Back To The Future!

October 13th, 2011

Does watching the futures market help procurement professionals determine what products should go to market and when?

Companies and individuals enter into contracts based on the future price of a market or commodity. Manufacturers that use a variety of commodities in their manufacturing process constantly balance the swing of many commodities in order to drive blended costs that most benefit their future needs. Futures can be monitored on future markets like Bloomberg amongst others.

A very simple example of how this data might be useful to a buyer is that of a retail real estate – construction buyer that is looking at construction of new stores for the upcoming year. If we continue with the Bloomberg example, they report futures prices on energy, agriculture, industrial metals etc. If a buyer were to look at the future price for lumber within the agriculture category based on 1000 board feet, as of this report the cost for this commodity is down 3.46%. This reduction in price might be used as a negotiation point for upcoming stick builds versus prefab on concrete structures that are in your plan for the particular future month being sold. It does not take very long to look at these reporting tools in order to understand trending in commodities that affect your sourcing. Another example would be looking Diesel futures as they impact your distribution costs and those of supplier’s providing products to you.

A simple step you can take is to pick three market views such as Bloomberg, CME etc. Pick a half dozen commodities that impact the products you are sourcing. Now take 10 minutes per day to review them so that they become second nature to you.

If you’d like help in this process or are interested in track a commodities price versus your particular purchase points, please contact SafeSourcing.

We look forward to and appreciate your comments.

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