Agile Procurement Strategies Needed to Ensure Supply

Before the COVID-19 pandemic, automakers relied on fast procurement strategies to stay ahead of the competition and innovate within the market. However, in the last three years, supply chain disruptions forced the entire automotive sector to rethink its approach to material purchases and adopt effective forecast techniques.

To survive in today's dynamic market, OEMs, logistics businesses, Tier 1, Tier 2 and Tier 3 providers must adopt procurement strategies that can help them thrive. These strategies include developing long-term partnerships with suppliers and embracing new digital technologies. “We must plan while remaining flexible. To plan better, you need a lot of technology but, above all, a lot of data,” says Manuel Tamayo, CEO, Element Fleet Management Mexico.

In this scenario, procurement strategies are now more important than ever, as automakers aim to secure supplies and even reduce the customer delivery lead time, while dealerships face a considerable increase in the time to fulfill demand for new vehicles.

Nearshoring and relocation are becoming increasingly popular strategies for automakers that seek to reduce the distance and potential problems when supplying the North American market. In particular, Mexico's automotive industry is receiving projects from companies that previously manufactured in their home countries or in some regions of Asia. Regionalization has become a trend for OEMs, which are seeking to create an entire manufacturing ecosystem within the same region. This strategy helps to cut costs by reducing transportation distances and import taxes, while improving supply chain efficiency. “Having a more integrated supply chain is very convenient for Mexico. It is very beneficial for the country to have vehicles with more Mexican content,” says Manuel Montoya, Director, CLAUT.

Companies considering relocation must conduct a thorough analysis to identify the optimal location that can provide the necessary supplier infrastructure and talent, besides the potential advantages in terms of production and logistics costs. This will allow them to ensure quality production. Miscommunication and cultural differences may lead to delays and disputes between companies and suppliers, making a local supplier that understands the business environment critical for new investors.

There is not a “one-size fits all” solution because every company has to deal with different suppliers, demand and production processes. However, experts agree that this challenge creates an opportunity that Mexico must take advantage of, as it could allow it to increase its participation in the automotive industry, Xavier Ordoñez, Supply Chain Leader Partner, Deloitte, tells MBN. “Mexico must take advantage of its strategic location, not only to integrate with North America but also to become a continental hub in the Latin American value chain,” says Ordoñez.

Before the pandemic, OEMs collaborated mainly with Tier 1s, causing a major issue during the outbreak as industry leaders did not understand the complete supply chain, which maximized the effect of disruptions on the entire sector, says Mónica García, Global Purchase & Supply Chain Director, General Motors. To prevent similar issues, the sector needs to embrace technologies and processes to boost resiliency, transparency and sustainability. “It is yet not mandatory, but we encourage our suppliers to join decarbonization efforts,” says García.

Digitization plays a critical role to understand current market events and even forecast future changes to keep up with customers and OEMs. To reduce the impact of supply chain disruptions, it is critical that the industry as a whole has integrable solutions.

The sector must not only have unified goals; it should also take a proactive approach to norms and regulations to ensure the interchangeability of parts. “We must be in close contact with our suppliers to remain informed about the availability of parts and offer the customer a better delivery time,” says Miguel Saldamando, CEO, CEAT.

Data has become a must for all companies that wish to be competitive in today’s market, as its correct analysis and use boosts automakers' added value by allowing them to understand what the market is facing, explains Tamayo. Due to the lack of availability of both raw materials and finished products, it is difficult for customers to receive a newly-purchased vehicle in less than  120 days, he adds.

The ever-changing panorama demands new levels of adaptability from the Tier 1, Tier 2 and Tier 3 companies, as the use of digital tools allows for faster changes in the technical requirements of auto parts. This changes the outlook for suppliers, which are now forced to digitalize their entire manufacturing process, a process that requires significant investment and a shift from traditional business operations, says Montoya. 

Despite the challenges, adaptability will remain essential and modern technologies allow for its fast implementation across the supply chain. “Engineering changes no longer take months. Robotization allows suppliers to make faster changes,” says Saldamando.