Things You Should Know
Vehicles – Raw Material Purchasing
I had a nice conversation with Automotive purchasing veteran Mike Duckworth regarding pricing in the Vehicles sector. He has been managing several shifting trends in the Automotive Purchasing world.
He shared, “Raw Material Pricing is driving by crude oil and most feedstocks have dropped dramatically. Others have been more stable based on supply and demand globally. I have always utilized an indexing pricing scenario with a 5% plus/minus band around certain common feedstock pricing and only adjusting quarterly when costs drift outside of the 5% band. My raw material suppliers prefer to keep market pricing the same and will offer rebates as a means to keep market pricing stable.”
He continued, “I have been working on Supplier Financial Health Risk Mitigation strategies – I have been concerned about the smaller Tier 2 and Tier 3 suppliers going Chapter 11 because of the Automotive shutdown and lack of cash flow. This is critically important, because if we are able to predict ways to mitigate this risk, we have a better chance of keeping our production going according to plan. We have to either develop dual sourcing strategies or market testing plans to move tooling from distressed suppliers. It’s also a time when outside consultants like KPMG and BBK get heavily involved in helping companies navigate through the turbulence just as they did in 2009.”
It’s never easy for companies to manage through disruptive times, but it can create great opportunities for strategic purchasing departments to properly position their companies to handle any challenge that presents itself.
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