Automotive industry combats supply chain challenges with automated purchasing

Relationships between auto makers and suppliers have been put to the test in recent months as parts makers feel intense financial pressure from inflation and material shortages.

Now some auto companies are moving to automate aspects of their parts purchasing processes in an attempt to allow their purchasing teams more time to manage increasingly complex supply chain issues.

Volkswagen is pushing for the "completely automated buying" of certain components, said Inga Von Seelen, chief procurement officer at VW Group of America. The company can set up approvals and target settings in advance, and those parts can then be "completely bought by a computer," she said.

"This is a huge opportunity for our people to focus on the right topics," Von Seelen told an audience last month in Michigan.

A spokesman for a large Tier 1 supplier who asked not to be identified given the sensitive nature of the topic said that all of the Detroit 3 are either moving to automate some buying procedures, or discussing such a move.

He said his own company is also moving toward automated processes "whenever possible."

"We are focused on automation of some repetitive steps in our sourcing process, where customers extend a program life and we, in turn, need to extend the contractual obligation to our supply base," the spokesman said.

The Tier 1 supplier is also developing a tool for members of its purchasing team to ask questions, find resources online or launch an IT request for access to data, he said.

The initial moves may be small, but they appear to be the beginning of a trend.

Volkswagen's Von Seelen said it is a case where the auto industry is catching up to other sectors.

"Other industries are more advanced," she noted. "We need to be more transparent from the supply base, but also from the auto maker side."

Carla Bailo, an automotive consultant and former CEO of the Center for Automotive Research, said that some companies are beginning to turn to automated purchases for components that "don't involve a lot of negotiating or innovation," such as wheel nuts or fasteners. Auto makers can set parameters and have a program analyze price quotes from suppliers and decide which one the company should go with.

But that could put further strain on the relationships between suppliers of those components and those customers, Bailo said.

"If I'm one of those suppliers providing that particular commodity, it would be a little painful," she said, likening the automated purchasing process to the bots consumers sometimes have to interact with online or on the phone to receive a particular service.

Bailo said it will be critical for auto makers and suppliers to make sure they maintain open lines of communication in order to prevent misunderstandings as parts shortages or other issues arise in the supply chain.

"Auto makers will welcome this quite a bit because sourcing those commodities just isn't fun," she said. "But if they put these automated processes into place, they still have to think about the relationships with their suppliers, and put mechanisms into place where they can still have a conversation with them."

The relationships between auto makers and suppliers have come under more scrutiny in the past year as suppliers felt the financial pinch of multiple quarters of reduced production, because of pandemic shutdowns and then a year and a half of microchip shortages. During the same period, vehicle manufacturers as a group have made high levels of profit.

Julie Fream, CEO of the Original Equipment Suppliers Association, which represents automotive suppliers in North America, believes most initial automated purchases will be for non-production items, including products as small as PPE masks that factories make available to workers.

But she said it will be crucial for auto makers and suppliers to build strong levels of trust as auto makers attempt to automate purchases, no matter their tier.

"There are very different levels of trust throughout the value chain," she said. "As we get more and more into sourcing for the future, what you're going to see is an effort by all to improve that level of trust, no matter the starting point they're at."