How Auto Suppliers Can Drive Investment in an Era of Disruption

A digital buy desk brings efficiencies and can deliver millions in savings for auto companies

The automotive industry is having its disruptive moment. The triple whammy of zero emission vehicle (ZEV) technology, autonomous vehicles and a shift from car sales to mobility services is changing the industry forever. Throw in global economic and political uncertainties – exemplified by U.S.-China trade tensions – and it’s easy to see that this is a sector in which suppliers are seeking stability through efficiencies and a competitive edge.

At Conduent, we believe automotive suppliers could save millions by implementing digital buy desk solutions based on artificial intelligence and high-volume data analytics. These savings could, in turn, help drive the investment needed to remain competitive.

More of that in a moment but first let’s look at the nature of this disruption in more detail.

Zero emission vehicles

The electrification of the auto industry is creating two major challenges for those in the supply chain, particularly Tier 1 and Tier 2 OEM suppliers. First, ZEV technology needs fewer mechanical components which in turn is forcing suppliers to diversify their product mix. Second, the emergence of battery electric vehicles – driven by a desire to improve air quality – is symptomatic of an increasingly competitive environment. In turn, those selling higher cost internal combustion engine cars are forced to drop their margins to make their vehicles affordable. This is adding a further squeeze on OEM suppliers.

Autonomous vehicles

The impact of autonomous vehicles remains uncertain. After all, autonomy does not come in a single form: it comes in levels. Today, Level 2 autonomy (confusingly known as “hands off” when, in fact, the driver is obliged to keep his or her hands on the wheel at all times) is readily available. Level 3 (“eyes off”) and Level 4 (“mind off”) autonomy are coming and they will create far bigger challenges.  This includes the data coverage required to deliver a universal service, an urgent need for legal and insurance clarity in the event of potentially fatal accidents, and may others.

Car sharing

Car sharing, pooling and hailing concepts are presenting yet more challenges. They threaten, in short, to turn the traditional ownership model on its head. The consequences? Potentially fewer car sales, a service-based ownership model and, most likely, tighter margins.

As manufacturers begin to adapt to this tougher business environment, it is the suppliers that will feel the heat first. Those who are unable to diversify beyond the world of the internal combustion engine will be left behind. In response, suppliers must reorient their product strategy, rethink their business model, invest and innovate.

How operational and spend savings could help fund investment

As a first step, suppliers need to run more efficient operations, engaging external providers to capitalise on internal savings opportunities. Source to purchase is one area that is ripe for overhaul. In complex organisations it has become an inefficient and uncontrolled process, open to fraud and financial leakage. In many organisations, source to purchase spans multiple system interfaces, portals and spreadsheets making automation a challenge.

A second challenge is price erosion arising from reactive adjustments for volume discounts and other commercial benefits. Contract commercial terms are not automatically reflected in catalogues.

A third challenge is the high proportion of non-catalogue or free text purchasing leading to maverick spend and tactical buying. This increases the possibility of fraud, duplicate purchases, unmonitored discretionary spend and inventory wastage.

Streamlining source to purchase: Digital Buy Desk

By automating tactical and transactional sourcing activities, driving channel compliance, and directing all possible spend through preferred suppliers, digital buy desk solutions address the challenges described above.

The concept of a "digital buy desk" is a multi-faceted approach to indirect spend, a mix of procurement experts, data and technology brought together to streamline procurement efficiency while shortening the tail and driving savings.

Digital buy desk is different in the way that it attacks the tail – every transaction – to drive savings and efficiency. It does so my targeting tail spend and maverick spend to minimise opportunity cost in lost savings.

Digital buy desk applies artificial intelligence, analytics and robotic process automation to a range of transactional areas including contract to catalogue, catalogue validation and roll out, and source to pay. For example, if spend goes through a purchasing card – or PCard – spend analytics will be able to identify which purchases should have been handled by the buy desk. To reinforce the point, these purchases are flagged for stakeholder follow-up. It is estimated that based on a spend of €1.5 billion, automotive suppliers can realise up to €110 million of spend savings and cost avoidance within three years.

How Conduent can help

Conduent is well placed to help address the diverse challenges of the industry. Not only are we a leading provider to the automotive sector – serving six of the world’s top 10 automobile manufacturers – we are specialist providers in the procurement ecosystem. Our experience and expertise mean we consistently achieve 5% year-on-year savings for large automotive clients with an addressable spend of over $3 billion. When an industry is in flux, addressing internal inefficiencies is the first step to sustainable transformation.