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Choosing the Best Tiered Automotive Suppliers with Predictive Procurement Orchestration

April 11, 2023

Procurement is a critical part of any business, especially in the automotive industry. With ever-changing customer demands and supply chain disruptions, the last thing you need is a complex sourcing strategy that can lead to engaging the wrong suppliers.

Auto manufacturing is a global endeavor, with assembly plants located in multiple countries around the world. An additional layer of complexity is added as the automotive supply chain relies on a tiered system which makes it mission critical to have timely deliveries. 

Issues plaguing the industry over the last several years like overall parts shortages has led to companies like GM having to store 95,000 vehicles until they can be completed.

That’s where predictive procurement comes in. Predictive procurement can help solve the automotive industry’s biggest challenges today by providing insight into supply trends and giving business leaders the tools they need to make quicker, more intelligent decisions on which suppliers to choose.

Let’s explore how predictive procurement can be used to improve efficiency and reduce costs for automotive companies.

From Tiers to Tears

So why is the automotive industry’s supply chain so complex, that it brings sourcing teams to tears? Well, it’s no surprise that vehicles are composed of thousands of parts and materials. In most cases, these parts are sourced from a variety of suppliers structured in a tiered system.

Starting at the top is the Original Equipment Manufacturer (OEM). In the automotive industry, this would be the name brands we know and love such as GM, Ford, Volkswagen, and Subaru. 

These brands are sourcing parts and materials to be able to produce the vehicles driving around on the roads today. Behind these brands is a sourcing and procurement team sifting through countless suppliers to find the best prices and suppliers to get the job done.

Adding to the sourcing strategy complexity, companies that are part of the automotive supply chain may occupy several tiers 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.

Now do you see why our eyes are watering? Let’s see how Arkestro’s Predictive Procurement can help you overcome the supplier data overload during each step of the process.

Step One: Securing Automotive Parts and Your Peace of Mind

Ideally OEM’s will start with the Tier 3 suppliers that provide the raw materials – think your metals, rubber and plastics – to make up bigger components like the engine, tires, and bumpers. 

Like many industries, automotive manufacturers are beholden to where these raw materials are mined or manufactured. Metals might be mined in Europe, rubber is produced in South America, and plastics could be manufactured in Canada. That is why auto manufacturing is a global endeavor.

This means that OEM’s face the challenge of dealing with supply chain impacts that can easily halt production before it even starts, like a pandemic or a war. So how can a sourcing team prepare for the unpreparable?

Arkestro solves this through the use of machine learning, statistical analysis, and behavioral science to analyze your data in an “always-on” fashion. This means that we will serve your procurement team insights in real time.

These insights can be based on your purchasing patterns, market data, and supplier information. For instance, we might flag an unaddressed risk such as only one supplier has a commodity that is strategic for your organization.

Or a market change occurs and we notify you to re-engage with your suppliers to ensure you have a consistency of supply. Either way, we look forward with these insights to help you take action towards the “unpreparable.”

Step Two: Refining Materials and Your List of Suppliers

Once the raw materials are produced (hopefully without any disruptions), the sourcing team and Tier 3 suppliers work with Tier 2 suppliers to refine the materials.

This level of suppliers is usually more specialized than the other tiers, but is just as vital. They are providing small and complex parts such as computer chips, but aren’t necessarily making the items to automotive-grade standards (something like a computer chip is likely optimized for your work computer, for example).

Tier 2 suppliers are held to strict safety standards and protocols, but if any issues arise, automotive production can come to a halt. So, how can you avoid working with suppliers that have known infractions?

Since Arkestro is ingesting both internal and external data, you can rest assured knowing that we are combing through firmographic, ESG, and risk data to help you understand how you might be impacted by the world around you.

This means if a supplier has a lower ranking due to a slow response time, ethical practices, or cost, Arkestro will flag those suppliers and offer up better alternatives to engage with. Like a well-oiled automotive machine, Arkestro keeps your sourcing process running smoothly.

Step Three: Soothing Supplier Relationships for a Smooth Finish

At the end of the tiered system, are the Tier 1 suppliers. These are the companies that supply products that are close to their finished state – think brakes, car seats, and windshields.

You can argue that Tier 1 suppliers are under the most pressure as they are reliant on the success and timeliness of Tier 2 & 3 suppliers to deliver their components. They also need to deliver the nearly finished products to OEM’s as they are a crucial part of automobile production.

Chances are, the OEM sourcing and procurement teams are chomping at the bit because they are approaching the automotive parts sourcing finish line. At this point, Tier 1 suppliers are tying off this whole sourcing process with a neat little bow, and the last thing they want is for it to unravel.

But who has time to manage these delicate supplier relationships? With Arkestro’s Predictive Procurement – you do!

Arkestro automates and accelerates the purchasing process so your procurement team can avoid manual entries and unnecessarily long approval processes. This frees your team’s time up to work on more valuable projects like enhancing your strategic relationships with automotive suppliers.

In doing so, your team can assure that the entire automotive sourcing process, from Tier 3 suppliers to the OEM, runs smoothly. 

Arkestro Drives Higher Confidence Across All Your Spend

While the automotive supplier tier system might seem overwhelming, it’s clear that with the right solution – like Arkestro – you can gain the confidence to navigate through it. 

With predictive procurement, automotive companies can become more efficient, reduce costs, and significantly optimize their supply chain. You can detect trends before they occur and gather actionable insights from supplier data.

This type of intelligence can greatly benefit automotive business leaders in making timely and efficient decisions when it comes to procuring the right suppliers. So if you’re looking for a smarter way to manage your supply chain needs, let Arkestro help you out! 

We helped Holman Enterprises, an international automotive distribution and manufacturing company, transform their purchasing process with an immediate 7% savings!

Curious? Then why not give us a try today. Just watch our demo and see how predictive procurement can revolutionize your business operations.