Data Takes the Wheel: The Future of Automotive Procurement
By Mr. Rahul Garg, Founder & CEO, Moglix
In today’s modern business landscape, procurement is no longer a standalone function; it’s rapidly evolving into a strategic driver of efficiency, cost reduction, and innovation. Digitization is at the heart of this transformation, with 82% of highly digitized companies reporting that they are able to create value thanks to procurement data.
This shift towards new-age procurement is evident even in historically traditional industries such as the automotive industry. The traditional approach to procurement in the automotive industry relied heavily on manual processes, paper-based documents, and siloed data. This often led to inefficiencies, delays, a lack of transparency, and difficulty in managing complex supply chains. With the industry becoming more intricate and needing greater agility, these limitations are becoming increasingly untenable and digital procurement is gathering steam.
The Shifting Gears of Procurement in the Automotive Industry
In the past, procurement involved manual tasks like generating purchase orders, negotiating contracts via email or phone calls, and maintaining supplier information in spreadsheets. This process was time-consuming, prone to errors, and lacked real-time visibility. Forecasting demand and managing inventory levels were further challenges, leading to stockouts or overstocking.
Today, however, several factors are driving the automotive industry towards digital procurement. The increasing complexity of supply chains, the need for cost reduction, and the pressure to meet sustainability goals are all pushing companies to embrace new technologies. Advancements in artificial intelligence (AI), machine learning (ML), blockchain, and cloud computing are making this transition possible, allowing the industry to reap newfound benefits.
- Artificial Intelligence and Machine Learning: AI and ML are revolutionizing procurement with their analytical capabilities. These technologies can analyze vast amounts of data to predict demand with greater accuracy, ensuring companies have the right materials at the right time. AI also automates routine tasks like supplier selection, freeing up procurement professionals to focus on strategic initiatives and supplier relationship management.
- Blockchain Technology: Blockchain offers a secure and transparent solution for tracking materials and components throughout the complex automotive supply chain. This distributed ledger technology creates an immutable record of transactions, providing increased traceability and visibility. This empowers companies to source responsibly and ensure ethical practices across their supplier network.
Internet of Things (IoT): IoT connects physical objects to the digital world, generating a wealth of real-time data. Sensors embedded in inventory, equipment, and shipments provide constant updates on stock levels, delivery status, and machine performance. This data can be integrated with procurement systems to optimize inventory management, automate replenishment processes, and identify potential disruptions in the supply chain.
- Cloud Computing: Cloud-based procurement platforms offer a scalable and flexible solution for managing procurement activities. These platforms eliminate the need for expensive on-premise infrastructure and allow for easy access to data and applications from anywhere. Additionally, cloud solutions facilitate seamless collaboration across departments and with suppliers, fostering a more streamlined and efficient procurement ecosystem. This collaborative environment allows for improved communication and faster decision-making throughout the procurement process.
How Digitization can Turbocharge the Automotive Industry
The automotive industry is experiencing a seismic shift as digitization takes hold of procurement processes. This digital transformation goes far beyond mere efficiency gains; it fundamentally reshapes the way companies manage their supply chains, collaborate with suppliers, and drive innovation.
- Supply Chain Resilience: Digitization allows for better risk management and response to disruptions in the supply chain. Real-time data allows companies to identify potential issues and source alternative suppliers when needed.
- Supplier Relationships: Improved communication and collaboration are facilitated by digital platforms. Data-driven insights can help evaluate supplier performance and identify opportunities for cost savings or quality improvements.
- Product Development: Streamlined procurement processes accelerate innovation. Integrating procurement data with R&D processes allows for faster sourcing of new materials and technologies for product development.
Companies at the Steering Wheel of Change
BMW has already demonstrated these benefits in practice. The German automobile giant has migrated core functions in its manufacturing units from legacy systems to a cloud service. Michael Ströbel, BMW Group’s head of process management and digitalisation, explained the benefits of this shift, “We are now able to track our handling units across all stages in the manufacturing process including assembly. In the past we had one big assembly stock level [but now] we can track and trace every container and pallet all the way to the car in which the part ends up.” As a result, BMW enjoys a flexible production system which allows customers to change their car configuration even up until a couple of days before the company starts manufacturing. Renault, meanwhile, has implemented total traceability in its automotive supply chain. In a bid to maximize quality, the French multinational’s Full Track and Trace project provides the history of the vehicle as it is put together. It provides the context in which the vehicle was built, who it was built by, and allows its tracking through to delivery. By improving part identification, standardizing traceability, associating a part with a production process and implementing geolocation data, Renault is able to track logistics in real time. The company is able to save significant time in managing inventory, which can now be better optimized.
These success stories highlight the importance of defining clear goals, selecting the right technology solutions, and investing in proper implementation to reap the rewards.
Navigating Roadblocks on the Way
Implementing new technologies, however, often faces resistance from employees accustomed to traditional methods. Change management strategies and training will be crucial for overcoming these hurdles.
The increasing reliance on digital data also raises concerns about data security and privacy. Companies need to implement robust security measures and comply with relevant data privacy regulations to ensure public acceptance.
Despite these challenges, further advancements in procurement technologies are expected. With sustainability becoming a top priority for the automotive industry, digital procurement can also help play a crucial role in promoting green practices. By identifying and sourcing environmentally friendly materials and components through data analysis on suppliers’ sustainability practices, it can facilitate sustainable sourcing. Enabling the reuse and recycling of materials within the supply chain will give rise to a circular economy, reducing waste and environmental impact.
The Journey has Just Begun
The rise of digitization in procurement presents a unique opportunity for the automotive industry to achieve greater efficiency, cost optimization, and agility. By embracing these advancements, companies can build more resilient supply chains, strengthen relationships with suppliers, and accelerate innovation. The automotive industry remains well-positioned to use digital procurement as the engine for a more profitable and sustainable future.
Author :
Mr. Rahul Garg, Founder & CEO, Moglix