Part 2: Going Deep in Profit Risk Mitigation and Improvement
In Part 1 of this post, we introduced the general concept surrounding commodity purchase price risk management. Today, we’ll dive into some of the implementation details that are key to practitioners to building out this capability – not just for high-impact benefits, but also for elevating procurement’s role to steward strategic supply planning into the overall business planning process.
In a Supply Chain Management Review article I penned last year, I talked about some research I had done regarding the integration (or lack thereof) of input cost planning and forecasting to the business plan (including the impact on profit). The figure below shows that 39% of procurement organizations perceive that they do a decent job at mitigating price inflation, but less than a third have an integrated cross-functional process for doing so, and only a fourth of firms use centers of excellence, specialized analytics, and third-party services to help them anticipate future input costs (see Figure 1).
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