Manufacturing and Procurement Strategy Priorities: Winding Down 2015 With 5 Ideas

There are a number of priorities that manufacturers need to consider from a core procurement strategy perspective as we enter the final quarter 2015. Procurement and commodity management technology can play a role in this, but tactics and resourcing – of the people and idea kind – must come first.

We recommend focusing on these 5 areas:

1. Price Composition and Decomposition

Sourcing strategies need to increasingly take into account price composition and decomposition for underlying raw material, logistics and energy components. Changes in energy pricing and sourcing are a key piece of this, but there are also broader items at play here.

2. Electricity and Energy

If you are a category manager for electricity or energy, your job is going to go through significant change in the coming year, especially if you’re in an energy-intensive manufacturing sector. If you spend more than $1 million on energy, directly or indirectly, start thinking more comprehensively about the category and developing an updated category plan and strategy as soon as possible. You could be walking into a bull market – be ready for it.

3. Price Volatility 

Dealing with pricing volatility in commodity markets, generally speaking, will become more important. Over the past 18 months, we have been in essentially a straight down bear market, which has allowed for a different buying strategy – i.e., “buy down” the market. We believe a new period is starting and expect greater volatility. The macro headlines may remain the same, but expect both price increases and decreases.

4. A Possible End to the Commodity Bear

In 2016, the commodity bear may end. It’s time to get ready for this. We are now watching conditions for moving into a more bullish market. Note, however, this has not materialized yet. Before, we only watched price declines, but now we are keeping our eyes open for other activity that may indicate a changing market.

5. Political Events Around the Globe

There are some political events that are set to change the game in certain industries. First, there’s China’s likely designation as a “market economy” by the World Trade Organization, which European Union lawyers anticipate by the end of 2016. The second item is the US Environmental Protection Agency’s Clean Power Plan rules, which are in the middle of implementation and likely to raise energy costs. Sourcing organizations need to figure out what electricity costs are going to look like; we are somewhat bullish on the price outlook given the EPA and other factors. The third item to watch is the new infrastructure bill in Congress, which could materially fund infrastructure and change the demand equation for steel and other commodities.

What do you think? Please drop us a line jbusch (at) spendmatters (dot) com or lreisman (at) metalminer (dot) com to let us know.

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