The Race to Manage Risk in the Automotive Supply Chain (Part 1)

Spend Matters is pleased to welcome a guest post from Michael Schwartz, who serves as chief marketing officer for Triple Point Technology. Michael directs the planning and execution of Triple Point's marketing and communications initiatives in all global markets.

A new trend is emerging in the manufacture of automobiles. Faced with fundamental changes in the metals, chemicals, plastics and energy market environment, global organizations are turning towards energy companies and commodity houses and wondering whether they could benefit from the types of technology platforms deployed by these organizations.

For years, the world's most successful energy companies and global commodity houses have relied on sophisticated commodity management platforms that enable them to proactively manage purchasing, demand/supply balancing and risk management of raw materials and financial derivatives. These systems also provide logistics tools, accounting and decision support that create a complete commodity management platform that enables companies to optimally balance between cost, profit and risk.

Automotive manufacturers and suppliers are now recognizing that these same systems can help manage raw material risk and preserve profit margins in the face of today's unprecedented commodity volatility.

The new normal: volatility, volatility, volatility: The focus for supply chain groups over the past fifteen years or more has been on efficiency (and speed). Manufacturing and supply chain techniques such as just-in-time, inventory management, demand-driven supply networks and total quality management were introduced to eliminate waste, reduce inventory and improve quality.

These efforts have led to a striking reduction in buffer inventories, bringing them down to the bare minimum. At the same time these leaner supply chains have become more global as organizations look for lower cost suppliers and new markets in which to sell products. A side effect of this is that the ability of businesses to handle unforeseen shocks to the system such as sharp raw material volatility has been significantly limited.

We are experiencing unprecedented levels of volatility in all kinds of commodity markets. The vehicles that roll off today's assembly lines contain hundreds of raw materials -- as do the machines that make them. Automotive companies therefore have some of the most diverse and complex procurement portfolios, which represent equally complex supply networks and a broad series of commodities markets -- any one of which can be experiencing severe volatility at any given moment.

Stay tuned for the next post in this series, where Michael will continue his analysis.

- Michael Schwartz, Chief Marketing Officer, Triple Point Technology

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