Three Steps For OEMs To Turn Dodd-Frank’s Lemons Into Lemonade

To make matters worse, the same contract manufacturers supplying larger companies are buying much smaller quantities of the same raw materials, in a variety of different sizes, paying higher prices and purchasing them from dozens of different distributors and mills.

While labor rate arbitrage persisted, all was hunky-dory.
Twenty years later, with oil hovering around $93 dollars a barrel, original equipment manufacturers (OEMs) are discovering, as never before, that they can’t ignore the raw material supply chain any longer. Nor can they abdicate entirely the purchasing of raw materials to their outside contract manufacturers, at least not if they want competitively priced parts on time.

So what does this have to do with conflict minerals? Well, that’s simple.
While some OEMs are contemplating the same old tired approach to compliance – one that involves lawyers and auditors and armies of buyers chasing spreadsheets from supplier to supplier – others (John Deere, Caterpillar, UTC, GE Energy, Cessna, and Boeing, to name a few) are already prepared (or nearly so) to take a more progressive path: one that turns the proverbial lemon of Dodd-Frank into lemonade.

Here’s how they are doing it: Some OEMs have come to recognize that irrespective of where parts are manufactured (in-house or by outside contract manufacturers), they should always retain visibility into the Bill of Material associated with a part or assembly. After all, you can’t control what you can’t see.

In order to do that, they have done three things:
1. They have carefully documented the raw material attributes of their parts to garner an understanding of the form, alloy, grade, specification, and blank size(s) used to manufacture their parts or assemblies. We call this process “Part Attribute Characterization.”

2. They use either a homegrown or a commercially licensed, web-based solution (like OASIS) to translate their finished part demand into an accurate, timely forecast of raw materials, which they can then share with their Tier 1, 2 and 3 contract manufacturers and with the distributors or mills selected to furnish consolidated raw material requirements.

3. They have leveraged what they know and understand to rationalize supply and secure preferential pricing and service levels from fewer sources – not necessarily because of larger volume purchases (although that doesn’t hurt), but mostly because it enables mills and distributors to anticipate the types, sizes and quantities of raw materials that are needed and when, and by whom.

Disclaimer: Trevor Stansbury, founder and president of Supply Dynamics. Supply Dynamics is a provider of raw material forecasting and fulfillment solutions, commonly used to manage “Material Demand Aggregation” programs across an extended supply chain.