rising costs, and quality check issues among others. The automotive manufacturers are plagued with high-cost pressures, globalization, and rising market competitiveness, which hinders the smooth functioning of the procurement department. Out of the many procurement challenges, the automotive industry also dabbles with supply chain management related issues such as optimizing logistics, ensuring fast and timely delivery to customers, and enabling cross company procurement of innovative technologies. The increasing cost pressure and supplier pressure is one of the major procurement challenges in the automotive industry, which compels organizations to devise ineffective pricing strategy as these costs can’t be controlled and depend solely on market competitiveness and demand-supply factors.

How to Overcome the Procurement Challenges in the Automotive Industry?

The automotive industry can leverage procurement intelligence, spend analysis services, and contract management tools to overcome the procurement challenges in the automotive industry. To resolve supplier and product related procurement challenges, manufacturers can either

  • Severe ties with the particular vendor in case of defects in outsourced products
  • Establish product design and development protocols in case of in-house manufacturing

 

In the automotive industry, procurement departments must leverage strategic sourcing services, ensure an efficient supplier relationship management, and follow the industry best practices to mitigate potential supply chain risks and drive organizational profitability. The automotive procurement teams must also be empowered with procurement intelligence and spend analysis tools that help them to measure production and manufacturing costs, warrant product safety and quality, and ensure regulatory compliance.

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