• Written by Sonali Subhadarsini, Product Manager

A procurement team in the automotive sector often finds itself waiting on a report to answer questions that could be readily available, such as the total spend with a particular supplier or the status of a specific purchase order, and this wait can have a ripple effect on the entire production line, particularly in a tiered supply chain with tight takt times and long programmes.

The procurement questions that currently wait on a report

The procurement team may need to know the current spend with a supplier to determine if they are within the agreed upon terms, or to identify areas where costs can be optimised, and this information is often buried in reports that are only generated on a weekly or monthly basis, leading to delays in decision making.

For instance, a category manager may want to compare the prices of different suppliers for a specific component, but the data is scattered across various systems and reports, making it difficult to get a clear picture, and this can lead to missed opportunities for cost savings or supplier rationalisation.

A shift supervisor may also need to check the maintenance log to ensure that the necessary parts are available for production, but if the data is not readily available, they may have to wait for the report to be generated, which can cause delays in production and impact the overall efficiency of the plant.

The data behind them: purchase orders, supplier contracts and terms, invoice history, category structure

The data that underlies these questions is complex and multifaceted, comprising purchase orders, supplier contracts and terms, invoice history, and category structure, all of which need to be integrated and analysed to provide a complete picture of procurement activities.

The category manager, for example, will need to access data on supplier contracts and terms to determine the agreed upon prices and payment terms, as well as invoice history to track actual spend and identify any discrepancies, and this data may be stored in different systems, such as enterprise resource planning (ERP) or procurement software.

Sector constraints: supplier escalations and engineering change propagation

The automotive sector has its own unique constraints, such as supplier escalations and engineering change propagation, which can impact procurement activities and make it even more challenging to get the right data at the right time.

For instance, a supplier escalation may require the procurement team to quickly identify alternative suppliers or negotiate new terms with the existing supplier, and this can be difficult if the data is not readily available, and the team may have to rely on manual processes or wait for reports to be generated, which can delay the response to the escalation.

Engineering change propagation can also impact procurement, as changes to the design or specifications of a component can affect the supply chain and require updates to purchase orders and supplier contracts, and this can be a complex and time-consuming process if the data is not integrated and easily accessible.

What improvement looks like: spend under management, price variance to contract, supplier concentration

Improvement in procurement can be measured in various ways, such as spend under management, price variance to contract, and supplier concentration, all of which can be impacted by the availability and accuracy of data.

For example, a category manager may want to increase spend under management by identifying areas where costs can be optimised and implementing strategies to reduce spend, and this can be done by analysing data on purchase orders, supplier contracts, and invoice history, and using tools such as operations analytics to identify trends and patterns.

A reduction in price variance to contract can also be an indicator of improvement, as it suggests that the procurement team is able to negotiate and manage contracts effectively, and this can be achieved by using data to track actual spend and identify discrepancies, and working with suppliers to resolve any issues.

What this does not do, or when it is the wrong choice

While AI for procurement in automotive can provide significant benefits, it is not a panacea for all procurement challenges, and there may be situations where it is not the right choice, such as when the data is incomplete or inaccurate, or when the procurement process is highly complex and requires human judgment and expertise.

In such cases, it may be more effective to rely on manual processes or to use other tools and techniques, such as consulting with procurement experts, to address the specific challenges and requirements of the organisation.