INVERTO: Procurement Plays a Vital Role in the EV Transition

Paul Zahn, Managing Director at INVERTO, leads the global automotive practice and heads North American operations from Chicago. With a wealth of management consulting expertise, Paul specialises in digital procurement, strategic cost reduction and transformative procurement strategies.

Renowned for driving impactful change, he has a strong background in business development, with a keen eye on emerging markets. Paul holds an M.Sc. (Hons.) in International Business from the University of Edinburgh and is dedicated to fostering innovation and sustainable value across the automotive sector and beyond.

In a conversation with EV Magazine, he shares his insights on procurement's pivotal role in advancing the EV transition.

What role does procurement have to play in the transition to electric vehicles?

Procurement plays an enormous role in the currently ongoing transition to EVs.

The transformation from procuring parts for an internal combustion engine vehicle to a battery electric vehicle is challenging – it will have a major impact on auto manufacturers’ supply chain configurations. The vehicle’s software is also now growing into a very substantial differentiating factor in the market.

The transition to EVs is also completely changing market dynamics. Before it was a buyer’s market, with auto OEMs aiming to procure mechanical parts at the lowest cost and forcing suppliers to constantly innovate and optimise their supply chains. Now it’s a seller’s market where those OEMs are having to deal with global businesses from other sectors like software and batteries as suppliers.

The automotive industry is now becoming a market where collaboration is critical, building long-term partnerships with suppliers is now likely to be a much more effective model than the traditional approach OEMs have taken.

Procurement must also play a major role in managing the risks of complex global supply chains. As the materials required change – such as a greater reliance of rare earth elements – so does the need to avoid dependency on regions that present a risk, politically or environmentally.

Are there any examples that stand out to you when you worked with a client to make this transition?

Working with automotive manufacturers on how they procure for manufacturing EVs has meant helping them to implement far-reaching changes in their approaches, systems, teams and skillsets.

That means moving away from a pure bottom-line focus towards procurement teams seeing themselves as value creators both for the OEMs themselves and for the customer. Meanwhile, as automobiles with combustion engines still will be produced for a while, the old structures will have to be maintained. This is the balancing act that OEMs have to perform.

Design and the combustion engine itself have been the differentiators of the past – both lying within the realm of the OEM. But now, batteries and software – which need to be acquired from suppliers - are the strategically relevant differentiators.

For this reason, changing how OEMs think about the relationship to suppliers of these components is vital. Those suppliers are experts in their technologies but not in the automotive sector. Procurement is the point where the two businesses meet – making it critical to the whole process.

What role does EV innovation play in reducing Scope 3 emissions - and what examples can you point to?

There is now a big focus on procuring ‘clean material’, especially when it comes to EV batteries.

While an EV itself is much better for the environment than an ICE vehicle, it’s important to acknowledge the supply chain emissions caused by mining. For example, procurement teams must consider the damage that can be done if battery materials like lithium and cobalt are not procured carefully.

There is also a drive across the EV industry to ensure that its demand for rare earth elements doesn’t contribute excessively to environmental damage. There is a great deal of collaboration between OEMs and battery suppliers to reduce the impact of the sourcing of those materials. That’s not just the mining but the transportation too.

To further decarbonise automobiles, procurement teams are having to deal with the shortage of green steel. Many auto manufacturers want to access what is still a limited supply, unfortunately there is simply not enough capacity in the market to produce the amount required.

There’s also an increasing demand for recycled materials to be procured for the automotive industry. Some OEMs are looking at possibilities like producing vehicles with a very high percentage of recycled material for consumers who place a particular value on that.

Procurement has a major role in allowing them to deliver innovative projects like that. Finding suppliers with the right materials at the right cost and the right volumes is a challenge.

What are the biggest challenges involved in going from procuring parts for combustion engines to parts for EVs?

The biggest challenge in the transition from ICE procurement to BEV procurement is the mindset shift. Working with new, specialised suppliers is a completely different game which involves changes the investment logic. Those suppliers will want automotive OEMs to make significant investments up front and they won’t want to take on that risk themselves. The OEMs don’t have anything like the amount of leverage here as they had with their legacy suppliers.

In light of that shift, the next challenge for an OEM is becoming a priority customer for those suppliers and making sure they offer the capacity and the support needed. That means approaching them with a mind to partnership, building long-term success together and even investing in joint projects.

On battery procurement, the high cost and complexity of the product means procurement teams are having to engage in more complex and long-term negotiations to find the right risk-sharing arrangements with suppliers. Risk management is a more important part of the procurement function than it was previously.

There’s also the issue of change in the supplier landscape; ICE vehicles rely on thousands of mechanical components that are no longer needed in EVs. That will mean some suppliers that may have been worked with for generations will no longer be needed – can they carve new roles for themselves in the EV world?

Does digitisation and modern procurement software have a role to play in this transition?

Absolutely. These tools support the complex transition from ICE procurement to EV procurement. They ensure both the OEMs and their suppliers are able to deliver on that transition at the pace required.

Partnership is a key area where procurement software can help – embedding suppliers in OEMs’ innovation processes is made much simpler with the right procurement software.

It also allows collaboration to take place on a global basis – if you’re making cars in Germany and your software supplier is in California, collaboration can be difficult without the right procurement systems. And like any form of digitisation in a manufacturing environment, procurement can benefit from data insights to support its decision-making.

What do you believe is the future of procurement for automotive manufacturers? 

I think procurement as a function needs to be aware of how powerful it is in today’s automotive industry.

It can exert huge influence but only if it rethinks its traditional ways of working. The new emphasis needs to be on innovation and risk management rather than pure cost control. It needs to be more flexible in adapting to technological changes – and needs to be more comfortable with relying on digital tools to optimise what it does.

Of course, within Europe the weight of new laws in this area means procurement also needs to build sustainability into all its decision-making. As mentioned above, the transformation is taking place while the old structure still exists.

We therefore support our customers in strategically setting up the organisation and product group management in such a way that the change succeeds at the right pace and with optimum efficiency.

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