A team discusses quarterly cost reduction results during a late meeting
New vehicle cost planning meeting at a Tier-1 supplier.
In the room, engineering, cost planning, procurement, and production engineering are all gathered. On the left side of the whiteboard, the OEM’s target cost is written in bold. Next to it, the internally estimated current forecast cost is listed. A few percentage points of the gap remain stubbornly unresolved.
Engineering explains, “We can’t take any more weight or material out without compromising safety and performance.”
Cost planning adds, “We have generated several VE ideas, but we’re still a step away from the target,” while pointing to their slides.
When everyone’s eyes turn to procurement, the answers sound familiar:
“We still don’t have all the supplier quotations, so it’s hard to say yet.”
“We’ve at least requested an X% reduction versus last year’s price, but…”
In the end, the only conclusion is, “Let’s reconvene once all the supplier quotes are in.”
After the meeting, engineering and cost planning quietly complain:
“We can’t decide anything until quotes arrive.”
“In the end, we always rely on last-minute price-down requests.”
On the other side, procurement feels frustrated as well:
“We’d like to get involved much earlier, but we don’t see the design assumptions or baseline costs.”
“All the cost assumptions are inconsistent, so we don’t know where to start.”
Scenes like this are repeated daily at many Tier-1 automotive suppliers. Target costs are clearly defined, and everyone understands the importance of robust cost planning. Yet projects remain trapped in a cycle of “waiting for quotes” and “asking for discounts.”
What exactly is behind this gap?
In this article, we first identify and structure the issues that are already visible on the shop floor and in daily project work. In the next article, we will dive into the structural root causes of these issues and explore how procurement can become a true value‑adding leader in cost planning, instead of just a coordinator of supplier quotations.
Please also refer to blogs that mention the importance of Source-to-Pay (S2P) for automotive suppliers.
The Importance of S2P for Automotive Parts Manufacturers
The most obvious symptom is a situation where “nothing can start until supplier quotes arrive.”
Ideally, in the early phase of cost planning, the Tier‑1 should be able to build an internal target cost model based on assumptions about material, process, equipment, logistics, and other key cost drivers. However, in reality, many organizations start by sending drawings to key suppliers, collecting the returned quotations, and then simply aggregating them to build up the product cost.
In this model, procurement is easily reduced to a “quote collector” and aggregator.
Because there is little internal cost breakdown to challenge or verify supplier cost structures, negotiations naturally drift toward rate‑based discount requests:
“Please do a little better.”
“You’re higher than competitors.”
Over time, this hardens relationships with suppliers and keeps collaboration with engineering and cost planning restricted to after‑the‑fact checks once quotations are finally in.
The very state of “no visibility into cost without quotes” becomes a major structural risk in Tier‑1 cost planning.
A second issue is that the basic cost assumptions are scattered across functions and even individuals.
Typical patterns include:
As a result, the “estimated cost” that engineering uses, the figures that cost planning relies on, and the unit prices assumed by procurement all subtly differ.
Every meeting then starts with clarifications:
“Where did you get this material price?”
“As of which month is this labor rate valid?”
Time is lost debating data lineage, and no one can say with confidence which numbers are the official reference.
In this state, discussions about target cost remain at the level of gut feeling. Instead of debating “how much cost should we reduce,” the organization needs to be able to discuss “which assumption should change, by how much, and what impact that will have on total cost.” For that, standardizing and unifying cost assumptions is essential.
Looking at the supplier relationship, many Tier‑1s do ask for price reductions, but they do not actually create a joint cost planning arena with key suppliers.
Even when VE ideas or process changes are discussed, suppliers often respond:
“We can’t reduce that much.”
“We can’t recover the investment with this volume.”
Behind these responses, the two sides often lack a shared view of cost structure, investment recovery assumptions, and profitability.
If the Tier‑1 cannot present a clear story in the cost planning phase—“which cost elements will be improved, at what timing, and how both sides will win”—negotiations naturally look like short‑term price‑down demands.
Suppliers then find it difficult to propose long‑term improvement ideas, and the “game” degenerates into surviving annual price negotiations.
For procurement to become a true partner in cost planning, the relationship must shift from “asking for price cuts” to jointly designing the cost structure from an early stage.
In many companies, cost planners invest a huge amount of effort in building detailed cost models in Excel during the planning phase.
However, once mass production starts, those Excel files are often left untouched. They are not connected to standard cost and actual cost in the accounting system, nor to variance analysis. When the project is over, cost planning might only hear feedback at a very high level: “This program made money” or “We lost money.”
In this environment, there is almost no systematic learning about what worked and what did not.
VE activities and supplier improvement efforts are not fully captured as reusable knowledge for the next program. Each project feels like starting from zero, repeating the same struggles.
Unless the deep gap between cost planning and mass‑production actuals is closed by design, neither the accuracy of cost planning nor organizational learning will improve. Many front‑line teams may feel, “We work hard project by project, but the company itself does not become smarter.”
Many companies have already digitalized their P2P (Procure‑to‑Pay) processes—purchase requisitions, order approvals, and invoice handling are all supported by systems.
Yet a common concern remains: “The approval flow is digital, but we get almost no intelligence for strategic sourcing or cost planning.”
Typical missing capabilities include:
In other words, the procurement intelligence that should inform engineering and cost planning does not reach their decisions in a usable form.
If this continues, procurement digitalization remains merely a way to “eliminate paper,” rather than a driver of cost competitiveness.
For Tier‑1 suppliers to genuinely strengthen cost planning, they must go beyond P2P efficiency and build an information backbone that directly connects strategic sourcing and cost planning—ideally leveraging platforms such as SAP S/4HANA and integrated procurement solutions.
These five issues cannot be solved solely by the skills or efforts of individual team members.
Behind them lie structural questions:
In the next article, we will break down the structural reasons why:
We will then consider which actions procurement should prioritize to function as the central player in cost planning, and how to position SAP and other digital platforms to support that role from a Tier‑1 perspective.
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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