Industrial parts with growth chart background related to Automotive parts manufacturer's S2P
The environment surrounding automotive parts manufacturers has changed dramatically over the past few years.
Procurement is no longer just about placing orders and paying suppliers correctly.
In an era where uncertainty has become the norm, procurement must shift
from “after-the-fact control” to “upfront design.”
This article examines the external and internal changes affecting automotive parts manufacturers and explains why procurement and purchasing functions must evolve from Procure-to-Pay (P2P) to Source-to-Pay (S2P).
OEM requirements have reached an unprecedented level of complexity. Suppliers are now expected to achieve all of the following simultaneously:
Optimizing traditional Procure-to-Pay (P2P) activities—such as quotation processing, ordering, and payment—alone is no longer sufficient to meet these conflicting demands.
What matters today is not how you buy, but from whom you buy and under what conditions.
Supplier selection and contract design have become strategic capabilities.
In other words, procurement strategy itself has become a source of competitive advantage.
Recent semiconductor shortages, along with supply disruptions in resins, electronic components, and forged or cast parts, have highlighted a critical issue:
supply constraints originating at Tier 2 and Tier 3 suppliers.
Common root causes include:
While Tier 1 suppliers may have reasonable visibility into their direct Tier 2 partners, Tier 3 conditions are often largely invisible.
This lack of visibility stems from insufficient evaluation of supply capacity and BCP readiness during the sourcing phase.
To ensure stable production, procurement must assess Tier 2 and Tier 3 supply risks based on facts—before sourcing decisions are finalized.
Sharp fluctuations in steel, aluminum, resin, and energy prices—combined with significant exchange rate volatility—are no longer exceptional events.
Under these conditions, a procurement model focused solely on “buying what is specified and paying the invoice” inevitably leads to higher costs.
What is now required is the strategic design and management of resilient contract terms, including:
These mechanisms enable procurement to absorb volatility rather than simply passively accepting it.
The transition to electric vehicles is driving major changes in materials, processes, and technologies.
As a result, automotive parts manufacturers must:
In many cases, existing supplier networks alone are no longer sufficient.
Procurement is therefore becoming inseparable from technology selection itself, rather than being a downstream purchasing activity.
It is often said that up to 80% of product cost is determined during the design phase.
However, procurement typically becomes involved much later in the process.
As a result:
Without early involvement in design and cost planning, procurement cannot actively “design” cost structures.
Management expectations for procurement have fundamentally shifted.
Traditional KPIs such as:
are being replaced by management-level outcomes, including:
Procurement is no longer viewed as a cost center.
It is increasingly recognized as a value center with accountability for cost, supply, and risk.
Many Japanese automotive suppliers once concentrated production and sourcing in China. Today, that model is evolving into a “China +1” strategy, with production and sourcing spread across multiple regions.
Companies are moving toward regionally self-contained supply networks in:
The objective is no longer lowest cost through concentration, but resilience through regional balance.
As regionalization accelerates, procurement can no longer be managed through local optimization alone.
Pricing, contracts, and risk management must be designed globally while executed regionally.
Top management and CFOs increasingly ask:
Traditional purchasing data can explain how much was paid, but often fails to explain why sourcing decisions were made under specific conditions.
Without this context, decision-making becomes reactive, and improvement initiatives are delayed.
As these external and internal changes demonstrate, procurement must prioritize upfront design over downstream execution.
The true source of competitiveness lies not in processing purchase orders efficiently, but in designing sourcing strategies that account for cost, supply capacity, and production risk in advance.
Procurement must evolve:
And from:
Automotive parts manufacturers face unprecedented uncertainty driven by:
In this environment, a P2P-centric procurement model is no longer sufficient to control cost, supply, and risk.
What is required is a sourcing approach that, before execution begins, clearly defines:
Procurement organizations are transitioning from transactional purchasing units to value centers accountable for cost, supply, and risk.
To succeed, they must collaborate closely with design and cost planning functions, govern regionalized sourcing from a global perspective, and provide transparent, executive-level visibility.
From “executing P2P” to “designing value and risk through S2P.”
This evolution will define competitiveness for automotive parts manufacturers in an increasingly uncertain world.
In the next article, we will explore the value of SAP in the Order-to-Cash (O2C) process—from order receipt through billing to payment collection.
Stay tuned—don’t miss it!
The Business Value of the Order-to-Cash (O2C) Process
SAP’s O2C: Driving Sales Excellence and Sustainable Growth
Parts of this article were developed with reference to generative AI suggestions and were reviewed, refined, and supplemented based on the author’s professional expertise and judgment.
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