Automotive sourcing strategy is complicated, and few supply chains are as complex. Auto manufacturing embodies globalization, with assembly plants located across the world and many of them working on a just-in-time basis.
According to Toyota, the average new vehicle contains over 30,000 parts, ranging from tiny screws to highly sophisticated computer chips. Producing those thousands of components are Tier 1, Tier 2, and Tier 3 suppliers.
Each of these suppliers could be based anywhere in the world, and there is a dependency between many of the suppliers as well as between supplier and auto manufacturer. For example, a Tier 1 supplier typically sells finished components and parts directly to an auto manufacturer. Tier 2 suppliers provide the smaller pieces that are required to build the part, so they are usually shipping to a Tier 1 supplier. Tier 3 suppliers are typically focused on raw materials like plastics, which they provide to Tier 2 suppliers.
Automotive Sourcing Complexities
Adding to automotive sourcing strategy complexity, companies that are part of the automotive supply chain may occupy several positions simultaneously. A company could be a Tier 1 supplier that ships completed modules directly to the automaker—it could also manufacture parts that it sends to other Tier 1 suppliers, making it a Tier 2 supplier as well.
Figuring out supplier tiers is akin to puzzling out who is who at a Halloween party—that masked Batman could be a total stranger, but could also be an old friend, and now you’ve been ignoring them for most of the night. Socially, it is awkward, but in sourcing, it could be detrimental to an organization’s bottom line.
Traditional Sourcing Practices and Sub-Tier Suppliers
The result of multiple Tier suppliers is a tangled web involving thousands of companies (big and small) spread across multiple continents. If you’ve attempted making your own bread or pizza throughout the pandemic, it is likely you can relate.
No one told you about the nuances of altitude, temperature, flour type, or keeping a starter alive. When sourcing automotive parts there are just as many (if not more) factors to consider, and traditional sourcing methods will be difficult to use.
Shipping costs, currency conversion, and tariffs need to be added to typical sourcing factors like cost, quality, and turnaround time. Making the situation an even bigger challenge for procurement professionals are the issues facing the auto industry itself. These include rapidly changing technology, new models, inventory excess for models that aren’t selling as well as expected, recalls, labor relations, and the need for spare parts.
Tracking all of these variables using spreadsheets is a recipe for disaster. How do you source parts or raw materials at a competitive price, while fulfilling all your requirements and also adhering to the just-in-time needs of automakers? In the face of a crisis like the pandemic, how do you prioritize among your suppliers to decide which is critical and possibly worthy of assisting to ensure its survival?
A collection of spreadsheets is not going to cut it for automotive sourcing strategy. Legacy spreadsheets are chaos at the best of times.
This is a situation where Arkestro’s AI-powered Predictive Procurement Orchestration platform offers a huge advantage. Here are three ways Arkestro will assist your automotive sourcing and procurement strategy.
Automated Negotiations and Intelligent First Offers
Arkestro is the most modern Predictive Procurement Orchestration platform on the market. It leverages the power of AI (artificial intelligence), delivering a series of benefits.
The most obvious win with utilizing AI is the elimination of mindless, repetitive tasks. Sourcing professionals using traditional systems spend much of their time manually completing tasks such as data entry and logging. AI and machine learning make quick work of these duties, freeing up personnel for more challenging responsibilities and eliminating the errors that can result from being stuck manually performing repetitive tasks for much of the day.
Arkestro advanced AI technology also offers far more advanced capabilities. A key strategic advantage is gained through the AI’s ability to enable automation of the bidding process. There’s no more guesswork involved.
Artificial intelligence is capable of tracking and weighing the variables that can affect pricing, including requirements and competition, and strategic sourcing events can be calendared to run automatically.
In this scenario, stakeholders are informed through every step of the process. Arkestro’s Predictive Procurement Orchestration platform can even give an Intelligent First Offer. This unique feature offers a big competitive advantage while reducing the time and effort involved in the negotiation process.
From freeing up sourcing professionals from routine, repetitive tasks, to the competitive advantage of AI-powered Intelligent First Offer, this advanced sourcing software delivers significant savings.
Strategic Sourcing and Predictive Procurement Collaboration
There are very few companies (if any) where the sourcing department works completely independently, serving as the sole point of contact with suppliers.
The more typical scenario involves supplier team members in contact with various departments and individuals at an organization, from the sales team to customer service. Each of those communications provides valuable insight into the relationship between a business and its suppliers. However, in a typical organization, each of those lines of communication is tracked on different systems, logged using different criteria, and offers varying layers of access to sourcing team members, creating siloes.
With Arkestro, communications with suppliers all take place within the system in real-time. This includes messages, reminders, tasks, file sharing, and schedules. Arkestro offers unprecedented transparency and ensures critical information is not lost.
Proactive Supply Chain Management
Arkestro software is a highly sophisticated supplier management tool and supply chain analytics software. It tracks and manages all aspects of your company’s supplier information in one database, in real-time. Every communication between the supplier and your company is saved and available for review to anyone granted those permissions. With the power of advanced AI constantly analyzing all of this data—including supplier engagement and performance metrics—the right decision can be quickly made when difficult conditions call for working closely with key, at-risk suppliers. Proactive supply chain management is more than just a sourcing trend, it is a business imperative. Made by procurement professionals for procurement professionals, Arkestro is the predictive sourcing software that brings order and strategic decision making to the chaos of automotive sourcing. Schedule a demo today to see how your organization can benefit from Arkestro sourcing enablement software, and how you can source and track your 30,000 necessary parts.
