Few industries today are as global, interrelated and complex as the automotive sector. (Fewer still have gone through the level of challenge and change that we have seen over the past several years.)
As the automotive sector has emerged from the Great Recession, it is now beginning to work within a radically transformed environment – one that looks to balance vibrant market environments in some regions with saturated ones in others; one that needs to balance economic demands with social and environmental requirements globally; one that needs to integrate selected ‘tried and true’ marketing techniques of the past with the brave new world of digital and social media; one that sets, at its foundation, a philosophy of innovation and growth.
Given this fascinating environment, we have looked to identify four underlying trends that will directly influence automotive procurement in the near to medium term.
Trend #1: Geographic Diversification of the Supply Base beyond China
- Although China has established itself as one of the most critical major component suppliers and supply bases to automotive companies, countries such as India, Turkey, and Eastern Europe have begun to play a more prominent role in impacting supply activity and growth.
- The core drivers here are not only the low cost labor base, but also the availability of considerably skilled labor.
- In line with this, German manufacturers have already started moving key elements of their supply bases to countries within Eastern Europe.
- Furthermore, India’s indigenous automotive industry is also anticipated to factor into this wider global supplier base, increasingly attracting interest from original equipment manufacturers in the West
Trend #2: Active Supplier Diversification & Management to Mitigate Risk
- A critical issue in recent years has been the tremendous risk posed by supplier insolvency and financial distress. While this has clearly been a two-way street, organizations are far more sensitized to the issue of risk management and supplier diversification than ever before
- In line with this, automotive companies have begun analyzing and widening their supply base when sourcing key categories and components, as well as keeping a much closer eye on existing suppliers from a business and financial viability point of view
- This more stringent management of the supplier landscape is expected to continue and run the gamut from tier 1, tier 2 suppliers and beyond, to encompass multiple suppliers that, though small, may have a critical impact on performance
Trend #3: The Rise of Fuel Efficient Vehicles, Technologies, and Modules
- With oil prices in a constantly volatile state and political concerns about foreign oil dependencies, the emergence of hybrid vehicles using alternative fuel technologies has been consistently gathering pace and will ultimately redefine the entire supply chain
- Procurement will be expected to 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
- Essentially, the identification, monitoring and procurement of these new technologies, the identification and qualification of suitable suppliers, and the quality monitoring will be a key 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
Trend #4: Corporate Social Responsibility – A Procurement Responsibility
- With the ever increasing demands for corporate social responsibility, particularly with global players based out of the west, responsibility for ensuring these requirements are met and managed across the supply chain will increasingly involve 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
- In addition, we are already seeing buyers across continents work to ensure that their critical suppliers measure, manage and reduce the carbon footprint of their prevailing supply chains
- In line with the “Evolving Procurement” remit – to establish itself as a progressive member of the corporate executive team – activities such as ensuring social responsibility ‘compliance’ will become a critical activity.
Author: Subash Chandar, Strategic Services Practice