What is Material Demand Aggregation?
Material Demand Aggregation is a process by which every material input element that contributes to the cost of your finished parts is identified, analyzed, tracked and leveraged, especially the Bills of Material that go into the finished-parts made by your sub-tier suppliers.
Material Demand Aggregation drives efficiency and cost reduction by synchronizing information flows, utilizing state-of–the-art hosted IT solutions, and proprietary business processes developed by Supply Dynamics. Provided in a hosted “software as a service” model, the Supply Dynamics multi-enterprise platform,OASIS, exchanges critical to quality data with virtually any number of legacy MRP/ERP systems, providing customers with a single, unified view of how finished part materials are impacting their business.
How Can I Use Aggregate Demand?
Since OEMs and their outside part manufacturers often procure common materials independently, the opportunity to combine purchases that would otherwise qualify for quantity-based discounts is lost. Consequently, both the OEM and its outside part manufacturers end up paying more than they should for those common materials. To make matters worse, neither the OEM nor the outside part manufacturer get the kind of preferential treatment they might garner if they were to bring large quantities of common material to a Distributor or Mill. These inefficiencies are compounded by the inability of the OEM to standardize common material sizes, specifications, quality requirements or special process requirements due to the absence of granular visibility into those attributes.
Material Demand Aggregation is used to fix these problems. It provides the OEM with all of the tools necessary to leverage common material demand across its supply chain, irrespective of whether parts are manufactured in-house or by outside part manufacturers. This leverage is used to obtain quantity-based material pricing and the preferential treatment that any good Mill or Distributor will offer its best customers. It also unleashes powerful reporting capabilities that make possible the standardization or even hedging of common materials.
Can I Gain a Competitive Advantage Through Supply Chain Visibility?
While much has been done at most OEMs to reduce cost on the “value added” side of the Total Product Cost equation, relatively little has been done to lean out the raw material supply chain. When you consider that raw materials and various component parts (fasteners, electronic components, etc.) contribute between 30 to 60% of the cost of an OEM’s final product, that inattention can cost the OEM dearly.
In fact, most OEMs have no idea what their outside part manufacturers are paying for the materials that go into the parts that they purchase. Nor do they fully understand what forecasted (let alone actual) raw material demand is across their extended supply chains. That visibility was lost when OEMs began aggressively outsourcing finished parts to outside part manufacturers – many of them located half way around the world. Outsourcing has also led to fragmentation of raw material volumes. This has led to generally higher material prices for the OEMs and their outside part manufacturers due to smaller quantity purchases.
Material Demand Aggregation provides the OEM with all of the tools necessary to leverage common material demand across its supply chain, irrespective of whether parts are manufactured in-house or by outside part manufacturers. This kind of leverage is then used to obtain the kind of quantity-based material pricing and preferential treatment that any good Mill or Distributor will offer its best customers.
