We have often written about what constitutes “popular content” on this site.
It should come as no surprise that when we write pieces examining metal market direction and/or provide forecasting cues, traffic tends to increase. Uncertainty, underpinned by volatility, makes people question when they should buy, how much they should buy and even what they should buy.
So we find it ironic that companies facing uncertainty and volatility tend to shy away from more complex commodity risk management strategies such as hedging. Let’s face it: the folks that explain these concepts to purchasing professionals don’t tell their story in, shall we say, an easy-to-understand format. But that complexity should not scare off the buying organization, because the underlying problem of sourcing in uncertain environments remains.
Over the years we have seen numerous surveys conducted by various for-profit and non-profit organizations surveying CPOs and other top executives about the issues that keep them awake at night. Invariably, commodity volatility and commodity risk management make it to the top or near the top of the list, particularly for manufacturing organizations.
We peg the start of the volatility to Q4 2003, depending on the specific market and whom one asks. That volatility appears in obvious places (we all know about gas prices, and price spikes in 2008), but we’ve seen the volatility in ingredients. My baker friends are very worried about wheat at the moment, but sugar, cotton, iron ore, and neodymium, among others, are critical.
Those commodities cut across industries, yet when we think about companies that actually “hedge,” we still largely see the types of firms we’d expect — airlines with jet fuel, metal producers for energy, and some consumer packaged goods manufacturers, for instance. But we’d argue the volatility has wreaked havoc on other industries as well. Take, for example, the automotive industry, as this pair of articles (here and here) from our sister site Spend Matters explains.
“Commodity volatility is the new normal, and more and more companies are realizing that it’s critical to have a comprehensive commodity risk management strategy and technology platform in order to maintain profit margins,” said Michael Schwartz, chief marketing officer of Triple Point Technology.
“Volatility in the price of raw materials has had a huge impact on many industries, but manufacturing companies, especially the beverage and dry packaged goods companies, have been especially hard hit,” Schwartz continued. “They are embracing risk management strategies, including hedging in large numbers, because they’ve realized it can make the difference between sinking or swimming in a very competitive marketplace.”
Whether your company can take advantage of a comprehensive commodity risk management technology or not, Commodity Edge will provide your organization with a better understanding of specific market trends and — more importantly — actionable strategies to better manage commodity volatility.