Commodity Shortages Hit the Market

A couple weeks ago, I painted a guardedly optimistic picture about the restoration of shipping and trade activity in the wake of Hurricanes Rita and Katrina. But earlier today, I was talking with a Spend Management expert who serves the automotive and industrials sectors. Apparently, the firm's clients received word from a number of foam suppliers that key industrial chemicals that go into foam applications were being put on allocation, making it difficult for suppliers to meet contracted volume numbers to their OEM and Tier 1 accounts. The cause of the commodity chemical shortfall? Shipment delays and fall-out from damage to the oil industry in the Hurricane hit areas on land and offshore in the Gulf of Mexico. The foam suppliers in question had no idea how long the commodity shortfalls would last. Their suppliers (i.e., the Duponts of the world) provided little guidance about when production would once again meet demand.

It's one thing when organizations face commodity price increases in a rising market. It's another when they're commodity shortfalls, where price escalation is the least of an organization's concerns. Not only might shortfalls like this lead to near-term price inflation and shortages across all levels in the supply network, they could also potentially impact long-term buyer / supplier relationships. Smart organizations that take a Spend Management approach to mitigating these risks will focus on developing alternative sources of supply and balancing lean programs with increased inventory needs for at-risk categories. Want to learn more? Check out Mickey North Rizza's Brief at AMR: Buyer Contingency Planning Post-Katrina: Five Key Areas of Focus (AMR clients only). Mickey is a new analyst at AMR covering sourcing and procurement, and juddging by this piece, she appears to have hit the ground running. We welcome her coverage to the Spend Management arena!

Jason Busch

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