A Masterclass on Automotive Procurement: Trends, Tips, and Tactics to Get Ahead

Automotive procurement is rapidly changing. From an increasing regulatory landscape to new automotive innovations, it’s never been more important for procurement professionals to find new ways to reduce costs, eliminate inefficiencies, and stay updated on the latest industry trends.

This article, based on our Masterclass with automotive industry veteran Drew Sheffield, covers a range of topics to help automotive procurement teams take a strategic view of their procurement practice.

The Impact of Regulations and Government Incentives for Automotive Procurement

With the introduction of the Inflation Reduction Act and the CHIPS and Science Act in 2022 and other emerging regulatory and incentive mechanisms from the government, it can be difficult for automotive procurement to keep up. Such programs add more reporting requirements, costs on imported parts, and other considerations to an already complex supply chain. It’s anything but easy to manage.

For example, the USA and Mexico’s  newly imposed tariffs on Chinese EVs is an immediate, significant deterrence on low cost EV imports. Other government actions could mean higher duties for critical minerals and EV (electric vehicle) battery components, leading to increased production costs. Another example is the requirement supporting localized sourcing content from the USMCA (United States-Mexico-Canada Trade Agreement). Overall, procurement has seen more requirements around tracking raw materials and origin throughout the supply chain. This is especially true for environmental regulations around batteries and other emerging automotive technologies.

Due to the increasing complexity from these regulations and incentives, procurement teams are trying to find new ways to improve efficiencies wherever they can. Doing this while also hitting their core procurement performance requirements is an added challenge. In such an evolving landscape, it’s crucial for procurement teams to effectively manage and consider these regulatory and government requirements when making buying decisions.

5 Ways to Stay Updated on Automotive Procurement Trends

With such unprecedented cost pressure coming from multiple sources, the automotive industry has had no choice but to adapt — procurement teams included. As the adage goes, necessity is the mother of invention. However, inspiration doesn’t come in a vacuum, especially when things are changing so quickly in the automotive world. Staying updated on the latest automotive procurement trends is key for procurement professionals looking to elevate their automotive acumen to the next level.

These tried-and-true methods came from long-time veteran Drew Sheffield, who was asked how he stays up to date on all the latest automotive news and trends.

1. Pay Attention to the News

One thing is certain — you need to stay current because the automotive industry is changing at a rapid pace. Subscribing to outlets such as Automotive News and diving into the details of the latest articles can be a great way to stay updated on changes and movements broadly.

2. Utilize Networks and Relationships

An often overlooked source of industry trends is your network and relationships, such as automakers and suppliers. They can offer procurement professionals key insight into the pain points and challenges you should avoid or the successes you’ll want to emulate.

3. Seek Out Consulting Engagements

Another area to consider is consulting engagements. For example, creating procurement assessment roadmaps, helping companies implement a commodity or part-family strategy, or sourcing projects. No matter the project, interfacing with automotive professionals will give you more insight into the latest happenings in their world.

4. Join Automotive Industry Groups

A great option to stay up to date on the latest automotive trends is to consider joining an industry group or two. Recommended groups include the Auto Industry Action Group (AIAG) and the Motor and Equipment Manufacturers Association (MEMA). Both groups hold procurement events, councils, and annual automotive conferences with insightful discussions on a wide range of topics.

5. Benchmark Best Practices

Last but not least, benchmarking with leading auto suppliers on current industry best practices is a great exercise for procurement teams. It can lead to undiscovered insights and again provide on-the-ground knowledge of what’s happening in the industry year after year.

Automotive Buying Differences for Procurement

Automotive procurement teams are tasked with buying two different types of products for their organizations: routine indirect materials and engineered parts. Let’s dive into the definitions and the differences between the two.

Routine Indirect Materials

Indirect purchases include a variety of goods and services that aren’t part of the finished automotive product. They include safety equipment, office supplies, cleaning, IT, rental cars, and others. Rather than making up a strategic or critical component of the final product’s performance (the car itself), these materials are often sourced by plant operations and buyers on a case-by-case basis as needed.

Engineered Parts

On the other hand, complex engineered parts are strategic, must meet stringent requirements, and are critical for final product performance. These parts must meet detailed program requirements for cost, quality, delivery, and technology. Some of these requirements may include technical specifications, validation tests, program milestones, tracking design or price changes, and much more.

Unlike the as-needed basis of indirect purchases, engineered parts also often involve larger, more critical spend categories as well as managing critical supplier relationships. Long-term agreements (LTAs) and annual part-price PPV (purchase price variance) negotiations are all part of the mix.

For these transactions, automakers and medium-to-large auto suppliers consider production supplier scorecards, supply chain resilience, geopolitical risks, ESG (environmental, social, and governance), and much more to make purchasing decisions.

Arkestro’s Advantage for Automotive Procurement Sourcing

Whether your team makes indirect or engineered-part purchases, Arkestro’s Predictive Procurement Orchestration (PPO) applies “always on” machine learning to capture domain knowledge and your best team member’s best decisions for better efficiency and cost savings. With our current customer savings at 16%, PPO has the potential to get automotive procurement teams to the next level.

PPO can transform automotive procurement in a variety of areas.

• All phases of vehicle development: Early product development, program approval, prototypes, tooling, production, and product launch
• Supplier sourcing and relationships: Supplier approval, supplier sourcing, supplier readiness, supplier development, and supplier risk management
• Negotiations: Current model price reductions (PPVs), new model prices, and others

Arkestro’s platform also offers several significant advantages to automotive procurement teams. By improving buyer efficiencies, teams can reduce process cycle times and free up those hours to spend on other high-impact work, as well as manage a larger percentage of total spend with greater ease. Leveraging and tracking past RFQ and RFP templates accelerates the proposal development process and provides analysis of historical responses. Instant feedback to supplier bids motivates supplier engagement and responsiveness, fostering improved supplier relationships.

To learn more about Arkestro’s capabilities for automotive procurement, reach out today.