Beyond Strategic Sourcing: Building the Business Case For Commodity Management (Part 2)

Please click here for the first post in this series.

Effective commodity management requires an entirely new approach to thinking and engaging suppliers. Yet it's something that procurement organizations across the discrete manufacturing, food, CPG and energy markets must master if they're going to deliver the type of value that management teams are expecting. In contrast, successfully reducing maverick buying and improving spend compliance through P2P automation and sourcing SG&A-related items and expenses, while valuable, represents a fraction of the type of potential savings and risk exposure that focusing on the direct supply chain through commodity management programs can have.

Despite the opportunity, it's our belief that only a fraction of procurement and supply chain organizations are ready for the broader commodity management challenge (especially in discrete manufacturing -- A&D, automotive, industrial, etc.). Preparing to jump the commodity risk management hurdle is not easy. It requires a combination of skills, expertise, collaboration and tools. In our recently published research on the subject, Spend Matters and MetalMiner recommend a number of strategies focused on data awareness and solutions investments, including:

  • Investing in foundational sourcing and supply management solutions, including spend analysis and e-sourcing/advanced sourcing capabilities, the latter of which should include the ability to gather and analyze difference responses from suppliers based on different variables -- price locks for 30, 60, and 90 days, bidding just the value-added portion of a contract, etc. Basic reverse auctions need not apply.
  • Leveraging price indexes for local markets and incorporating -- ideally, direct integration -- daily information feeds into spend analysis, contract management, contract execution, payment, commodity management and related systems.
  • Deploying commodity management platforms capable of managing both physical and financial hedges -- including all the associated requirements that come with back-end integration to ensure exact coverage, not over- or under-coverage (as well as active contracts, positions, settlement, scheduling, accounting requirements, etc.)

If you want to learn more about how to implement or accelerate a commodity management program in your procurement organization, check out the following Spend Matters/MetalMiner research papers on the subject:

Minimizing Commodity Volatility Through Advanced Commodity Management and Hedging Approaches
Beyond Sourcing and Supply Chain: Commodity Management Solution Fundamentals.

Readers should take note that within the next sixty days, our research will only be available to qualified practitioners free of charge

- Jason Busch

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