Car sales expected to return to normal in five years
With car manufacturers around the globe slowly emerging from the global economic crisis and the Japan disaster, some good news came out yesterday.
A report from consulting firm A.T. Kearney predicted that car sales in the United States will return to pre-recession peaks within five years, and that demand for new cars will arrive sooner than that.
The firm is expecting 13.2 million new car purchases in the U.S. this year, which will increase to 16 million by 2013. Part of the reason for the surge is that there is a built-up demand for new cars, as the average age of a vehicle on the road today is not 10.4 years.
So ends the good news for automobile manufacturers, as the increased demand for new cars will create supply chain shortages and a bottlenecking effect that could hamstring the industry.
The Japan disaster, in particular, will impact Japanese and American car markets for the foreseeable future. Part shortages and supply chain woes will affect 2011 U.S. new vehicle sales by 200,000 units, according to the report.
SEE OTHER TOP PROCUREMENT STORIES IN THE WDM CONTENT NETWORK
Aside from supply chain issues, a spike in gas prices over the past year and a weakened U.S. dollar will also impact the automobile market.
“Since 1996, gas-price fluctuations have explained more than 72 percent of the volatility seen in new small car sales,” A.T. Kearney partner Dan Cheng said. “One way for (original equipment manufacturers) to navigate this uncertainty is to develop the capability to ‘flex production’ in terms of vehicle size.”
Doing so would allow original equipment manufacturers to become more nimble to supply and demand shifts, Cheng argues.
Managing supply chain risk more effectively is one way managers and executives can help guard against shortages should disaster strike. Having plans already in place and going through hypothetical disaster scenarios are some of the ways to improve your supply chain.
“Supply-based monitoring is being delegated at each level of the supply chain, often to smaller suppliers who lack the resources to monitor risk properly,” Cheng said.
Will Public Procurement Budgets Increase in 2021?
Procurement is more than just a private enterprise. COVID-19 reminded us that sourcing materials is an essential part of the government’s role. Throughout 2022, tiny departments sourced massive amounts of personal protective equipment (PPE), medical supplies, and emergency vaccines and testing kits. Even non-procurement professionals were pulled into the fray, as frantic timelines demanded nothing less.
According to Celeste Frye, co-founder and CEO of Public Works Partners, the crisis brought procurement to the attention of skilled employees who had never considered it. As non-procurement personnel stepped up to help their coworkers, many found that they’d stumbled upon a critical and rewarding job. “Existing public employees have seen the essential nature of the work”, Frye said. “[They’ve] gained some critical skills and possibly [grown] interested in pursuing procurement as a longer-term career”.
Small, Local Suppliers Take Charge
Frye, whose firm helps organisations engage stakeholders and develop long-term procurement strategies, thinks it well worth the effort to open one’s mind to new opportunities. Cooperative contracts, for instance, can help public departments and municipalities save money, time, and effort. By joining together with other towns or cities in the region, public procurement teams aggregate their purchasing power and can drive better deals.
These cooperative contracts have the added benefit of advancing equity. Smaller suppliers that struggle to compete with established firms for government contracts can act as subcontractors, helping big suppliers fulfil bits of the project. Once they get their foot in the door, small, local, and disadvantaged suppliers can then leverage that government relationship to take on additional projects.
Especially as governments start to pay attention to procurement resilience, public procurement departments must expand their requests for proposals (RFPs) to take into account innovative solutions and diverse suppliers. According to Frye, Public Works Partners—a certified female-owned firm—has benefitted from local and state requirements that specify diversity.
Post-Pandemic Funding Swells Procurement Budgets
And the pandemic won’t be the end of it. City governments need to build sustainable energy infrastructure such as solar panels, charging stations, and recycling plants, ensure that masks and medicines are never in short supply, and source new technologies to keep up with cloud and cybersecurity concerns.
Public procurement budgets will likely increase to match demand. As Peter Ware, Partner and Head of Government at Browne Jacobson, explained, “in a non-pandemic world, the [U.K.] government spends on average around £290 billion on outsourced services, goods, and works...anywhere between 10% and 14% of Gross Domestic Product (GDP). Post-pandemic, city procurement will only increase as national governments provide local divisions with emergency funding.
And in truth, government employees might jump at the opportunity. Frye noted that public procurement could give immediate feedback on new programmes: “[Procurement] is where new laws and policies ‘hit the road’ and are implemented”, she said. “Professionals in these fields get the satisfaction of creating real change and seeing quantifiable outcomes of their work”.