Case Study: Global Automotive Products Manufacturer Raw Material Leverage Improvement

With mounting increases in steel prices, a highly engineered automotive products manufacturer faced significant cost pressures. The company asked A.T. Kearney to work with them on a strategic initiative to transform the steel supply chain and drive material cost savings.

Challenge
The automotive manufacturer’s supply base was primarily composed of small suppliers that lacked the purchasing leverage of an OEM. The majority of these suppliers were purchasing steel independently. As a result, visibility and control over the total supply chain were lost. As steel prices rose, the suppliers began requesting surcharges to cover the material price increases.

A.T. Kearney was engaged to develop a program to:

• Reduce steel costs through improved steel buy
• Improve leverage with the mills
• Increase the understanding of supplier steel usage (material type and utilization)

Approach
A.T. Kearney provided a structured process to develop a new steel distribution model. The model is based on integrating the suppliers into a distribution approach that uses preferred service centers. These centers supply steel based on the prices negotiated by the manufacturer.

A first step in this process was understanding the steel usage within the network, to determine the leverage with the mills. To accomplish this step, the team analyzed over 10,000 components, detailing the steel specification and calculating the steel content. This information was also critical during negotiations with the suppliers to ensure that the program steel is used only for the manufacturer’s parts.

Results
The team worked with over 60 suppliers. Tangible results include quick hit commercial savings as well as longer term savings due to material substitution, utilization improvements, and specification rationalization. By the end of the project, the client had gained control over more than 80 percent of its suppliers’ steel spend, improving its leverage with the mills. Due to the success of the program in United States, the methodology is being extended to support the client’s material cost reduction programs in Europe and Mexico.