Raw Materials Price Increase: How to address this phenomenon in a Business-to-Business Corporation and the Robert Bosch GmbH Business Case.

From February 2022 to July 2022, my internship at “Robert Bosch GmbH branch in Italy”(RB) involved a comprehensive exploration of a critical challenge faced by TIER1 suppliers within the automotive industry. These suppliers often sign long-term supply contracts with OEMs with fixed sales prices leaving their operating margin vulnerable to unexpected cost increases in their production inputs. This vulnerability became evident due to a significant surge in raw material prices from early 2020 to May 2022. Therefore, the main aim of this thesis is to understand how TIER1 suppliers can effectively navigate such a challenging scenario. This analysis encompasses both strategic and operational perspectives, employing resources such as literature, online sources, and the knowledge I acquired during the time spent at RB. In the first chapter, I investigated what were the factors driving the surge in raw material prices. First of all, I highlighted how the restrictions put into place by Governments due to the COVID-19 pandemic led to several setbacks in global raw materials supply chains. Simultaneously, the Russo-Ukrainian war led to further geopolitical uncertainties and supply difficulties, particularly in the energy and metals sectors, further inflating raw material prices. Chapter 2 delved into the Robert Bosch GmbH business case, offering a comprehensive analysis addressing retroactive offsets resulting from increases in raw material costs completely internalized by RB, which needed to be claimed from STLA (Stellantis). This chapter provided both operational and strategic solutions. The operational side focused on the precise computation procedure of retroactive offset claims. The procedure involved selecting the appropriate reference part numbers (P/N), raw materials weight (RMI weight), indexes price, and determining the reference base year. From the strategic standpoint, the chapter emphasized RB’s internal organizational alignment within different departments, required to engage in smooth negotiation processes with STLA. This alignment aimed at standardizing negotiation approaches and presenting a united front when dealing with customers. Moreover, understanding the bargaining power of the parties involved, played a pivotal role in defining the negotiation process flow chart. Furthermore, the chapter also introduces the Material Escalation Clause (MEC), which is a contractual clause aimed at addressing potential future strong fluctuations in raw material prices, eliminating the need for lengthy renegotiations. In the third chapter, I extended these insights to both Business-to-Business (B2B) and Business-to-Consumer (B2C) companies. Concerning B2B companies, the focus lies in constructing a strategic scenario matrix, evaluating the extent of Raw Materials Price increase (RMI) impact and the extent of Supplier bargaining power. In conclusion, this thesis attempts to contribute to the existing academic literature by highlighting the profound influence of global events like the COVID-19 pandemic and the Russo-Ukrainian war on raw materials price increase. Furthermore, it offers practical operational and strategic guidance for B2B companies encountering similar challenges, regardless of their industry sector.