Dr Bearing explained that if SVM’s customers could understand the
forces that affect nickel prices, these customers would be more willing to
work towards the creation of contractual agreements that allow improved
nickel price management.
My customers now demand that I give them fixed prices that are valid for one
year but they will not commit to any fixed quantity of material. Further, since
my customers have ‘just in time’ (JIT) manufacturing systems, they feel that
giving SVM one week’s notice of an order is more than enough lead time. I
currently deal with this situation by adding an extra markup to my prices to
cover the risk associated with my nickel price exposure. If I could get my cus-
tomers to give me greater lead times specifying both quantities and the timing
of deliveries, I could use the hedging options that TNM has developed. If my
nickel purchases are hedged* at a fixed price that matches the fixed price
commitments given to my customers I can eliminate the safety margin that I
now build into my pricing. With more competitive pricing I’m sure that SVM
can get more business; increasing our operation’s utilization rate from 70% to
95%; driving down fixed costs per unit of production and increasing profits
substantially. Everything depends on educating my direct customers and all the
various parties in the supply/value chain. By working together with TNM and
our customers we can eliminate the nickel price risk and allow ourselves to
focus on the aspects of the operation that we can actually control.SVM’s input
Dr Bearing explained that next month senior purchasing executives from
the world’s major turbocharger manufacturers would gather in Geneva for
their annual conference. He wondered if perhaps Keegan could put on a
presentation at the conference and include TNM’s ideas on how to bring
more efficiency to the value chain while managing nickel price exposures.
Keegan responded quickly that she certainly could. After some thought,
she proposed that her presentation would cover the following topics:
1 Nickel Supply, Demand and Prices
2 How Nickel Prices are Set: The LME
3 Metal Trading and Hedges
4 How TNM Can Make SVM and its Customers More Competitive Through Value
Chain Rationalization.
Keegan then laid out the presentation format (Figure 3.3.2).
The supplier and alliance market domain 213
*Hedging in the nickel market allows a buyer of nickel to obtain fixed quantities
for future delivery at a fixed price.