Joint procurement is trendy with carmakers?

I. The demands of automakers for joint procurement

The carmakers in need of joint procurement have some factors as follows:

1. Some assets-related companies. A success story is the completely joint procurement of Renault and Nissan. Chinese ventures FAW VW and Shanghai VW can make their joint procurement as they have the same parent -- Volkswagen AG, their engines are the same and then their R&D can be open. In China many things can be outsourced to an R&D company by signing an agreement and establishing the same standards. There are only a few suppliers, so it will be less difficult to do the joint procurement later.

2. Carmakers such as BMW and Mercedes-Benz. They have a smaller scale of auto-parts production that is not cost-effective. Although BMW and Mercedes-Benz are rivals, they are controlled by the same economic laws and can make their joint procurement to reduce the costs of their vehicles.

3. Some weak automakers that are not related by assets. The several Chinese car companies for joint procurement are new comers to the auto industry and their supply chains are not strong yet. The cost of building their high-quality supply chain will be much higher than well-developed companies in the sector. For these new automakers, joint procurement is an ideal solution to reducing the supply chain costs.

II. The difficulties of Chinese automakers in joint procurement

The main difficulties in making joint procurement include:

Time -- The bargaining and negotiations will take a long time, such as the one by one bargaining with each of the five companies.

Prices -- Larger quantities do not necessarily mean better prices, as the market is changing quickly. If you can't react to the market rapidly, you may not get any price advantage.

Product types -- The needed product types are various and different. It is very difficult for General Motors and Volkswagen to have joint procurement, as one company needs products of the German type and the other needs those of the U.S. type. Even the five Chinese carmakers will demand very different types of products.

Coordination of interests -- the interests of competitors (the five companies have their different strengths, procurement amounts and costs); the relation with suppliers (the five companies all have their own suppliers). In addition, if the products are in short supply, it will be a big problem to meet the demands of all the five buyers in joint procurement, and will be a hard choice to supply which buyer first.

Market responsiveness -- Excessive concentration of procurement may cause slow reaction to the market.

Open resources -- Joint procurement requires the transparency of data, such as the procurement scale and quantity. It will be hard to coordinate these matters between the rivals.

Cost -- The joint procurement based on the production level will be more difficult, as it is not easy to control the procuring cost within a reasonable limit.

III. How to operate the joint procurement

Joint procurement will depend on whether they can reach an agreement as to what kind of products to procure jointly, how to lay out the technical specifications of products, how to solve differences of opinion arising from the joint procurement process, and in what conditions a car manufacturer can pull out of the joint procurement, and so on.

If the car manufacturers can reach an agreement in the engineering, delivery, payment, pricing and other basic terms, and can follow the consistent procurement process, such as the choice of suppliers, contract period and agreed price, these companies can embark on their joint procurement.

Joint procurement needs the support of relevant departments and links, such as the engineering and technology sector, logistics sector, and production sector. And if the carmakers have signed a joint procurement agreement, any of them can not go it alone to bargain about the pricing, product quality or other terms in any way.