Procurement Trends in the Automotive Industry

Trends Influencing Procurement in the Automotive Industry

The automotive industry is one of the most global, interrelated, and complex sectors that exists today. Furthermore, being the most innovative sector, intense competition is at the core of the automotive industry. In fact, it would be right to say that the success of both the manufacturers and the suppliers in this sector is solely dependent on their collaborative behavior against the customer’s need. Automated processes and in-time and in-sequence supply are incredibly crucial for the survival of market. Lately, the automotive industry has been facing the heat from increased transportation costs, rising costs of production, and the hassle of finding a reliable transporting service. These factors have put companies under increasing pressure of procuring quality raw materials and products at the lowest prices to bring their balance sheet on the track. Also, the automotive industry relies heavily on having an efficient supply chain and procurement process. Thousands of parts and components go into making a car, motorcycle, truck, or tractor and no automobile manufacturer has the capabilities to produce all of these components in-house. We have identified three key procurement trends in the automotive industry:

Active supplier diversification

In the recent years, the automotive industry has been facing severe risks due to factors such as supplier insolvency and financial distress. Though this has clearly been a two-way street, organizations are far more prepared to respond to the issue of supplier diversification and risk management now than ever before. This is one of the critical reasons why automotive companies have begun adopting latest procurement trends such as supplier diversification. This involves analyzing and widening the company’s supply base when sourcing key categories and components, also it is essential to keep a close watch on the existing suppliers from a business and financial viability point of view.

Rise of fuel-efficient vehicles

Another key factor influencing the procurement trends in the automotive industry is the rising number of fuel-efficient vehicles hitting the market. With oil prices in a continuously volatile state and political concerns about foreign oil dependencies, the emergence of hybrid vehicles using alternative fuel technologies has been gathering pace consistently. This is expected to ultimately play a critical role in continuing to support product development teams in driving innovation and development – essentially a market facing impact from what has traditionally been a ‘behind-the-scenes’ department. Primarily, the identification, monitoring and procurement of these new technologies, the identification and qualification of suitable suppliers, and the quality monitoring will be a vital role of the progressive procurement professional. Fundamentally, this will require global coverage, constant monitoring, and ongoing technology assessments to ensure procurement has a seat at the innovation table

Corporate social responsibility (CSR)

The ever-increasing demands for CSR, especially among global players, and the responsibility of ensuring these requirements are met and managed across the supply chain will be ensured by the procurement teams. Indeed, buyers have started focusing on understanding the risks involved across the supply chain from monetary susceptibilities, product quality issues through to service performance considerations. Also, we are already seeing buyers across continents work to ensure that their critical supplier’s measure, manage and reduce the carbon footprint levels of their current supply chains. To establish themselves as a progressive member of the corporate executive team. Most companies are likely to adopt activities for ensuring social responsibility ‘compliance.’