Navigating Supplier Price Increases Amidst Inflationary Pressures
Written on
Chapter 1: OEM Profit Margins and Supplier Challenges
In the first quarter, original equipment manufacturers (OEMs) recorded an average profit margin of 8.1%, which exceeds the profit margins of automotive suppliers by over two percentage points. While suppliers maintained margins between 5-6%, they are grappling with escalating material and energy costs that they can only partially transfer to OEMs.
The necessity for cost recovery mechanisms should not be overlooked. It's crucial to address inflation-driven cost increases and adjustments promptly and consistently. These efforts should be supported by both OEMs and suppliers to facilitate effective cost reduction strategies.
Section 1.1: Insights from Supply Chain Managers
I have engaged numerous supply chain management (SCM) professionals regarding their strategies for negotiating price increase demands from suppliers. A key area of interest was the sources of data they utilize, such as CME and COMEX. Interestingly, many indicated that their suppliers provide this data, raising questions about whether this constitutes adequate preparation for negotiations.
Subsection 1.1.1: The Need for Strategic Tools
Procurement organizations must develop processes and tools to strategically and effectively address these requests. It is imperative to enhance our teaching methods in this area. Some alumni from our program are already experimenting with automated business processes that leverage such tools, serving as the foundation for implementing price indexing methods and economic adjustments in larger organizations. We are monitoring these initiatives from an academic standpoint to better educate future professionals.
Section 1.2: Research Findings on Commodity Pricing
The WMU Supply Chain Program has been actively engaging with alumni and conducting research on commodity pricing and its application in internal business processes. Our findings suggest that working with commodity pricing data can be manageable and beneficial.
I encourage feedback and any additional recommendations from fellow professionals in the field. Joining the WMU Supply Chain Program can provide a significant advantage in advancing your SCM career.