Commodity risk management at BMW: Price indices and contracts

Abstract

Financial and operational supply chain risks are often managed independently, by managers in different business units and with widely-varying viewpoints. Yet, differences in incentives often result in a mismatch in priorities and processes. In 2008, BMW established the Raw Material Management Department with the aim of centralizing the management of financial and operational risks related to procurement. This led to the development of a new framework for contracting and risk management based on price indices and index-linked contracts. The current chapter highlights this framework and its contribution to an integrated supply chain, and it explains why and how BMW leverages price indices to jointly manage financial and operational risks. Not only has this framework strengthened relationships with suppliers, but it has also led to investment decisions which have improved internal manufacturing processes and positively impacted sustainability practices.

Keywords: commodity risk management, supply chain finance, BMW