Will OEMs Dictate Raw Material Pricing in the Supply Chain?

At Commodity EDGE, Supply Dynamics' Trevor Stansbury added a bit of controversy to a panel discussion on commodity management technology when he noted that in the future, OEMs will likely "dictate pricing" throughout their supply chain. How will they do this? In part, Trevor believes, through better visibility into aggregate material demand and through negotiating preferred buying agreements with distributors and producers that suppliers can take advantage of (and if they opt out, will still need to negotiate pricing that is in line with the leveraged pricing). At Commodity EDGE, Trevor shared that demand aggregation programs can not only help drive savings and visibility across the supply chain, but also can more fundamentally help ensure continuity of supply, quality and better supplier relationships.

Trevor suggested that demand aggregation programs providing visibility into base material (e.g., metals, resins) consumption throughout aggregated parts and components can help organizations ask (and answer) the following types of questions:

  • What raw materials are required by my sites and/or sub-tier suppliers?
  • What quantity of those materials will be purchased over the next X-months?
  • Are there opportunities to consolidate common purchases?

Moreover, demand aggregation programs can play a central role in helping companies proactively manage commodity price risk. For example, they can allow a large buying organization "to plan and mitigate the impact of raw material pricing volatility" by relying on data coming from "finished part requirements, accurate bills of material, and metal chemical composition to quantify aggregate element requirements of extended supply chain." According to Trevor, this can allow companies to project the potential impact of price increases on material, part and component costs and pursue "what-If scenarios in order to increase confidence in decisions." Such analysis can also help companies determine their exact exposure, down to the pound or ton, to Dodd-Frank from a conflict minerals perspective.

- Jason Busch

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