Key takeaways
- Effective Procurement Practices: Implementing advanced procurement strategies is crucial for auto parts manufacturers to maintain competitiveness and achieve sustainable growth in the automotive industry.
- Enhanced Supply Chain Management: Utilizing predictive procurement and quality systems improves supply chain efficiency, reduces machine downtime, and ensures better inventory reconciliation accuracy.
- Embracing EV Technology: The transition to electric vehicles highlights the importance of resilient auto supply chains, which are essential for meeting new industry demands and technological advancements.
- Strategic Value through Collaboration: Strong relationships with suppliers and the integration of sourcing and engineering practices provide strategic value, helping manufacturers navigate industry challenges and drive innovation.
How can Procurement Best Practices Help Auto Parts Manufacturers?
Rising demand for personal transport, increasing need for convenience, and the surging population has led to significant growth in the automotive and auto parts manufacturing industry, and companies are attempting to enlist various resources and strategies to keep pace with the market. As the need for a streamlined and efficient supply chain rises, companies leverage various tools and approaches to improve performance, propel growth, and increase profitability in a challenging and competitive market. Auto parts manufacturers are adopting various procurement best practices, supply market intelligence, contract management strategies, and efficient approaches to successfully surpass competitors. With the right practices and smooth operation, manufacturers can easily gain a competitive edge, maintain a sustainable growth trajectory, meet consumers’ demands, overcome industry developments and challenges. To achieve long-lasting, efficient, and risk-free growth, companies must evaluate and accept the role of procurement best practices in enabling efficiency, improving profitability, encouraging growth, and propelling productivity.
Five Procurement Best Practices for the Automotive Manufacturing Industry
Unified Data: Centralizing and unifying data can help companies address the overwhelming amount of information and data available throughout the procurement process and along the supply chain. The rising dependency on technology and automation has created a surge in the use of data and analytics to make well-informed business decisions, and made unification of data among the crucial procurement best practices. This effort also helps companies create better communication systems, mitigate confusion or uncertainty, and enable a more collaborative and cooperative relationship between departments, suppliers, and stakeholders. Unifying data also enables better transparency, mitigates unnecessary spend, helps predict potential risks, and keeps managers and stakeholders appraised of any ongoing or upcoming changes along the supply chain.
Information Flow: The smooth and efficient flow of information helps chief procurement officers (CPOs), stakeholders, and supply chain managers maintain a strong, cooperative, and transparent dynamic. As the automotive industry grows, all major market trends, risks, developments, challenges, and potential issues must be accounted for along the supply chain, and ensuring robust communication systems, the usage of relevant and accurate data, and clarity among departments is necessary to minimize potential problems. There are various roadblocks and complexities that can delay, stop, or deter supply chains, and ensuring that all departments, contributors, and professionals are aware of the necessary information can mitigate human error, and increase efficiency substantially.
Automation: The automotive industry is very competitive and challenging, and companies often find themselves struggling to keep pace with the rising demand, constantly changing technology, rapidly evolving trends, and complex supply chain. To help the supply chain work more efficiently and sustainably, automating repeated manual tasks, incorporating AI and ML along the supply chain, and implementing automated systems is crucial. Ensuring that a supply chain keeps pace with the changing market, helps CPOs and managers stay ahead of the risks and challenges, and enables sustainable growth requires regular, efficient, and robust upkeep and reviews, and the incorporation of unparalleled automated systems. This also helps minimize human error, improve speed-to-market, and promote sustainable growth over the years.
Preemptive Approach: Procurement and sourcing departments often strategize and plan on a reactive basis, essentially only producing as per placed orders or current demand. However, to maintain a robust, efficient, and streamlined supply chain, companies are shifting to a consumer-like model, and adopting a proactive approach to procurement, sourcing, production, and inventory. One of the most crucial procurement best practices, maintaining a preemptive approach helps companies set clear goals, determine targets, predict and overcome risks, and ensure that consumer demand is met. As the automotive industry continues to grow, auto parts manufacturers must prepare for a surge in demand, predict potential market needs and consumer preferences, and ensure that there are no shortages, delays, or inventory complexities during peak seasons or high demand.
Planning and Collaboration: Developing comprehensive, sustainable, and data-driven plans during the preemptive phase is necessary for the efficient and long-term growth of a company. Following procurement best practices, planning for potential growth opportunities, complexities, and risks helps companies maintain a strategic edge, and become industry leaders. Additionally, developing collaborative, supportive, and robust relationships with partners, vendors, and stakeholders is highly crucial to succeeding in a challenging and competitive market. As auto parts manufacturers’ offerings are increasingly demanded, their relationships with raw material suppliers, current or potential clients, business partners, and stakeholders can play a crucial role in their growth and success.
