Procurement and Supply Chain: Tips and Tricks to Prepare for Commodity Volatility (Part 1)

If there is an "Ariba" of commodity management, it's Triple Point Technologies. While there are many specialist commodity management software providers with expertise in given markets (e.g., Brady for metals), Triple Point has the widest cross-industry footprint. It also has invested more than its rivals in trying to expand the commodity management pie by educating procurement audiences across CPG, food and now, industrial manufacturing, in addition to continuing to sell into trading functions. As part of this education effort, Triple Point's blog is one place to turn to for insight into how commodity risk management approaches can play just as great a part in the manufacturing world as the financial trading community.

A recent post exploring commodity volatility strategies that food and beverage companies can take is an example of thought leadership that Triple Point is providing for the sector (in addition to sharing in its own thoughts). In the above-linked post, TPT's blog references an Accenture supply chain consultant, Mark van Erkelens, who suggests that there are four strategies that food and beverage companies should pursue to combat commodity volatility (the strategies are extensible across industries, generally speaking).

These are:

  1. Maintain margin despite growing volatility
  2. Integrate financial and physical markets
  3. Identify market opportunities before competitors
  4. Optimize trading agility and integrate sourcing needs

Points one and three are somewhat useless recommendations (if you're managing commodity risk successfully, you're doing them by default). But two and four are worthy of much deeper examination. In regards to point two, Accenture suggests that "companies that integrate financial and physical markets improve decision making, reduce operational risk, and accelerate their ability to move in and out of positions."

What does it mean to integrate financial and physical markets in practice and what are the steps companies can take? Qualified practitioners can download the following research briefs without charge in Spend Matters Research Library (registration required):

Beyond Sourcing and Supply Chain: Commodity Management Solution Fundamentals -- Understanding Approaches for Pursuing the Most Volatile, Critical and [Often] Largest Component of Company Spend

Minimizing Commodity Volatility Through Advanced?Commodity Management and Hedging Approaches

We also encourage Spend Matters readers to leverage MetalMiner assets (including the MetalMiner IndX and MetalMiner MMI reports in researching and analyzing sourcing and commodity risk management strategies for metals and related commodities.

- Jason Busch

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