What is a Commodity?

May 6th, 2021

What it is not; are the things you buy all the time and use frequently


Todays post is by Ron Southard, CEO at SafeSourcing Inc.

What it is not; are the things you buy all the time and use frequently. I have had many buyers, category managers and other procurement knowledge workers say to me on many occasions that Reverse auctions are good for buying our commodity purchases like cups,, cleaning supplies etc. but not for much else. We all know that is 100% not true. First of all, most buyers do not buy commodities unless they are going to make a finished product or are buying a consumable like beef or corn. Most buyers buy products that are influenced by or contain commodities. An example might be something like corrugate, where the pulp market, the corn market to name a couple are involved in the final product. You would be shocked by the number of products that are produced that come from corn.

To simplify, a Commodity as defined by the Bing Dictionary is a raw material or primary agricultural product that can be bought and sold, such as copper or coffee. And from  Wikipedia, a Commodity as used In economics, is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.

Quite often you can find a commodity index that report on the price of a commodity in both a forward looking or future as well as historical view. These tools can be helpful in determining where pricing was and where it is going particularly if you finished good contains significant amounts of multiple commodities as mentioned above.

Commodities are a beast to manage and keep track off! Companies like SafeSourcing are set up to watch their movement and recommend strategies to mitigate that movement in your pricing. To learn more, please reach out to a SafeSourcing Customer Services Representative. You will be glad you did.

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