What is the challenge: automotive sourcing and procurement?
The automotive industry is characterized by high production volumes and low profit margins, with a general reluctance to adopt new technologies. However, the industry’s current transition to electric vehicles is reshaping its supply chain, leading to the involvement of new companies not yet familiar with USMCA regulations. This shift also entails significant sourcing activity driven by design changes to meet production schedules. Furthermore, the manual tracking of non-compliant materials (reverse material flow) is a complex process, even when using handwritten tags, which is prone to errors and affects inventory reconciliation accuracy. Consequently, the speed of sourcing or procurement events in the auto industry can impact premium freight, obsolescence, repair dwell time, and machine downtime. As a result, procurement and sourcing processes significantly affect operational efficiency in the automotive industry. The Arkestro approach proves valuable due to its event simulation, allowing for the rapid acceleration and automation of disrupted purchasing and sourcing process workflows.
Key strategies leading automotive OEMs and suppliers plan to deploy
Collaborative Innovation:
OEMs and suppliers are increasingly collaborating on research and development to drive innovation. Jointly investing in advanced technologies, such as electric vehicles, autonomous driving, and sustainable materials, enables them to share costs and access a broader knowledge base. This approach helps keep both parties at the forefront of automotive technology.
Supply Chain Resilience:
To mitigate supply chain disruptions, automotive companies are diversifying their supplier base and adopting advanced supply chain technologies. They seek to establish more robust and flexible supply networks, ensuring a steady flow of parts and materials, even in the face of unexpected challenges like global pandemics or geopolitical issues.
Sustainability and Regulation Compliance:
With growing emphasis on environmental concerns and regulatory requirements, OEMs and suppliers are prioritizing sustainability. This includes investing in eco-friendly manufacturing processes, developing electric and hybrid vehicles, and reducing carbon footprints throughout their operations. Complying with stricter emissions standards and addressing climate change concerns is integral to their long-term success.
How will AI and machine learning drive the future of auto supply chains?
The integration of artificial intelligence (AI) and machine learning with behavioral science and game theory is of paramount importance. Procurement and sourcing activities are characterized by a series of dialogue-driven collaborative events. The ability to receive immediate feedback, instilling confidence in decision-making, as opposed to engaging in prolonged deliberations, expedites the decision-making process and streamlines associated workflows. It is anticipated that the future advancement of AI and machine learning will encompass the integration of additional scientific disciplines, namely behavioral science and game theory. This integration is poised to facilitate accelerated transactions, decisions pertaining to preferred suppliers, assessments of capabilities and risks, as well as program awards. Consequently, this development is anticipated to reduce the duration of the program development life cycle and empower vehicle manufacturers to introduce new products at a pace akin to that of contemporary cell phone manufacturers.
Success Story
Since the advent of industry 4.0, and incorporation of IIoT in factories across industries, companies have often struggled to successfully implement new automated systems, and make the necessary changes to their systems. In the automotive industry, a leading auto parts manufacturer based out of Germany witnessed a decline in productivity and profitability, and could not identify the cause for these challenges. The client sought to identify and mitigate the causes for their sudden rise in customer attrition, decline in customer satisfaction, and decreased sales. Therefore, they chose to partner with SpendEdge, and leverage our expertise in advising and guiding companies regarding the ideal procurement best practices. With the insights provided by our experts, the manufacturer successfully identified their shortcomings, improved their procurement processes, developed a stronger supply chain, and overcame the impact of the rapidly changing industry. Shortly after, the company had regained market share, improved customer satisfaction rates substantially, attracted and retained new customers, successfully incorporated industry 4.0 in their factories, and established themselves as industry leaders.
Conclusion
In the evolving automotive industry, effective procurement practices are essential for manufacturers of parts and engines to maintain competitiveness and achieve sustainable growth. The integration of advanced sourcing, engineering, and quality systems allows manufacturers to collaborate effectively with suppliers, ensuring a robust supply chain. Adopting predictive procurement strategies can mitigate risks and enhance inventory reconciliation accuracy, reducing machine downtime and boosting overall efficiency. Additionally, the transition to EV (Electric Vehicle) technology underscores the need for resilient auto supply chains that deliver strategic value. Through these approaches, manufacturers can navigate industry challenges, streamline operations, and remain at the forefront of innovation.
