A new trend is emerging in vehicle manufacturing. Faced with fundamental changes in the metals, chemicals, plastics and energy market environment, manufacturers have begun to look at energy companies and commodity houses, and wonder whether they could benefit from the types of technology platforms deployed by these organisations.
Vehicle manufacturers and suppliers are waking up to raw material risk and the growing need to proactively manage purchasing, demand/supply balancing and risk management of raw materials and financial derivatives. They should also be looking at logistics, accounting and decision support tools to create a complete commodity management platform that will help them to preserve profit margins in the face of today’s unprecedented commodity volatility.
The ability of businesses to handle unforeseen shocks to the system – such as sharp raw material volatility – has been significantly limited.
The historical focus for supply chain groups has been on efficiency and speed, and techniques have been introduced to eliminate waste, reduce inventory and improve quality. While these efforts have led to a striking reduction in buffer inventories and more global supply chains, as organisations look for lower cost suppliers and new markets in which to sell products, a side effect has been 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. Vehicle manufacturers 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.
Clearly volatility is a source of risk, especially for organisations not used to running their day-to-day operations amid such rapid fluctuations in prices. But it is important to remember that volatility also brings opportunity. Those that put the processes and systems in place to better manage volatility and risk will do better than competitors.
By using the sophisticated systems already used by energy companies and commodity houses, vehicle manufacturers will be able to participate fully in the markets, buying and selling physical commodities and then managing the logistics of their transport in the most advantageous way.
Vehicle manufacturers have to take a different and more proactive approach to commodity procurement. Many still acquire commodities in much the same way they procure non-commodity supplies. But this does nothing to protect a firm from volatility in multiple markets, and denies them the chance to maximize opportunities presented by that volatility. It is now imperative that companies adopt the risk management processes, tools and measurements required to optimise their acquisition of raw materials.
It may be tempting to shy away from this new reality, and to opt to remain in what feels like the relative security of the status quo. But the risks are real, and need to be addressed head on. By using the sophisticated systems already used by energy companies and commodity houses, vehicle manufacturers will be able to participate fully in the markets, buying and selling physical commodities and then managing the logistics of their transport in the most advantageous way. This is the unavoidable world that vehicle manufacturers are now entering.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Michael Schwartz is Chief Marketing Officer at Triple Point Technology
Triple Point Technology is the leader in trading and risk management solutions for commodities including power, oil, gas, coal, metals, agricultural products, freight and biofuels. Contact info@tpt.com
