Automotive procurement is how vehicle makers (OEMs) and their Tier 1, 2 and 3 suppliers source production parts, tooling and materials for a vehicle program. The process runs in a fixed order: qualify suppliers, issue an RFQ package, evaluate quotes on lifetime cost, nominate a supplier, build and approve tooling through APQP and PPAP, then call off parts against releases until the program ends.
Four things make it different from general procurement: prices are quoted against multi-year program volumes, most parts need dedicated tooling, no part ships before it passes PPAP, and deliveries are scheduled by EDI releases into lean or just-in-time production.
Automotive Supply Tiers
| Tier | What they make | What procurement looks like |
|---|---|---|
| OEM | Finished vehicles | Program-level sourcing of systems and modules, long-term agreements, directed buys |
| Tier 1 | Systems and modules sold direct to the OEM (seats, brakes, harnesses) | Buys from Tier 2 under the OEM's customer-specific requirements, carries PPAP and launch risk |
| Tier 2 | Components and sub-assemblies (stampings, castings, molded parts, PCBs) | Quotes to Tier 1s, buys material and outside processing |
| Tier 3 | Raw and semi-finished material (steel coil, resin, wire) | Index-based pricing, capacity allocation |
The Automotive Procurement Process, Step by Step
| Step | What happens | Owner | Output |
|---|---|---|---|
| 1. Sourcing plan | List the parts for the program, decide make or buy, shortlist suppliers | Purchasing with engineering | Sourcing plan per part |
| 2. Qualification | Check quality certification, capacity, financials, site | Supplier quality engineer (SQE) and buyer | Approved bidders list |
| 3. RFQ package | Send drawings, volumes, timing, requirements and a cost breakdown sheet | Buyer | RFQ with a firm due date |
| 4. Feasibility and Q&A | Suppliers review the design and raise questions or deviations | Supplier, product engineer | Signed feasibility commitment |
| 5. Evaluation | Compare lifetime cost, check cost breakdowns, review technical fit | Buyer, cost engineer, SQE | Recommendation |
| 6. Nomination | Sourcing decision and nomination letter | Sourcing committee | Nomination letter, tooling PO |
| 7. Tooling and APQP | Supplier builds tools and production process | Supplier, SQE | Tool build schedule, control plan |
| 8. PPAP and run at rate | Supplier proves the process makes good parts at volume | SQE | Approved Part Submission Warrant (PSW) |
| 9. Series supply | Parts called off by EDI releases, delivered to the line | Material planner, buyer | On-time, in-full deliveries |
| 10. Program management | Price-downs, engineering changes, raw material adjustments, end of production and service parts | Buyer | Updated prices and contract terms |
Your customer's program dates set the clock. Work backwards from start of production (SOP): PPAP has to be approved before SOP, tooling has to finish before PPAP, and nomination has to happen before tooling can start. Ask each supplier to quote tool build and PPAP lead times in the RFQ, rather than assuming them.
What to Put in an Automotive RFQ Package
An unclear RFQ gets padded quotes from careful suppliers and low quotes from suppliers who will come back with change requests. Send everything in the first package:
- Drawings and CAD at a stated revision, with GD&T, material specs (SAE, ASTM, DIN, or the OEM's own) and surface treatment.
- Volumes: annual estimate by year from launch ramp to peak, with low and high cases, program length, and service-part years after end of production. State that volumes are estimates, not commitments.
- Timing: quote due date, nomination date, PPAP date, SOP.
- Quality: PPAP level, customer-specific requirements (CSRs) that flow down, PPM target, any special characteristics.
- Tooling: quoted separately or amortized, who owns it, who maintains and replaces it, and how it transfers if you move the part.
- Commercial: Incoterm and delivery point, packaging (returnable or expendable), payment terms, annual price-down expectations, raw material index for metals or resin.
- Cost breakdown sheet: the same template for every supplier.
| Cost breakdown line | What the supplier fills in | What you check |
|---|---|---|
| Material | Grade, gross and net weight, price per kg, scrap credit | Weight against the drawing, price against the index |
| Purchased parts | Each bought-in component and its price | Directed buys priced at the agreed rate |
| Process | Each operation: machine, cycle time, rate per hour | Cycle times against similar parts you buy |
| Labor | Operators per operation, rate per hour | Plausible for the supplier's region |
| Scrap allowance | Percentage | Higher than your other suppliers' on similar processes |
| Overhead and profit (SG&A) | Percentage of manufacturing cost | Consistent across their quotes to you |
| Packaging and freight | Per part, at the stated Incoterm | Pack density matches your packaging spec |
| Tooling | Each tool, price, expected life in parts | Tool life covers program volume or a replacement is quoted |
Tooling: amortized or paid separately
Example (illustrative): a stamped bracket needs $120,000 of tooling. The program plan is 150,000 parts a year for 5 years, 750,000 parts. Amortized, that adds $120,000 ÷ 750,000 = $0.16 to every part. If the program runs at 60% of plan, the supplier sells 450,000 parts and recovers $72,000, leaving $48,000 short, and will ask you for it.
