Successful joint procurement should be based on 'rules of engagement'

Gasgoo.com: Do you think automotive OEM's joint procurement will become a trend in China? Please give your reasons.

Duane Bolinger: Joint procurement has already been taking place with Chinese automakers that are partnered with multinational automakers (Toyota, GM, VW, etc).  The Chinese platforms/volumes are leveraged with the partner's volumes to provide preferential pricing & terms & conditions as compared to what the Chinese automaker could have achieved on their own.  With regards to the independent automakers collaborating on procurement, it will depend if they can reach agreement on what I would refer to as the 'rules of engagement' (i.e. what types of products to jointly source, how is engineering engaged, how does differences of opinions regarding the outcomes of a joint procurement process get resolved, under what conditions can an automaker choose to not accept a recommendation of the joint procurement process, etc.) 

Gasgoo.com: Under what condition does cooperative buying happen?

Duane Bolinger: Cooperative buying can happen if the automakers can agree on common requirements (i.e. engineering specs, delivery terms, payment terms, target pricing levels, general terms & conditions, etc) and agreement to adhere to the recommendations coming from the process (i.e. the supplier being sourced, the contract time period & the negotiated price).

Gasgoo.com: What are the requirements of joint procurement?

Duane Bolinger: Other organizations are also in agreement to support joint procurement (Engineering, Logistics, and Manufacturing) and agreement that each automaker will not try to renegotiate better pricing or terms & conditions after a joint procurement deal is reached.

Gasgoo.com: What are the challenges the OEMs will face when starting joint procurement?

Duane Bolinger: The biggest challenge comes with the coordination with multiple engineering organizations.  Consolidation of purchases makes sense if the engineering requirements are the same/similar.  If each automaker has a different set of engineering requirements, then the consolidation of the purchases becomes exponentially more difficult for a joint procurement office to deal with.  If a supplier is sourced that is different from the supplier being used by any of the automakers, typically engineering validation will be required by that automaker.