icon_orchestrateORCHESTRATE
SOURCING

LEADING SOURCING
EXECUTION MODELS

icon_directed_buyDIRECTED
BUY

icon_rebateREBATE
(DIRECTED BUY)
icon_buy_consignBUY
& CONSIGN

icon_buy_sell
BUY-SELL
(RESALE)

Solution Overview

Selecting the right commodity strategies and sourcing execution models can differ vastly based on the raw material category, industry, supply market dynamics, economic conditions, risk profile, geopolitical factors, and any number of other factors.  One thing is certain, there is no one size fits all model.  Even so, in order to properly evaluate the strategies, risks, and opportunities, and be in a position to make an informed decision requires a sufficient understanding of your Supply Network or Extended Bills of Resource.

SDX™ 8.0  provides the analytics that support changes to existing or implementation of new commodity strategies and sourcing policies.  This is achieved by mapping the consolidated outputs of the Extended Bills of Resource to a prescribed set of criteria including:

  • Supply Market Dynamics (Commodity & Form, Availability & Price Volatility, Market Demand, Geopolitical Factors)
  • OEM Position (Leverage with Supply Base, Core or Context Materials, Competition, Availability & Price Volatility)
  • Sub-Tier Supplier Position (Leverage with Supply Base, Risk Profile & Capabilities, Financial Condition).

Highlights & Capabilities

Orchestrate Sub-Tier Sourcing

OEMs (Network Sponsors) are able to promote a centralized purchasing process model to their Supply Network and direct suppliers to preferred part and material sources—allowing the Network Sponsor to leverage aggregate demand for commercial benefit and to ensure continuity of supply.

SDX™ 8.0′s data capture and process workflows allow Network Sponsors to systematically monitor usage and program compliance, as well as track purchasing activity of Supply Network stakeholders.  See additional information below:

Business Value & Benefits

Orchestrate Sub-Tier Sourcing

  • Leverage aggregate volume in negotiations to gain commercial benefit with material sources.Remove non-value added costs on materials.
  • Control price volatility exposure.
  • Align raw material supply with optimal part transformation capability.Share aggregate material requirements with material source to ensure load, capacity, and supply continuity.
  • Ensure supply across multiple tiers of the supply chain, enabling a demand-driven Supply Network.
  • Isolate raw material costs in part-cost models.

Sourcing execution models explained

The Supply Network, Process Models, Elements, Stakeholders & Value Drivers

Process Model Overview

OEM negotiates price and aggregate volume directly with raw material sources and provides a group contract from which designated sub-tier suppliers may purchase.

Conditions

Complex  environments; Dynamic supply chains; Price volatility; High mix, low volume;  “Enabler”  to help sub-tier suppliers achieve savings targets.

Pros

Improves purchase price through aggregation;  Simplest, lowest direct involvement with sub-tier suppliers; Low operations complexity and cost.

Cons

Price transparency to competitors hard to control; Less direct control over scrap/revert opportunities than other models; Translating sub-tier savings to OEM savings is more complex.

Directed Buy: Process flow diagram

Process Model Overview

OEM negotiates price and volume directly with raw material sources and provides a group contract from which designated sub-tier suppliers may purchase. OEM rebate clause for actual transacted volume .

Conditions

Complex  environments; Dynamic supply chains; Price volatility; High mix, low volume;  “Enabler”  to help sub-tier suppliers achieve savings targets. OEM is willing to share a percentage of cost savings with sub-tier suppliers.  OEM seeks to exploit volume discount opportunities in a simple manner.

Pros

Improves purchase price through aggregation: Simplest, lowest direct involvement with sub-tier suppliers; Low operations complexity and cost; Provides some price masking; Rebate paid on all sub-tier material that flows through the program; Administrative simplicity

Cons

Price transparency to competitors hard to control; Less direct control over scrap/revert opportunities than other models; Translating sub-tier savings to OEM savings is more complex; High follow-up and administration costs.

Rebate (Directed Buy): Process flow diagram

Process Model Overview

OEM negotiates price & volume directly with material source.  Materials shipped to part suppliers and invoiced directly to OEM.

Conditions

Complex  environments; Dynamic supply chains; Exploit purchasing power; Dynamic pricing; Shortage management less important; Component specifications relatively stable; Low cost of inventory.

Pros
Maximizes purchasing power through aggregation and price masking.  Forward buying advantage; supply certainty.
Cons
Incremental AP; Inventory ownership; Obsolescence exposure; Less influence over shortage management

Buy & Consign: Process flow diagram

Process Model Overview

OEM becomes raw material supplier to sub-tier.  OEM negotiates price & volume directly with raw material sources. Resells raw materials to designated sub-tier suppliers.

Conditions

Complex  environments; Dynamic supply chains; Price volatility; High mix, low volume; Supply assurance critical.

Pros

Improved pricing through aggregation; Price masking to competition; Remove non-value added margin on materials; Isolate material in part cost model; Cash flow advantage; Compliance enforcement; Most advanced analytics.

Cons

Incremental AP; Requires change in purchasing operating model and supplier relationships; Technology costs (service fees – Integration).

Buy-Sell (Resale): Process flow diagram