Supply Dynamics — Making Sourcing/Supply Chain More Strategic Through Demand Aggregation (Part 3)

Please click here to read Part 1 and Part 2 in this series.

Serving as a central aggregator, Supply Dynamics enables buying organizations to drive demand aggregation strategies across sub-tier suppliers based on a rolling 12-month forecast using actual systems data, which shows raw material suppliers (distributors and/or producers) that demand is actually real, allowing them to sharpen their pencil further than they would be able to under normal operating circumstances. The application guides users to identify opportunities by showing both OEM and vendor material demand data on a configurable user page.

Yet by also pulling in non-system data such as industry news (again, on a user-defined basis) companies can begin to develop raw material sourcing strategies outside of a knowledge vacuum. For example, if company forecasts show increasing volumes and industry news suggests rising prices, an OEM or large tier one supplier using the system may wish to pay a premium to lock-in pricing as long as possible. Demand transparency also provides a type of comfort (or insurance, if you will) to distributors and producers that the buying organization done some basic homework to get better at forecast accuracy, and, more importantly, that it has effected the maximum degree of transparency at the sub-tier level to maximize potential spend with a raw materials supplier as well as lower that supplier's inventory risk.

From a sourcing strategy standpoint, by crossing volume and transparency thresholds, this approach can make it easier to order minimum quantities in a mill-direct manner, in the case of metals. Specifically, Supply Dynamics Oasis can allow sourcing managers to quickly drill down on line of business forecasts and tie these to aggregate demand for specific alloys, grades, specifications of metals and other raw materials. It also lets users keep track of part assignments, showing, for example, that only a certain percentage of parts may currently be assigned to a specific vendor (which could result from a number of factors, including a lack of system maintenance and data accuracy, obsolete parts which have not been officially subset, etc.).

Forecasting-wise, the application allows users to not only share raw material aggregate buy details (e.g., by alloy, grade, specification, weight, length, etc.) but to also run different hedge scenarios looking at quantity, dollar volume, pricing, etc. However, the application is not a replacement for commodity management tools that tie both the financial and physical aspects of commodity supply chains (e.g., managing hedged positions and tying in positions to specific order schedules), yet will no doubt make these other types of solutions more effective.

Supply Dynamics would certainly become better known outside its core industry verticals (e.g., A&D) with more aggressive marketing and sales. Yet even with limited outreach and name recognition, it continues to innovate in new areas that Spend Matters looks forward to sharing more about in the coming months, including the ability to potentially leverage a new level of price benchmarks within specific supply chain categories. As a division of O'Neal Steel, companies that sign up for Supply Dynamics should be aware of the motivations of its parent organization (i.e., to gain more metals distribution business). But such a potential conflict of interest is easily remedied by competing distributors on pricing by sharing aggregate demand forecasts from Supply Dynamics as well as looking at mill-direct options, if appropriate. If anything, the O'Neal ownership structure simply gives the parent organization more at-bats.

Going forward, Spend Matters believes that an increasing number of manufacturers will focus on building greater transparency into their extended supply chain requirements for raw material. Just as there's a growing emphasis on supplier information management today for collecting basic housekeeping details about suppliers, so too will organizations begin to worry about collecting all of the architectural and design details necessary to build a proper foundation and materials structure in the first place. From showing the thousands of tons of base metals purchases to the hundreds of pounds of rare earths a large manufacturer purchases in the aggregate each year, Spend Matters believes the information transparency that platforms such as Supply Dynamics will increasingly enable will be critical from a risk management standpoint as a core stratagem to drive sourcing and related cost reduction strategies.

It is our recommendation that all manufacturers should place as much emphasis on building transparency into aggregate, multi-tier demand data through an automated process as they emphasize on e-sourcing and related contracting efforts. And in doing so, they should ring up Supply Dynamics as well as other potential vendors in this area.

Jason Busch

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