The commodity markets are telling you to check your spends right now! So review those contracts A.S.A.P.
Customers always ask me when the best time to source a particular category is. The answer always requires some thought and fact based research relative to what drives that particular category. For the most part this means staying on top of the commodity markets to begin with. However there are other indicators for those procurement knowledge workers that are willing to take the time to do some basic research.
I was reading the Wall Street Journal today and noticed an article in the MONEY & INVESTING section titled Oil Out Of Sync With the Market by Christian Berthelsen. The first sentence of the article says, “Prices of many commodities are down this year, but U.S. oil futures have rallied”. Here’s the key in that sentence. “Prices of many commodities are down this year”. Forget about oil for the moment. Yes it does impact many areas of procurement. And yes the futures for oil are up. This is mostly because hope springs eternal that demand will rise as the global economy continues to improve. Remember that other commodities are also influenced by oil. As a simple example, you can’t harvest Corn or Soy without fuel. So when you look at commodities you have to determine if the price is trending down more than the price of another commodity that impacts it is trending in the other direction. Let’s assume that without going through a math formula that you determine to source a category that is trending down by a decent
percentage like five or six percent. The initial decision here would be to take a run at this category. The next question however should be what else can we take a look at in order to reinforce our hypothesis that there is an opportunity to reduce our cost?
The answer to the above question is to take a detailed look at your supplier’s financial data! There are a number of ways to do this for both public and private companies. In the US, foreign and local companies file their 10K’s and 10Q’s and other data periodically. This data can be accessed on the US Security and Exchange Commission Website EDGAR. All companies, foreign and domestic, are required to file registration statements, periodic reports, and other forms electronically through EDGAR. Your next question should be, what data should we look at and what can we determine from that data?
If you check back tomorrow for Part II, I’ll share that information with you.
If you’d like to learn more about SafeSourcing spend analysis process please Contact a SafeSourcing customer services representative.
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