Originally Published on: SpendEdge |Top 5 Vendor Management Best Practices Automotive Industry Companies Must Follow

The automotive sector is currently undergoing unprecedented disruption, marked by significant shifts in manufacturing, procurement, and innovative designs. This transformation has reshaped both vehicles and automotive manufacturing facilities compared to a decade ago. Amid these changes, automotive companies face challenges related to efficient category management, effective vendor management practices, and harnessing data and analytics for their advantage. The rapid pace of innovation in the industry necessitates finding vendors capable of adapting and innovating swiftly. Consequently, automotive firms require improved metrics for contract compliance, procurement return on investment (ROI), process efficiency, contract lifecycle savings, and invoice accuracy to establish best-in-class procurement and robust resource and vendor management capabilities.

At SpendEdge, we recognize the profound impact an effective vendor management system can have on your business. To support automotive companies in thriving within the competitive landscape, our team of experts has identified four vendor management best practices that can propel automotive industry players to leadership positions.

Understanding Vendor Management: Vendor management encompasses the systematic process of overseeing, controlling, and optimizing relationships with suppliers or vendors crucial for a business to obtain goods, services, or products. Effective vendor management entails a range of activities to ensure vendors align with the organization’s needs while delivering value, quality, and compliance.

Top Vendor Management Best Practices for the Automotive Industry: 

Best Practice #1: Prudent Vendor Selection One of the fundamental vendor management best practices for the automotive sector is astute vendor selection and an agile procurement process. In this industry, where substantial capital is allocated for procuring automotive parts, vendor selection holds paramount importance. It enables better distribution of orders for parts among multiple potential vendors or suppliers, thereby catering to consumer demands. Thus, improved vendor selection stands out as a pivotal vendor management best practice for automotive companies.

Best Practice #2: Clear Expectations For automotive companies, it is imperative to establish realistic expectations when engaging new vendors. Given the need for continuous technological and manufacturing process updates in the automotive industry, transparent communication of changing goals and expectations to vendors becomes critical.

Best Practice #3: Information Sharing Mutual dependency between vendors and organizations underscores the importance of sharing insights into current and future industry trends. Such information exchange ranks among the vendor management best practices for companies in the automotive sector. Businesses in this industry should evaluate vendors for their industry knowledge and leverage this knowledge while optimizing and strategizing their vendor management system. As vendors evolve and introduce new capabilities, services, or offerings, staying abreast of market developments becomes essential.

Best Practice #4: Balancing Competition and Commitment Securing vendor commitment to support business operations represents a key objective of vendor management systems. Vendors typically expect a certain level of commitment from the company. However, blindly accepting vendor-set prices should be avoided. Incorporating competitive bidding into vendor management best practices is essential for companies aiming to reduce excess expenditure.

Best Practice #5: Robust Procedures and Policies Formulating written procedures and policies to establish a solid framework for vendor governance ranks among the vendor management best practices for companies in the automotive industry. These policies and procedures provide a structure to ensure regulatory compliance. Notably, the same level of due diligence is not universally applicable to all vendors. Adopting a risk-based approach enhances the efficacy and efficiency of vendor management systems by allocating more effort and diligence to higher-risk vendors compared to moderate and low-risk vendors.