The automotive industry is grappling with many challenges as it transitions to electric vehicles (EVs), while simultaneously navigating volatile production schedules, tightening regulatory compliance, and placing rising pressures on supplier relationships. These challenges underscore the complex and often transactional nature of relationships between customers and suppliers.

Recently, on the Auto Supply Chain Prophets podcast, my co-host Jan Griffiths, a prior VP of Supply Chain at a major Tier 1, and I reflected on these dynamics as we discussed the critical importance of developing a collaborative yet rigorous approach to supplier management and performance. Corporate purchasing leaders must not only manage transactional data effectively but also use this data from stakeholders across the organization to create a more collaborative environment that creates trust and benefits to both customers and suppliers.

In 2021, a McKinsey survey in multiple sectors found that companies that regularly collaborated with suppliers demonstrated higher growth, lower operating costs, and greater profitability than their industry peers. Companies with close collaboration with suppliers outperform their peers. Depending on the industry, companies can see cost savings of 5 to 10% and revenue gains of 7 to 10%.

The Complexities of Managing Supplier Relationships

Managing suppliers has always been complex, but it is becoming even more challenging in today’s fast-paced automotive industry. With multiple players involved—corporate purchasing, quality teams, materials managers, plant managers and even engineers—internal collaboration on supplier performance from all these key groups who interact with suppliers is just as important as the relationship with the suppliers themselves. 

The key to successful supplier collaboration lies in having a single version of the truth—a consolidated source of data that everyone in the supply chain can rely on. In the past and even still today, organizations have found themselves in situations where supplier performance data is unreliable or contradictory. In her past, Jan mentioned “somebody always doubted the data…it was never quite good enough.” However, with modern SRM tools, all stakeholders—customers and suppliers alike—can access real-time supplier management systems that include or seamlessly integrate data from ERP, supply chain/delivery systems, quality systems, allowing for a transparent, unified view of supplier performance and data.

The Need for Compliance and Risk Management

There is a critical need for compliance and risk management in today’s supply chains, especially in the wake of major disruptions and supply chain bottlenecks. Industry standards such as MMOG/LE (Materials Management Operations Guidelines/Logistics Evaluation) and IATF 16949 demand stricter adherence to managing the organization’s suppliers. These requirements are not a “nice to have” but a necessity, especially for managing suppliers and navigating the uncertainties especially in the transition from ICE to EV production.

Supplier management has become a primary focus in recent years. For example, MMOG/LE has incorporated specific criteria on how to manage suppliers. MMOG/LE requires the organization to cascade requirements down to supplier’s  (through terms and conditions/supplier manual) items such as Environmental, Social, and Governance requirements, mapping, risk assessment, contingency planning, EDI/Web requirements, capacity, production flexibility, obsolescence, packaging, labeling, and shipping specifications. According to an article by Supply Chain Dive, this can be challenging considering only 6% of companies report having full visibility across their supply chains. 

Collaboration Is the Key—But It Starts with Data

Without collaboration, you’re just firefighting, which is often how many companies approach supply chain issues today. Suppliers often end up making concessions, but the long-term costs—such as hidden inefficiencies or strained relationships—are not addressed. What is the solution? Start with the basics. You need to have the data trusted and easily retrievable for all parties both internally and externally before you can get into a more strategic, collaborative relationship.

Customers must ensure that all relevant stakeholders—purchasing, quality, materials management, plant operations and engineering—are on the same page when it comes to assessing supplier performance. This involves looking beyond just delivery and quality metrics and ensuring that suppliers are meeting all operational requirements, such as capacity, flexibility, risk assessment, and adherence to Environmental, Social, and Governance (ESG) guidelines. 

Technology can help to transform supplier relationships. Modern supplier relationship management tools are the key to ensuring a unified view of supplier performance. These tools allow for real-time data integration, performance scorecards, and even risk assessments. By providing both customers and suppliers with a “single version of the truth,” technology facilitates better decision-making and reduces friction in these critical relationships.

From my experience, adopting technology leads to significant improvements in supplier collaboration and performance. For instance, the integration of supplier performance management tools helped organizations such as Grammer AG. Grammer uses QAD SRM to manage its supply base. The company is integrating the solution with PLM, ERP and its sales and operations planning (S&OP) and risk management solutions to deliver an end-to-end smooth process. Grammar indicated suppliers often complain about digital systems because there has to be an agreement on standards, contracts, certificates and other processes, but QAD SRM has removed that obstacle for Grammer. Supplier buy-in helped Grammer increase its usage of the system by 150%.

Leadership and Culture: A Unified Approach to Supply Chain Success

In addition to technological solutions, leadership and organizational culture play a crucial role in managing supplier relationships. Supply chain and purchasing teams often face pressure to meet cost and delivery targets, but the focus cannot solely be on these metrics. Instead, organizations need to foster a culture of collaboration, where all functions—purchasing, quality, materials management, plant operations and engineering —work together to create a cohesive, well-managed supply chain.

Supply chain and purchasing personnel in an organization are often focused on cost and delivery, but this is much bigger than just one function. Suppliers must support the business as a whole and it extends to other departments that touch suppliers. This broader perspective is essential for managing risk and providing one version of the truth to ensure that supply chains remain agile and resilient in the face of disruptions as well as in normal day-to-day business.

Looking Forward: A Call to Action

As I continue to help automotive suppliers navigate the complexities of supplier management, I am encouraged by the progress I have seen. Whether it’s by improving quality or delivery, reducing inventory in the supply chain, ensuring that suppliers meet the latest compliance standards, or managing ESG to slash Scope 3 emissions, the results are tangible and impactful.

I am offering a limited number of visits for those who are interested in deep-diving into supplier performance and other key aspects of supply chain management. You can reach out directly to me at [email protected] or visit autosupplychainprophets.com to connect. I am seeing positive results from my efforts to help organizations in this area.

In a world where supply chain disruptions are becoming more frequent, the importance of collaboration, data transparency and visibility, and rigorous supplier management cannot be overstated. With the right tools, mindset, and leadership, it’s possible to turn these challenges into opportunities for efficiency and improvement which fosters better collaboration.

To listen to the full podcast episode, please join us here.