Paying for tooling separately, usually on PPAP approval, costs cash up front but gives you clear ownership and no volume dispute later. If you do amortize, put a volume floor in the nomination: any balance not recovered by end of production is paid as a lump sum, and you own the tool once it is paid.
Qualify Suppliers Before They Quote
Only invite suppliers who could actually win. Treat these as pass or fail gates:
| Gate | What to check | Evidence |
|---|---|---|
| Quality system | IATF 16949 certificate for automotive production parts, with the right site and scope | Certificate, check it is current and covers the site that will make the part |
| Capability | Process and equipment for this part, and past PPAP experience | Site visit, sample PPAPs, equipment list |
| Capacity | Free capacity at peak volume plus the margin your customer asks for | Capacity study in hours per week per machine |
| Financial health | Can survive a 5-year program and fund its share of tooling | Financial statements, credit report, bank reference |
| Logistics | Distance to your plant, packaging, cross-border trade compliance, regional content rules | Lane analysis, packaging proposal |
If you are an IATF 16949-certified company, the standard requires you to develop your suppliers' quality systems, with ISO 9001 certification as the minimum starting point unless your customer authorizes something else. Check your customers' specific requirements before you approve a non-certified supplier.
Comparing Automotive Quotes on Lifetime Cost
Piece price alone misleads, because suppliers put tooling, freight and packaging in different places. Bring every quote to cost per part over the program.
Example (illustrative): 750,000 parts over 5 years.
| Supplier 1 | Supplier 2 | Supplier 3 | |
|---|---|---|---|
| Piece price | $2.85 | $2.70 | $3.05 (tooling amortized in price) |
| Freight and packaging per part | $0.12 | $0.30 | $0.10 |
| Tooling, paid separately | $95,000 | $140,000 | Included |
| Program cost | $2.97 × 750,000 + $95,000 = $2,322,500 | $3.00 × 750,000 + $140,000 = $2,390,000 | $3.15 × 750,000 = $2,362,500 |
| Cost per part over program | $3.10 | $3.19 | $3.15 |
Supplier 2 has the lowest piece price and the highest lifetime cost. Ask Supplier 3 to break out its tooling, because you will need that number to compare fairly and to know what you owe if volumes drop. If a supplier offers annual price-downs, model the price year by year instead of using the first-year price.
Then decide in this order:
- Remove anyone who failed a gate or signed feasibility with open deviations.
- Rank the rest on cost per part over the program.
- Where the top two are within a few percent, decide on quality history (PPM), delivery history, engineering and launch support, and distance to your plant.
The nomination letter should state part numbers and drawing revision, piece price and validity, tooling price, ownership and payment terms, the volume estimate and that it is not a commitment, PPAP and SOP dates, price-down and raw material index terms, packaging, Incoterm, and the customer-specific requirements that apply.
PPAP and Launch
The Production Part Approval Process (PPAP), defined by AIAG, is how a supplier proves its production process makes parts that meet every requirement at the quoted rate. No production shipment goes out before the Part Submission Warrant (PSW) is approved.
| PPAP level | What the supplier submits |
|---|---|
| Level 1 | Warrant only (plus appearance approval for appearance items) |
| Level 2 | Warrant with product samples and limited supporting data |
| Level 3 | Warrant with product samples and complete supporting data. The default unless the customer says otherwise |
| Level 4 | Warrant and other requirements defined by the customer |
| Level 5 | Warrant with product samples and complete supporting data reviewed at the supplier's site |
Complete supporting data covers design records, engineering changes, DFMEA and PFMEA, process flow, control plan, measurement system analysis, dimensional results, material and performance test results, initial process capability studies, lab documentation, sample parts, checking aids and customer-specific requirements.
Two habits save launches. Ask for the supplier's PPAP timing chart at nomination and review it every two weeks with the SQE. And require a run at rate, a production run at quoted cycle time with production tooling and operators, before you accept that capacity exists.
Series Supply: Releases, EDI and Price Management
After SOP, procurement is about keeping parts flowing and prices current.
| EDI transaction | Purpose |
|---|---|
| 830 Planning schedule | Rolling forecast with firm and planning periods |
| 862 Shipping schedule | Short-term firm quantities and delivery times |
| 850 Purchase order | Usually a blanket order covering the part for the program |
| 856 Advance ship notice (ASN) | What is on the truck, sent when it leaves |
| 810 Invoice | Billing against the shipment |
Smaller suppliers without their own EDI system often use a web EDI service their customer accepts. Whatever the method, agree delivery windows, packaging and labeling standards, and who pays premium freight when a delivery is late.
