The automotive sector has always been at the cutting edge of procurement practice. This is a dynamic industry with highly complex supply chains, so adapting to a changing economic climate, market conditions, technological developments and new sourcing policies is a familiar challenge. But at this point in time there are four trends that are shaping the future of automotive supply chains and that will impact purchasing.
1) Buyer Responsibility. As is the case in other industry sectors, buyers are being increasingly held accountable for their purchasing decisions and the actions of their suppliers. They are under pressure to comply with Corporate Social Responsibility edicts from the Board, to ensure suppliers fulfil those requirements, to measure and reduce the carbon footprint of their supply chains, and to be aware of supplier risks – from financial vulnerability, to product quality and service performance. However, at the same time, cost and efficiency demands are constricting resources available to purchasing departments, putting procurement professionals under great pressure to comply and perform with limited resources.
2) Aggregation vs diversification of supply base. Over the last 10 – 15 years the trend has been for OEMs to greatly reduce the number of suppliers in order to cut costs and improve efficiency in managing the flow of parts into the assembly process. The result has been to give greater responsibility to these suppliers in co-ordinating and administering a swathe of smaller suppliers, placing a huge emphasis on the tier 1 suppliers to perform, but permitting them a small margin. Now, in-line with cost pressures, I sense a shift towards manufacturers looking further down the chain to source component parts directly from tier 2 suppliers. Although this may not be a complete swing back to previous sourcing practice it is an indication that aggregation of the supply base has plateaued. Sourcing from a greater number of smaller suppliers will, of course, increase risk and complexity.
3) New markets for component supply. Global sourcing of automotive parts is a well established trend. However, new markets are opening up for component supply. China is well established as a supply base but there is plenty of growth underway in India, Turkey and Eastern Europe. A number of German based suppliers are moving manufacturing into Eastern Europe and in India a fast developing indigenous automotive manufacturing industry is creating a supplier base that is of growing interest to OEMs in western markets. This greater choice available to buyers may offer cost advantages, but it brings new risks too. These suppliers are going to be unknown quantities and a full range of issues need to checked, such as product quality, service, standards, CSR, business processes, along with many others. How do you ensure these new opportunities do not expose you to greater risks?
4) New components, technologies and vehicle types. The worldwide public and government interest in reducing the impact of carbon consumption has pushed the development of new automotive technologies using alternative fuel types, especially electric powered and electric hybrid vehicles. Batteries for this new breed of car will pose many questions for procurement teams. How are these batteries to be manufactured and where? What happens to them at the end of vehicle life? End of Live Vehicles regulation (ELV) puts the responsibility on the vehicle producer. Any default in the course of business may render a buyer guilty of an offence. This suggests great care is required and contracts with suppliers should only be made where disposal at end of life has been agreed. These are all issues that will need to be acknowledged and answered.
Making decisions in an environment where change is the norm, competitive price pressures are increasing, and risks are difficult to quantify, will mean automotive procurement professionals will need access to more accurate and reliable data on suppliers, wherever they may be located.
These are the trends I believe are going to be of increasingly significant importance in 2011 – I’d be delighted to hear your perspective and response to these issues.
Peter Lumsden, Global Scheme Manager: Automotive, Achilles
