Friday Rant: Economic Indicators and News Sources Procurement Organizations Must Focus On (Part 1)

Over the past few months, I've given a presentation that tackles the intersection of commodity management and sourcing strategy several times. Compared to most of the dry topics I usually talk about, it's sparked some great discussions and ongoing dialogues, and is definitely a topic that procurement leaders clearly know they need to think more about. But most don't have the background knowledge or tools available to incorporate and manage commodity information as a core component of sourcing and supplier management strategy. Even though technology can play a useful role in a number of areas (e.g., core commodity management platforms, advanced data collection/sourcing optimization), I believe the biggest barrier to most companies is simply awareness. And the awareness I speak of here isn't tools awareness -- it's general economic awareness.

I've said for years that procurement team members who are pressed for time should not waste it reading publications like Spend Matters, Procurement Leaders and the like. Nor should they invest their scarce few extra minutes of the workday cramming for a procurement certification test. No, the place that rising procurement stars should spend their limited extra time is in reading publications like The Economist, which can help them not only predict where certain markets (country GDP, commodities, currency, general inflation) might be going, but also give them context and inputs to inform their own ideas, analysis and forecasts. Indeed, this virtual rag might be fun and even sometimes indispensable around technology musings, but trust's disposable relative to what everyone in procurement should be reading.

First and foremost in building economic awareness, procurement leadership should encourage their category managers to follow three sets of indicators and news sources to help inform their own sourcing, supplier management and supply risk decisions, as follows:

  1. Economic, country, political and risk secondary analyses -- Publications and sources that fall into this category present their own analysis and often raw data as well. The fewer publications in this area you read, the more global the outlook should be. Even if you're only doing business or sourcing locally, the global perspective matters. Examples of what we read in this office here in this category include The Economist (we are a "two subscription household" on a personal level), Stratfor, Foreign Affairs, D&B Country Risk Services/Publications, Financial Times (if you're in the US read the FT to get a continental perspective; if you're in Europe, read The WSJ to get a US perspective), etc.
  2. Leading and general economic indicators -- These should be your bread and butter (commit them to memory every month, or at least the trending); we consider the following as indispensible: US PMI (manufacturing and non-manufacturing), US GDP, Consumer Metrics Institute (US consumer spending leading numbers), US unemployment, Chinese PMI, Chinese GDP and European GDP (Euro-zone, UK, Germany, France). We also sometimes look at general trending of certain commodities because of their impact on the broader market (not from a category management standpoint). We typically track oil prices, natural gas, scrap and certain ferrous and non-ferrous trending price points as general and leading indicators.
  3. Category-specific indexes (based on what your company buys or what you personally manage) -- Procurement executives should always track the important commodities that their company buys (and should attempt to get pricing information on as local a level as possible, as country and regional pricing for different commodities nearly always vary). Individual category managers should subscribe to pricing services that provide as local of intelligence as possible on a daily or weekly basis (e.g., the real-time LME price is all but useless for contracting) for all their key commodity inputs, even those that suppliers buy on their behalf. Ideally, they should also go one-step down and look at the inputs to commodity prices as well (energy prices, raw materials, etc.)

When an organization has a list of the types of resources and commodity fields necessary to track, it's time to turn the focus to what's possible with the information at hand. And that is where we'll resume this analysis in next week's rant.

Jason Busch

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