Beyond Strategic Sourcing: Building the Business Case For Commodity Management (Part 3)

Please click here for the first and second posts in this series.

Aside from the underlying development of an infrastructure to drive commodity management visibility as part of sourcing and supply chain programs, Spend Matters and MetalMiner recommend placing similar emphasis on understanding the universe of potential hedging vehicles for the specific commodity categories that can impact price volatility within a specific P&L. However, companies should not discount the importance of putting the right fundamental commodity management technologies and information sources in place before embarking on specific hedging strategies.

In the last post in this series, we outlined a few recommendations in this area. In addition to these, Spend Matters and MetalMiner also suggest:

  • Finding ways to automate the collection of raw material data and content including material, ingredient and related specifications from CAD files and related documentation and ultimately rolling up this information on a level that can enable either hedging or demand aggregation programs covering commodity requirements/inputs from different
  • Understanding current and projected exposure as well as existing agreements that are in place from contract management data, internal/customer demand forecasts, etc.
  • Leveraging statistical packages -- and even Excel, as a foundation -- to build models to understand correlations that may factor into accurate price forecasts capable of driving an underlying plan and commodity management strategy (for organizations interested in more than the arbitrary "taking of risk" off the table)

Pursuing a commodity management strategy might at first seem like a relatively basic endeavor. That being said, having the right skills, technology, and market information to manage and act on information and contracts can often become as complicated as implementing strategic sourcing programs and P2P systems (and processes). Whether you're just coming up to speed on commodity management or are looking to accelerate your program efforts, we recommend checking 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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