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Using Sourcing Intelligence to Combat Commodity Volatility – The Price Index Advantage

If you ask just about any business executive in the manufacturing world to reveal their most difficult challenges, chances are that commodity volatility will top the list. At no other time in recent history have we seen so many commodities rise and fall in such a compressed period of time. Thanks in part to flexibly flowing capital in the global investment markets as well as growth patterns in developing economies like China and India, there has never been greater interest in – and physical demand for – commodities that keep the world economy running. Perhaps the case of oil, a commodity that directly and indirectly impacts the cost structure of just about every corporation, is the most telling of all. Between 1869 and 2006, the inflation adjusted price for oil on a global basis averaged $21.66/barrel. But as we have all witnessed over the past two years, prices soared based on a number of factors: speculation, demand increases and supply volatility. Most recently, after reaching a high of almost $150 per barrel in the summer of 2008, prices have settled below $50 per barrel.

After downloading this Spend Matters Perspective, readers will learn how their companies can use pricing indices in local and global markets to save money, reduce risk and create greater transparency in buyer/supplier relationships. There are many reasons why leading procurement organizations are using price indices as a core component of the contracting and supplier management process. Some deploy global price indices to unearth cost saving opportunities or as a trigger to examine geographically diverse sources of supply. Others use them as tools to create more accurate total landed cost models. Learn more by reading this Spend Matters Perspective.