Through the program, expect:
- Annual price-downs. Many OEM and Tier 1 contracts include a yearly productivity reduction. Agree the percentage and the years at nomination, not after SOP.
- Raw material adjustments. Tie steel, aluminum, copper or resin content to a published index, with the weight per part, the index, the averaging period and the review date written down.
- Engineering changes. Each drawing change gets a re-quote using the original cost breakdown, so only the lines that changed move.
- VA/VE. Ask suppliers for cost-reduction ideas (material, process, packaging) and agree how savings are split before they start work.
- End of production. Agree service-part pricing, last-time buys and tool storage before volumes drop.
Procurement at Tier 1: Managing Your Own Suppliers
A Tier 1 sits between an OEM's requirements and its own supply base. The OEM holds you responsible for everything your Tier 2s do. In practice:
- Flow requirements down. Pass the OEM's customer-specific requirements, PPAP level and special characteristics into your sub-tier RFQs and purchase orders word for word.
- Match your terms back to back. If your OEM contract adjusts for steel using a given index and quarter, buy your stampings on the same index and period. Otherwise you carry the gap.
- Separate directed buys. When the OEM directs you to a specific sub-supplier, list that content separately in the RFQ and agree in writing who owns quality and supply issues for it.
- Map the sub-tier for critical parts. Know where the chips, castings and resin for your top-risk parts come from, and which ones have a single source or a single region.
- Control material sources. Keep an approved source list for critical materials and require material certifications from approved mills or resin suppliers only.
- Plan premium freight. Decide in the contract who pays when a sub-tier delay forces air freight to keep the OEM line running.
Common Automotive Procurement Mistakes
- Nominating on piece price. Fix: compare cost per part over the program, including tooling, freight and packaging.
- Assuming tool build time. Fix: ask suppliers to quote tool build and PPAP timing, and plan back from SOP.
- Accepting capacity on a slide. Fix: require a capacity study for peak volume and a run at rate before PPAP sign-off.
- Amortized tooling with no volume floor. Fix: add a lump-sum true-up for any unrecovered balance, as in the tooling example.
- Every buyer using a different RFQ. Fix: one RFQ package checklist and one cost breakdown template for the whole team.
- Raw material clauses with no detail. Fix: write down the index, weight per part, averaging period and review dates.
- Forgetting service parts. Fix: quote service pricing and tool storage in the original RFQ.
Running Automotive RFQs Without an Enterprise Suite
Large OEMs and Tier 1s source through ERP, PLM and supplier portals. Smaller suppliers often run RFQs from email and spreadsheets, where drawings get lost and quotes arrive in different formats.
AuraVMS is a lighter option for the RFQ step. You send unlimited RFQs to suppliers by email invite, compare quotes side by side and compare supplier performance. On the Medium Team plan you can attach drawings and the cost breakdown template to RFQ items, send reminders to suppliers who have not replied, and export complete quote data to Excel for the lifetime cost comparison. It is not an EDI, PPAP or PLM system; those stay where they are.
FAQ
What is the procurement process in the automotive industry?
Sourcing plan, supplier qualification, RFQ package, feasibility review, quote evaluation on lifetime cost, nomination, tooling and APQP, PPAP approval, then series supply against EDI releases, with price-downs, engineering changes and raw material adjustments managed until end of production.
What should an automotive RFQ include?
Drawings at a stated revision, material specs, annual volumes by year with program length, timing (quote due, nomination, PPAP, SOP), PPAP level and customer-specific requirements, tooling terms, Incoterm and packaging, payment and price-down terms, a raw material index where relevant, and a standard cost breakdown sheet.
What certifications do automotive suppliers need?
IATF 16949 is the standard most OEMs and Tier 1s expect for production-part suppliers, together with ISO 9001, on which it is based. Some customers also require ISO 14001 (environmental) or ISO 45001 (health and safety). Always check the certificate covers the site that will make your part.
Should tooling be amortized into the piece price?
Pay it separately when you can, usually on PPAP approval, so you own the tool and avoid volume disputes. If you amortize, state the volume basis and add a lump-sum true-up for any unrecovered balance at end of production.
How do I compare automotive testing labs on capability, not just price?
Start with accreditation. IATF 16949 expects external labs to be accredited to ISO/IEC 17025, or to a national equivalent, with the specific test in scope, unless the customer accepts the lab another way. Read the scope of accreditation for the exact test method and standard, then compare equipment range, turnaround time, the format of the report (does it meet your PPAP needs), proficiency testing results, and whether your customer has already accepted the lab. Price comes after a lab passes those checks.
What does Tier 1 procurement involve?
Buying from Tier 2 and 3 suppliers under the OEM's rules: flowing down CSRs, matching price and raw material terms to the OEM contract, handling directed buys and mapping sub-tier risk.
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