Unite | Procurement in the automotive industry

The automotive industry has been a significant part of the European industrial landscape for well over a century – but today it’s facing its biggest transformation yet. The introduction of electric vehicle (EV) technologies and new connectivity features, like maintenance and road safety alerts, combined with drivers’ changing mobility preferences, such as the rise in ride-sharing and private taxi services like Uber, has had a huge impact.

While the number of new cars registered in the EU in 2023 rose by 13.9% compared with the previous year, with EVs taking up 14.6% of the market share, the path ahead isn’t without its challenges. Automotive manufacturers and suppliers are dealing with supply chain disruptions, economic uncertainty and regulatory changes, which can all have an impact on profitability, stability and future growth.

Here we take a look at some of these challenges and explore how procurement strategies and solutions can be a driving force in addressing them.

Hands holding a tablet and controlling a robot that's manufacturing a car in the background. — Technology has been an indispenable part of the automotive industry - but where will the path lead now?

What are the challenges facing the automotive industry?

Whether you’re manufacturing new vehicles, driving technological improvements, or supplying automotive parts, there are a number of challenges you’re probably already facing – from sustainability and technology to economic and regulatory concerns.

Sustainability challenges

Consumers’ preferences are changing across the board. And this is also true of what people expect from the vehicles they drive. There’s an increased focus on the need for sustainability as well as integrated technology and mobility services. These trends have put pressure on manufacturers to develop and produce more environmentally friendly vehicles and reduce their own operational carbon footprint – from using recycled materials to adopting more eco-friendly production methods.

Technological challenges

To meet emerging trends and handle disruptions, CPOs must find proactive and innovative solutions to stay one step ahead. Areas ripe for impact include optimising inventory management, enhancing product customisation, and reducing lead times.

According to Forbes, EV sales are projected to rise in 2024, albeit not at the same rate of previous years. But the transition towards electric vehicles has been problematic for some, with increased R&D costs, the need for wider infrastructure investment, and convincing the mass market to embrace new technologies. With significant increases in charging stations expected in 2024 as well as advancements in automotive battery technologies, some of these concerns can hopefully be overcome in time.

Generative AI is also transforming the automotive sector in manufacturing, quality control and driver experience. Leading car manufacturers are already using it for vehicle design, personal voice assistants and driver assistance systems are just some examples of this already in action. However, these new tools bring with them complex issues around data privacy, cybersecurity and information accuracy, as well as complying with emerging legislation.

Electronic vehicle at a charging station — The automotive industry faces a lot of challenges when it comes to e-mobility.

Economic challenges

Automotive sales and production have been impacted by global economic downturns and fluctuations. In Europe, in particular, high production costs, availability and costs for skilled workers, and energy prices have hit businesses hard. The industry – manufacturers and suppliers – has still not fully recovered from the widespread supply chain disruptions caused by the Covid-19 pandemic, with inventory shortages having impacted new car prices.

This has seen China, with competitive pricing, cutting-edge battery tech, and a growing global popularity for Chinese car brands, establish itself as a major player in the EV revolution, capturing 12% of the European market.

Regulatory challenges

Governments are doing their bit both to incentivise consumers to purchase electric vehicles, as well as to encourage the industry to make change. In March 2023, the EU Council adopted a regulation that set stricter CO₂ emissions performance standards for new cars and vans. Its aim is to reduce emissions from road transport, pushing the industry to shift towards zero-emission mobility while driving innovation. But meeting these targets impacts manufacturing in a big way, which some businesses will struggle to adapt to.

There are also trade policies and tariffs to consider. The impact of Brexit negotiations on the UK automotive industry, for example, caused three of the world’s biggest carmakers to call on the UK government to renegotiate the Brexit deal. It stipulates that 45% of a vehicle's parts by value should be sourced from the UK or the EU to avoid a 10% tariff on cross-channel exports. Policies like this can be hugely detrimental to manufacturers, forcing them to rethink entire supply chains.

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How can procurement play a strategic role in tackling these challenges?

