Leading In Digital Procurement: Automakers Move To Procurement 4.0

William Newman

Automotive procurement leaders are facing challenges from both inside the procurement organization and outside, as impacted by other elements of the industry business.

Inside procurement issues, such as poor spend visibility, compliance, and value delivery are amplified by the overall strategic shift to digital processes and the scarcity of talent to drive procurement initiatives successfully.

Beyond the four walls of procurement, other teams, such as engineering, supply chain, and finance, are demanding more influence over the goals and objectives of procurement as product designs become more complex and connected, the flow of “material to money” receives greater margin scrutiny, and the industry shifts to Mode 2 manufacturing models. Combine this with expected tapering of automotive vehicle unit production in North America and globally, procurement leaders are in a nexus of forces few other executives in automotive companies are experiencing.

Auto Procurement Forces

A new role for procurement leaders

As a result, procurement leaders must augment their sphere of influence to source components and material when needed, where needed, and how needed to support Mode 2 manufacturing and virtual inventory goals. These are strategic. With the shift to strategic tasks, more operational tasks in purchasing and accounts payables will go away. Those tasks will need to be replaced with artificial intelligence and machine learning capabilities to deliver on tomorrow’s operating model.

The question we continually ask automotive procurement leaders: are you really leveraging procurement as a strategic weapon? Often the answer is no. We see several factors determining whether automotive companies are seriously leveraging procurement capabilities strategically:

  • Risk: Risk management currently implies compliance. In the future, it will include making risk-mitigating investments and risk-transfer pricing.
  • Talent development: Talent with specific non-core skills must be found and developed. New strategies must be driven outside the current business scope, and the skills to develop these new strategies are in high demand.
  • Innovation: Procurement teams need to expand their expertise in engineering and design, as next-generation procurement strategies are being developed based on outcome-based business models, 3D printing, and connected technologies.
  • Transparency: Social media is making procurement one of the most visible functions, not a back-office activity, as in past generations. As such, automotive procurement leaders need to talk to customers, regulators, and the press with one voice on behalf of the company’s strategic, 24/7, “always on” communications strategy.
  • A new relationship with financeThe global supply base is bringing new financial challenges to procurement. Procurement leaders need to develop financial acumen that rivals that of finance leaders and tighten their relationships with finance teams.

Only by reviewing these areas can procurement leaders honestly assess whether their organizations are prepared for the shift to digital business and operating models in their everyday work lives.

An opportunity to lead

With 62% of chief procurement officers unable to locate and/or develop the talent needed to address future procurement needs and challenges (Deloitte, 2016), automotive procurement leaders are at the tip of the spear to risk losing organizational influence and become a sub-function of finance or supply chain. Given the proper best practices, methods, and new digital capabilities, however, automotive procurement leaders can have a full seat at the executive table with strategic insights, foresight, and direction to maintain healthy working capital and cost of goods sold during the upcoming years of slow but tapered automotive vehicle volumes.

Learn more about automotive procurement and other industry digital advances at the Best Practices for Automotive event September 18-20, 2017, in Detroit. For more information visit the program website.


William Newman

About William Newman

William Newman is a Strategic Industry Advisor, providing industry perspective, strategic solution advice, and thought leadership to support SAP automotive and discrete industry customers and their co-innovation programs. He helps build and maintain SAP's leadership position in the automotive industry and associated industry segments. He manages SAP’s annual digital aftermarket survey program and serves as the ASUG Point of Contact for the NA Automotive SIG. When not writing for D!gitalist, Medium or LinkedIn Editor’s Choice blogs, Mr. Newman enjoys distance running, travel and learning about some of the world’s best wine regions. An accidental orange farmer and vintner, you can follow him on Twitter @William_Newman and under the handle @StonewoodWine and @StonewoodFarmz on Twitter, Instagram and Facebook.