Procurement’s Reshaping in Coming Years

At the beginning of the month, I was fortunate enough to attend the Center for Automotive Research (CAR) briefings seminar. The CAR conference had a record 1,000 attendees. While attending world class networking in the evenings, it was great to interact with other executives in procurement, manufacturing, operations, finance and sales. If you have not attended in the past, you should consider attending next year during the first week of August in Traverse City.

I walked away from the conference with a few major items in my head that I think will shape procurement in the automotive sector for the next few years:

• The number of global platforms is rising and some of the prognosticators are expecting that 70+% of all vehicles will be based upon global platforms in the near future. Most of the automakers are looking for Tier 1’s who can support these programs on a global basis. This will require the Tier 1’s to locate near the manufacturing sites and develop the local supply bases. This is a major shift in supplier development responsibilities from the OE’s to the Tier 1’s.

For Tier 1’s to prosper they need a thorough understanding of supplier manufacturing costs in the manufacturing locations and robust supplier development capabilities.

• While volumes in North America have rebounded from the depression of the previous decade, the rapid growth is tapering off. When this occurs, capital intensive industries such as automotive focus more keenly on costs. Recently, Chrysler/Fiat’s Marchionne’s unfortunate comments on high supplier profits support this view.

Purchasing organizations in the tiered supply base should be proactive in getting in front of this by working collaboratively with their supply chains to eliminate waste and reduce costs.

• In the US, the focus on meeting further stringent gas mileage requirements is creating significant opportunities. With these new requirements, powertrains will change more frequently to increase efficiency and bodies will change to reduce weight. In addition to gas mileage requirements, this frequent changeover is driven by the increasingly competitive market which requires manufacturers to keep product designs and capabilities fresh.

These continual and increased changes and tapering growth creates contradiction. While the supply chain goes through a higher number of launches, management will want to contain cost and headcount. We are helping a number of our clients that have already preconized this trend by reducing non-value added workload and offshoring tactical work and analysis to low cost countries.