Most of the leading American car manufacturers are reeling under the impact of factors that are forcing their automobile ventures to shift gears to the newer and more dynamic platforms of technologies. These factors are not only eschewing the profit margins of the American car manufacturers but also creating immense procurement dynamism for buyers in the US automobile industry. During a Q and A session, SpendEdge’s Tridib Bora highlighted some of the critical factors that are changing the course of the US automotive industry and advised the key strategies that can aid both the buyers and the automobile manufacturers in addressing the imposing challenges in this US automotive industry.
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According to you, what are the most critical factors that are creating challenges in the US automotive industry?
Looking at the trends for the past three years, the gradual acceptance of electric vehicles is serving as a critical disruptive factor for not just the American car manufacturers but for all the global car manufacturers. With the improving accessibility of electric vehicles to the millennials, the clash between the traditional American car manufacturers and the electric carmakers is becoming more prominent. American car manufacturers are facing the compulsion to pump in more investments into their R&D activities to stay at par with the technological strides, such as the electric vehicles, in the US automotive industry. However, this is increasing their OPEX to a significant extent which they are compensating by increasing the market price of the manufactured vehicles. This is demotivating buyers from purchasing vehicles which is reflective in the plummeting sales in the US automotive industry. In my opinion, the current regulatory reforms that mandate the adoption of sustainable measures will favor the proliferation of electric vehicles which will add to the woes of the American car manufacturers.
Dynamisms in the US automotive industry are affecting supplier relationship management which is resulting in non-adherence to SLA terms by the suppliers. Request a free demo of our web-based procurement platform to get instant access to the supplier selection strategies recommended by the US automotive industry experts.
I feel that the plummeting car sales in the US automotive industry can be blamed on the rapid popularity of car-sharing applications such as Uber, Zipcar. Car ownership is being perceived as a matter of luxury among the millennials who are resorting to these applications to not only exempt themselves from the pocket pinch that they feel while paying for parking fees and insurances.
Are you hinting at the American car manufacturers as the most adversely affected section because of these challenges in the US automotive industry?
Not entirely. I believe that while buyers and suppliers have equal stakes to claim in a market, it is obvious that any potential challenge in a market will impact both in an equal and unbiased manner. Coming to the fate of buyers in the US automotive industry, the procurement terrain is quite rough and dotted with uncertainties in terms of the pricing structure and viability of suppliers. Buyers will have a hard time bringing stability in their price strategies owing to the dynamic cost structures of the American car manufacturers. They will face immense challenges to achieve a favorable supplier relationship management in the US automotive industry which is characterized by an uneven demand and supply ratio.
In the recent times, the US automotive industry witnessed a series of mergers and alliances among some of the major players in this industry to consolidate the concepts of electric vehicles and traditional combustion engines on the same platform. This will not only render supplier selection difficult but will also hinder buyers from wielding their negotiation levers with the American car manufacturers.
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What are the procurement strategies you think must be adopted by buyers to address these uncertainties in the US automotive industry?
From the perspective of the US automotive industry, supply management, sourcing, and quality are the three pillars that can strengthen the buyer’s procurement strategy in this industry. Devising price strategies forms an essential part of sourcing which is a two-way facilitation between buyers and suppliers. In view of this, buyers in the US automotive industry must partner with suppliers who implement BOT models. The concept of the BOT model involves payment to suppliers on the basis of manufacturing costs. This is functional in minimizing the buyer’s ad hoc spend and procurement cost. Additionally, the implementation of the BOT model will help share the operational risks between the buyers and the suppliers.
Fluctuating raw material prices will play as critical cost components in the OPEX of the American car manufacturers which will have an inflationary impact on the procurement expenditure of buyers. To offset the same, buyers should partner with suppliers who can forecast the demand and prices of raw materials by using effective predictive analytical tools. This will help buyers minimize their procurement-related costs in the US automotive industry.
Coming to the criteria to select suppliers, it is imperative for buyers to factor in the level of regulatory adherence maintained by suppliers in the US automotive industry. For buyers, failure to adhere can ramify into the termination of business licenses and tarnish the brand image. Buyers must engage with suppliers who manufacture products with technologies that meet the current world emission standards without affecting the performance of the engine.
Criteria to select suppliers in this dynamic US automotive industry is subject to change based on the day-to-day industry outlook. Get a free demo of our procurement platform to gain immediate access to real-time insights into the changing suppliers’ selection criteria.
Supplier relationship management does not end after the delivery of products. After-sales services play important roles in fostering a beneficial buyer-supplier relationship in the US automotive industry. In this context, I suggest that buyers evaluate the suppliers based on their responsiveness to requests raised which will ensure proper service delivery post-execution of purchase of goods.
Supply chain risks are one of the common procurement obstacles in the US automotive industry. This makes it essential for buyers to deepen their focus on rationalizing the supply chains to reduce the risks that arise due to many echelons in the supply chain. It also assists in consolidating several category-centric spend areas, which reduces accounts management efforts for buyers in the US automotive industry.
Does SpendEdge have any first-hand experience in helping enterprises in the automotive sector including the US automobile industry overcome such procurement challenges?
Yes. Currently, SpendEdge is one of the most preferred procurement intelligence firms who has its unique way of analyzing the potential challenges and resolving them with the future market scenario in mind. To quote a few, SpendEdge conducted a supply-side risk assessment for a leading original equipment manufacturer (OEM) in the automotive industry. Execution of this study resulted in the mitigation of risks associated with quality failure, product failure, and latent defects impacting auto sales growth. It also reduced the possibilities of outturn costs being higher than the anticipated costs.