Chap 6A Commodity Strategy

Flashcards based on Chap 6A Commodity Strategy lecture slides.

What is the purpose of a Commodity Strategy?

A strategic and cross-functional approach to managing a specific commodity aligned with corporate goals and product/services roadmap.

Who should participate in the Commodity Strategy to ensure input?

A global and cross-functional team.

What analysis helps answer questions about short- and long-term availability and cost for a commodity?

Commodity Category Analysis.

What should Volume Requirements & Supplier Capacity Analysis cover?

Past, current, and future volume requirements and supplier capacity.

What factors are tracked in analyzing supply market dynamics?

Market trends, capacity, pricing (including tooling, ED&D, FX), and innovation.

What risks should be assessed when analyzing supply markets?

Geopolitical risks, tariffs, currency risks, and potential substitutes.

What is the Strategic Sourcing Matrix used for?

Segmenting commodities into strategic, leverage, bottleneck, and non-critical categories and tailoring strategies by segment.

What sourcing decision options are considered for suppliers?

Single vs dual/multiple sourcing and make vs buy decisions.

What type of supplier relationships are emphasized?

Strategic partnerships with key suppliers.

What is the objective of Supplier Performance Management?

Monitor and develop supplier performance and implement development programs.

List the three primary objectives of a Commodity Strategy.

Cross-functional participation; Purchasing/buyer lead; Commodity management optimization.

Who typically leads the Commodity Strategy?

The Purchasing department and the Buyer.

What does commodity management optimization aim to reduce?

Overall cost (TCO) and ensure supply by optimizing purchasing and cross-functional processes.

What costs are included in Total Cost of Ownership (TCO) analysis?

Logistics, quality, inventory, and warranty.

What should be developed to support cost reductions?

Should-cost models and cost-reduction roadmaps (VA/VE, localization, etc.).

What are the main elements of Risk Management & Resilience Planning?

Identify and map supply risks; develop contingency plans and secondary sources; monitor supplier financial and geopolitical exposure.

In contracting and negotiation, when should LTAs be used?

When beneficial; project quoted as a long-term agreement (LTA).

What pricing approach is recommended for volatile commodities?

Index-based pricing.

What terms should be included regarding lead time and quality?

Lead time and quality terms provided by Milne.

Are escalation clauses typically needed in contracts?

No; escalation clauses are not needed.

What metrics drive year-over-year performance improvements?

Cost savings, supplier performance, innovation, and supplier risk.

What is the relationship between the Learning Curve and cost savings?

Year-over-year cost savings are driven by learning and productivity gains.

What tools are recommended for procurement data and forecasting?

ERP, MRP, e-sourcing tools, and AI forecasting.

What digital tools provide visibility in the supply chain?

Digital twins and control towers.

What is a Digital Twin?

A virtual representation of a real-world supplier or OEM reflecting its physical counterpart and behavior over its lifecycle.

What regulatory/compliance standards should be followed?

IATF 16949, ISO, REACH, and RoHS.

What sustainability targets should be pursued with suppliers?

ESG and sustainability targets.

How can innovation be enabled through supplier collaboration?

Involve suppliers early in new product development; collaborate with engineering and innovation teams.

What are the Part 1 Key Components of Commodity Strategy?

1) Supplier Relationship Management 2) Cost Optimization/Savings 3) Forecasting & Inventory Management.

What are the Part 2 Key Components?

4) Risk Management 5) Performance Monitoring (Multi-Criteria Scorecard) 6) Compliance & Sustainability Compliance.

What are the seven items included in a Commodity Category Analysis?

Historical Spend Analysis; Supplier Performance Review; Commodity Analysis; Current & Future Demand Analysis; Cost Analysis; Risk Analysis; Supplier Relationships.

What does a basic Commodity Category Analysis answer?

Short- and long-term availability and cost for the category.

What does a comprehensive Commodity Category Analysis evaluate regarding category location?

The category's location on the Strategic Sourcing Matrix (leverage, routine, critical, bottleneck) and related market dynamics.

What type of data is included in Key Supplier Data – High Level Overview?

Industry, year founded, CEO/board members, headquarters, number of employees, products, markets, and sustainability/DEI information.

What sources provide key financial information for commodity strategy research?

Yahoo Finance, CNBC, Bloomberg, Statista, annual reports, etc.

What financial metrics are typically included in the Commodity Strategy overview?

Net income, net income margin, EBIT/EBIT margin, revenue, projected revenue, and changes.

What is the Profit Leverage Effect?

$1 saved by Purchasing yields $1 in operating profit; sales impact depends on operating margin.

Are stock pricing indicators typically included in a purchasing commodity strategy?

Not typically included, but they can provide context on future company performance.

Name some example commodities/parts suggested for selection in the Sourcing Strategy process.

GPU – AI, Automotive Infotainment, Automotive EV Battery, Data Center GPUs.

Name one commodity/part NOT to be used for the Sourcing Strategy selection process.

Auto Seats (one example from the NOT list).

What is the purpose of the Commodity & Suppliers Selected slides?

To document the chosen commodity and its suppliers to be used for the Sourcing Recommendation project.