How can companies protect themselves from commodity and market volatility?”
Todays post is a timely repost from our SafeSourcing archive.
Variable costs can reap havoc on any company budget, they are more difficult to forecast and prepare for than fixed costs. Throw in large increases followed by unexpected decreases in any given year, and forecasting becomes almost impossible. As commodity prices continue to fill the market with extreme volatility—cotton being the current culprit—manufacturers, suppliers and procurement professionals are struggling to remain competitive.
Is there any relief in sight for the drastic shifts in commodity prices? Cotton, after having a record high price early in the year, now is experiencing a strong drop in price, nearly a fifty percent decrease from the spring. After already imposing a price increase, manufacturers and suppliers are faced with decisions on how to most effectively reflect the price shifts—again.
How can you protect yourself from the risk in the commodity market? Planning is a crucial step. With the uncertainty in not only the commodity market, but the financial market as well, the best defense is to develop a strategic plan for potential macroeconomic risks that could affect your company.
Possessing a detailed forecast of the global economy in any given time horizon will not only keep you relevant, it will allow you to have steps in place to overcome any potential unforeseen events. Along with a strategic plan, implementing escalator and de-escalator language into contracts for those products most affected by commodity risk will ensure that you are more protected from drastic market shifts. Unexplained market volatility and unforeseen events have the potential to seriously damage and sometimes destroy a company; take the steps today to implement a strategic plan to shield your company from market uncertainty.
For more information on SafeSourcing and how we can assist with this process, please contact a SafeSourcing Customer Services Project Manager for more information.
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