Procurement is already playing a pivotal role in addressing these challenges for many automotive manufacturers and suppliers. Taking a strategic approach can help organisations to navigate the economic uncertainty, regulatory changes, increased competition from emerging players, supply chain disruption and the complex technological transition to EVs.

Let’s take a look at how procurement professionals can embrace technology and reshape their roles in the process. And by taking a more agile approach to supply chain management, focused on continuous learning, collaboration, and innovation, they can help their organisations meet these challenges head on.

1. Strategic sourcing and cost management

With complex supply chains to navigate where cost and quality are key factors, strategic sourcing is essential. By diversifying your supplier base across different geographical regions and implementing systematic evaluations of suppliers, you can better balance the costs and risks associated with market volatility.

In the past, automotive companies have limited their supply chains to specific suppliers or parts manufacturers in the hope this will keep disruption to a minimum. This extends to focusing on global sourcing to ensure the best prices. But increasing your supply base, as well as looking at suppliers closer to home, provides more flexibility to meet demand and helps ward off the risk of cost fluctuation.

2. Compliance and regulations

Yes, stringent emissions regulations will shake things up, but it’s the job of automotive manufacturers to make sure all the materials and components they’re procuring are helping them stay compliant. This is made much easier if you’re procuring from suppliers that already meet these standards – and the tools you’re using support more sustainable sourcing.

For example, our procurement platform enables organisations to get what they need from vetted suppliers that already comply with our high standards, and to filter by specific certifications too.

3. Sustainability and ethical sourcing

This unstoppable shift towards EVs means building a supply chain that supports sustainability goals. Clearly, procurement teams will be focusing on procuring batteries and other EV-specific components, as well as meeting their indirect needs, such as IT equipment to handle day-to-day operations. But a strategic approach should go beyond that, working with manufacturers to secure long-term agreements for high-quality and sustainably produced products.

Going further, procurement teams should see where value can be added by developing closed-loop supply chains where all stakeholders benefit. Teams need to balance stability and certainty with thinking more like a startup. This willingness to experiment with new suppliers, materials and technologies will undoubtedly give your organisation a competitive advantage and open up new opportunities for innovation.

4. Supplier relationship management

In response to supply chain disruptions caused by the pandemic, automotive manufacturers have enhanced their supplier risk management practices. For example, businesses have implemented more rigorous monitoring and evaluation of suppliers’ financial health and operational stability, enabling quicker responses to potential disruptions.

With structured category and sourcing strategies, advanced negotiation models and data-driven decision making, you can develop procurement maturity across the business. Some organisations are using enterprise resource planning (ERP) systems to build supplier databases and portals, for e-tendering, and reverse auctions.

It’s vital you invest in upskilling your staff and nurture relationships with suppliers. These relationships will enable you to encourage best practice across your supply chain and work towards cost-effective renegotiations. Using digital tools that enable real-time monitoring and process automation can bring more transparency and control, helping to prevent disruption and control the impact of it when it happens.

5. Innovation through supplier collaboration

Taking a more holistic approach to your supply chain, where you work with suppliers to unlock hidden value, is so important. Firstly, it will help you streamline and optimise your processes. Come together to make improvements in key areas like production, quality control and logistics. And foster a culture of regular communication and information exchange so you know what you want from your suppliers and they understand what you need too.

Secondly, effective relationships can lead to new ideas and cutting-edge technologies – whether that’s in EV batteries, autonomous driving, other digital services, or something no one else has thought of yet. These state-of-the-art tools are quickly becoming profitable points of difference for automotive businesses and you don’t want to be left behind.

Procurement as a game changer

Cars aren’t going anywhere, but who’s driving, where and how is certainly in flux. With supply chain disruptions and regulatory change forcing the sector to step up and make change, no business can afford to sit still and wait for things to blow over. Accepting the new normal and tackling these challenges is imperative. And procurement needs a big seat at the table to help organisations overcome them.

Making the move to a more agile approach, centering your procurement function and ensuring strategy underpins every decision, is a big undertaking. It demands a future-focused commitment to innovation, collaboration and a more sustainable supply chain. And it requires the right practices and tools are in place to support that strategy.