INVERTO: Procurement's Role in Automotive Transformation
The automotive industry is undergoing a fundamental shift. The era when major manufacturers could dictate terms to suppliers is ending, replaced by a more complex and interdependent landscape.
Procurement now plays a decisive role in shaping the future of the sector, with supply chains evolving, new technologies emerging and competitive pressures intensifying.
A new strategic approach to procurement is requiredâone that redefines supplier relationships, enhances cost efficiency and fosters innovation.
In an insightful report from INVERTO, a new procurement model is presentedâdesigned to help companies navigate this transformation, ensuring they remain competitive in the new automotive era.
The report highlights procurement's position at the centre of multiple industry challenges. Rising cost pressures, new market entrants and increasing external sourcing demand a more agile and strategic approach.
Original equipment manufacturers (OEMs) are moving from an assembly-driven value model to one where more of their profitability comes from externally developed components. This shift requires procurement teams to act as the businessâs âeyes and ears,â identifying suppliers that can enhance the supply chain and improve profitability.
Beyond cost management, procurement now directly influences an OEMâs competitive edge.
Many key EV componentsâincluding battery cells, electric motors and advanced driver-assistance systems (ADAS)âare controlled by external tech companies, many of which have little history in the auto industry.
Establishing strong partnerships with these suppliers is essential. Unlike traditional supplier relationships, these new collaborations require procurement teams to rethink pricing models, cost breakdowns and negotiation strategies.
Innovation through supplier collaboration
As the industry pivots towards EVs and software-defined vehicles, procurement must become a key enabler of innovation.
The auto industryâs supply chains are increasingly mirroring those of major tech firms such as Apple and Dell, where deeper collaboration with upstream suppliers is the norm.
OEMs must integrate procurement into their R&D processes, ensuring that supply chain decisions support technological differentiation and long-term competitiveness.
A proactive procurement strategy can also help manufacturers secure access to breakthrough technologies. Several leading OEMs are already investing in early-stage battery technology firms to gain a foothold in critical areas of innovation.
General Motors has backed Mitra Chem, Stellantis has invested in Lyten and Volkswagen has been a shareholder in QuantumScape since 2018. These investments highlight the strategic role of procurement in fostering co-development partnerships and securing intellectual property.
Procurement must also navigate growing sustainability imperatives.
As regulatory scrutiny intensifies, OEMs will need to ensure greater transparency across their supply chains, particularly regarding carbon emissions and ethical sourcing of raw materials. This demands deeper supplier engagement and a shift from transactional relationships to long-term strategic partnerships.
Virtually all growth in suppliers’ OEM-related revenues and profits will come from components and software for emerging technologies while revenues and profits from traditionally powered vehicles will effectively stagnate.
A new procurement framework
To meet these challenges, INVERTO asserts that procurement must undergo a structural transformation. Its Strategic Procurement Model offers a roadmap for navigating this new reality, defining six key areas that will shape the future of automotive procurement:
Sourcing models and incentives: Procurement must evolve to match the increased pace of development and cost optimisation in the EV era. A recurring, KPI-driven review cycle will ensure continuous improvements in cost efficiency and supplier performance.
Commercial and technical levers: Material costs are rising, making cost reduction strategies even more critical. Procurement teams must employ both commercial negotiation tactics and technical optimisation methods, such as benchmarking and supplier-led innovation workshops, to drive efficiency.
Risk management: With supply chains becoming more global and interdependent, risk management strategies must adapt. Increasing reliance on external suppliers, combined with geopolitical and climate risks, makes a robust supplier risk framework essential.
Supplier relationships: With thousands of suppliers to manage, OEMs must focus on consolidating partnerships with those delivering the highest value. Strategic supplier panels, dynamic volume allocation and clearly defined KPIs will help optimise these relationships.
Collaboration and contracting models: Traditional procurement contracts no longer suit the new automotive landscape. OEMs must explore alternative collaboration models, including joint ventures, strategic partnerships and co-development agreements, particularly in software and electronics.
Market assessment and innovation: Future success depends on identifying market shifts early and fostering supplier-driven innovation. Procurement teams must integrate more deeply into supply chains, working with suppliers to develop and retain intellectual property, ensuring they stay ahead of emerging trends.
As the automotive sector transitions to EVs, procurement must move beyond its traditional role and take a leading position in shaping the industryâs future. OEMs can no longer assume that past procurement strategies will work in this new era.
By adopting a more flexible and strategic approach, procurement teams can unlock new value pools, drive innovation and secure competitive advantage.
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