Guest Post: Managing Through Volatility — Ingredients and Direct Spend for Food and CPG Companies

This morning, I'd like to welcome Jeff Pattee of Provident Spend Management. Please join me in officially welcoming Jeff to the blogosphere.

"Oh no, now what?"

The markets have gone from record highs to record lows in six months. The company's sales numbers are soft with little assurance they will stabilize. Your suppliers stop in regularly to discuss the latest problem in the market and some may not be around by the end of the year. You look at the computer screen and just wonder what is next?

This has been one of the most volatile time periods I have seen in my twenty six plus years in procurement. When I saw the flooding in Iowa and Missouri this past summer and heard reference to it as "a once in a lifetime occurrence"; I immediately thought those were the same words I heard in 1993 with the flooding along the Mississippi River. As the saying goes, history repeats itself.

What have I done to better manage market uncertainty during previous tough economic times? Here are three ideas I think you should consider.

First, pay close attention to your key strategic materials global supply / demand values. There are products now at historical lows. Given that, there will be periods of time where "value" will become available in some categories. These categories will offer great opportunities to beat plan for this year and beyond. You have to be ready to react when those situations occur. Develop a list of the materials used regularly and share with management the coverage strategies now so when you need to pull the trigger, everything is pre-sold. This pre-selling is key, because if the past is any indication of the future, timing will be critical. You have to move fast. Gathering a large group within a short window of time is never easy. Don't lose the opportunity.

Ok, but what if you are long on a product at an unfavorable price? If that is the case, can you add more coverage at lower prices to "average down" the exposure? It may push coverage out into the next fiscal time period but that may be a manageable alternative as opposed to a huge negative variance today. Remember to work with your financial team to understand what the rules and limits are for any type of extended coverage.

Next, stay aware of the supply community and the pressures they are facing. You will find companies more receptive to new services. Work with your supply chain counterparts to identify the needs within the organization and begin the dialogue with the supply community. What can the suppliers do differently to help meet your needs while growing their opportunity? Post these ideas internally and update the organization on a regular basis of the progress.

Finally look for innovation. As much as you can, ask for the supply community's help to look at your materials / processes to challenge everything. Business pressures today will give your companies the window to eliminate "sacred cows" that have been there too long. Where are the costs that can be removed? What new products or applications are out there that our organization would now be willing to review to better manage the company objectives? Share the ideas within the company. Something may trigger another idea from someone else. These are just three ideas. I am sure there are other ideas to consider in times like these. What are your thoughts on managing risk in uncertain times?

- Jeff Pattee

Spend Matters would like to thank Jeff for sharing his thoughts in this post.

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