Do you have the tools necessary to minimize the risk?

Many OEMs watch the markets and constantly wonder what they should do.   Should we hedge?   Should we reschedule finished part purchases to avoid what appear to be short-term spikes in commodity prices?  Is now the time to negotiate long-terms agreements and firm/fixed prices or should we purchase on the spot market?  What actions can we take in order to mitigate the impact of fluctuating raw material prices for us and our outside part manufacturers?  Since raw materials and various component parts (fasteners, electronic components, etc.) contribute between 30 to 60% of the cost of an OEM’s final product, all of this can leave an OEM feeling pretty vulnerable.

While there is no silver bullet to perfectly anticipate and manage common material purchases across an extended supply chain, Material Demand Aggregation can help.  One option enabled by Material Demand Aggregation is to put in place a financial hedge on the elements or raw materials used to manufacture OEM parts, irrespective of whether those parts are made in-house or by outside part manufacturers.  While not the only option enabled by Material Demand Aggregation, hedging can establish a level of predictability and continuity of supply heretofore unattainable in most OEM supply chains.  In order to hedge elements, however, the bigger question most OEM have never been able to answer is what do I hedge and in what quantities?  The Element Forecasting Tool within our OASIS (SaaS) Solution will instantly translate OEM finished part demand (firm or forecasted) into granular element tonnages so that you can evaluate the best solutions for your business or for individual sites or part manufacturers within that business.  Moreover, it allows an OEM to answer all of those questions  about what to hedge and in what quantities based on finished part demand that may span multiple product lines, tens of thousands of parts, hundreds of globally distributed suppliers and countless raw material specifications.    

In fact, most OEMs have no idea what forecasted (let alone actual) raw material demand is across their extended supply chains.  OASIS can fix that too.  As the name implies, Material Demand Aggregation involves aggregating the demand for common materials across an OEM’s extended supply chain.  It is a superior approach to both “right to buy contracts” and OEM material consignment because it delivers the benefits of both without tying up cash or alienating sources of supply.  More importantly, it provides the OEM’s designated mill or distribution source with the kind of real-time information that enables them to operate more efficiently and be more responsive to changes in OEM finished part demand.

To learn more, please view our 8 minute video on the subject by clicking the play button to the right or email us right now at info@supplydynamics.com.