Are you getting the preferential material prices and service levels you deserve? 

Companies no longer compete against companies.  Today, OEM supply chains compete against other OEM supply chains and whoever has the most efficient supply chain wins.  So let’s talk about your raw material supply chain.  Directly or indirectly, OEM’s pay for all of the raw materials that that go into their parts.  In other words, whether outside part manufacturers buy materials competitively or not, ultimately the OEM picks up the tab for any inefficiency in its extended supply chain.  Moreover, if you are an OEM, chances are that more than half of the parts that go into your final products are not made in-house anymore but by hundreds of 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.

Think about it!  Since OEMs and their outside part manufacturers often procure common materials independently, often 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.

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 on the play button on the right or email us right now at info@supplydynamics.com.