Commodity Prices Got You Down? Think Differently!

Industry Week -- which is not usually a stronghold of Spend Management thought leadership -- had a worthwhile read last week that discussed how different companies are dealing with escalating prices for metals, plastics and other categories. One oft repeated concept which is called out in the piece is how "manufacturers are getting smarter about the product development lifecycle and bringing procurement expertise into the process sooner, such as before the materials are specified." Other more novel ideas the article suggests include looking at the opportunity to use reprocessed or scrap metal in production. Industry Week also discusses how come companies are using aggregated buying techniques that enable central procurement departments "to lock in raw material prices not only on their own behalf, but also on behalf of suppliers that make parts for them." This is a technique that HP and others have been deploying for years -- remember the famous Atlas Commerce resins example? -- but that many companies stand to benefit from.

Another unique suggestion in the article is how manufacturers can reduce costs by redesigning products with alternative materials. The article cites the case of Goodyear, which "has increased its ability to substitute synthetic rubber for natural rubber, thus taking advantage of the price differential between the two materials." My kudos go out to Industry Week for getting into alternative approaches to Spend Management in their discussion. Far too often, one hears the same stories of cost reduction over and over again. But the nuances, tactics and techniques that leaders deploy are things that we can all learn from.

Jason Busch

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