CASE STUDY

The Complexities and Key Best Practices for Developing a Supplier Sourcing Strategy for Automotive OEMs

Aug 12, 2021

What is a Supplier Sourcing Strategy and Why is It Important?

The automotive industry is challenging, innovative, competitive, and driven by the latest technologies, newest industrial developments, and global trends. As urbanization and globalization rise rapidly, the demand for vehicles increases significantly, simultaneously, environmental consciousness and awareness has risen drastically causing companies to develop and promote alternative fuel options, electric vehicles, and novel innovations. Working in a complex and increasingly competitive market requires unparalleled strategies, an efficient supply chain, and lasting, collaborative partnerships that enable sustainable growth. A robust supplier sourcing strategy provides companies with the insight, opportunity, data, and approach required to overcome industry challenges, develop and foster positive relationships with partners, and maintain an open, communicative, and robust connection. While there is a plethora of benefits to developing and leveraging a robust supplier sourcing strategy, companies often struggle to do so efficiently, sustainably and effectively. Companies must take various steps to ensure they capitalize on the full potential of this strategy, and require clarity regarding various best practices to properly do so.

5 Key Best Practices to Developing a Supplier Sourcing Strategy

Explore Options: When companies make major, highly impactful, and lasting decisions, they must identify, explore, assess, and choose from a range of potential options. Limiting choices to a certain range may lead to ineffective or unsuitable choices. Similarly, when choosing a partner, CPOs and stakeholders must explore a wide range of options, and build a reliable database to then choose from. Having multiple options allows companies to assess the various offerings in the market, evaluate the potential impact of different relationships, and choose the partner that is best suited for their expectations, needs, and business goals. This best practice also helps develop a well-informed supplier sourcing strategy, and encourages data-driven decision-making through the process.

Understand Market Dynamics: Business decisions, supply chains, partnerships, and general operations are significantly impacted by various factors in the market. Major market dynamics such as, evolving trends, new technologies, key competitors, legal policies, and other similar factors can have a lasting impact on the way suppliers approach partnerships, negotiate contracts, and provide services. Having a comprehensive understanding of the market from which potential suppliers may be identified and chosen, helps establish clear metrics for choosing, stay ahead of the curve, identify potential partners that keep pace with their market, and avoid major supplier risks. It also helps CPOs and stakeholders understand the realistic expectations, targets, and upcoming trends to account for during the development and execution of the supplier sourcing strategy.

Determine KPIs: Evaluating performance is a challenging task that requires precision, clarity, accuracy, and an in-depth understanding of the ideal metrics of performance that are to be leveraged. As companies attempt to identify and choose the right partners, they must have clearly defined key performance indicators (KPIs), that will be used to assess, compare, and choose their shortlisted suppliers. Having these predetermined metrics can make the process more streamlined, calculated, objective, and accurate. Determining the KPIs requires a comprehensive understanding of the company’s internal requirements, market dynamics, and the offerings available in the supplier market. This best practice can make the supplier sourcing strategy significantly more effective, reliable, and accurate.

Use Benchmarking: All industries witness continuous changes, fluctuations, and trends that impact performance, industry standards, and market shares. Benchmarking involves identifying the strategies, approaches, and contracts adopted or leveraged by leading competitors, and finding the most effective factors to compare to or evolve into through the relevant processes. In this instance, benchmarking other company’s supplier sourcing strategy, identification and selection processes, and contract management approach can help minimize risk, adopt factors that have already been proven effective, and keep pace with industry leaders while avoiding major errors and challenges. Additionally, incorporating benchmarking in the supplier sourcing strategy provides companies with the opportunity to continually improve and adopt new changes as the market evolves.

Set Clear Objectives: Choosing partners, determining company expectations and needs, and maintaining a strategic edge in a competitive market requires companies to have clear insight into their goals and targets. As industries grow, companies expand and their goals evolve according to consumer demand, technological advancements, or major market trends. Understanding how the market affects business decisions, accounting for various impacting factors, and determining clear data-driven objectives can help promote transparency and trust when fostering new partnerships. During the development of a robust supplier sourcing strategy, having clear objectives can enable more long-term planning, efficient evaluation of needs and expectations, and a beneficial start to all new business relationships.

Success Story

The evolving automotive industry has given rise to various major challenges for manufacturers and industry players, causing many companies to lose sight of their targets and goals, make business relationships difficult to maintain, and experience an increased need for robust partnerships. An automotive OEM manufacturer witnessed a significant decline in supplier compliance rates, rise in prices, and other major detrimental impacts to their business as the demand for innovative solutions and novel offerings rose significantly in their market. Unwilling to maintain strained business relationships, the company approached SpendEdge to leverage our expertise in developing and implementing a robust and unparalleled supplier sourcing strategy. With the help of our experts’ guidance, actionable recommendations, and insights, the company successfully identified shortcomings within their supplier identification and selection approach, contract development process, and overall supplier relationship management. To improve their functioning, find and foster reliable partnerships, and overcome various industry risks and challenges, the company developed a data-driven and efficient supplier sourcing strategy, identified ideal partners, and overcame their shortcomings with accuracy, precision, and efficiency.

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