It should come as no surprise that the commodity industry is predicting a continuation of 2012’s market volatility and slow economic growth for the balance of 2013. Regional economies that were thought to be in recovery are now slipping back into recession. Major commodity price fluctuations are expected to persist, and global demand for oil is expected to rise only 0.8% to 90.4 million barrels per day this year. Volatility will continue to be influenced by the euro-zone debt crisis, fluctuating demand in Asia, and continued political unrest in the Middle East.
Commodity-consuming companies are challenged to respond to this volatility with supply chain strategies that drive top line performance while protecting the bottom line. A strong pricing risk management strategy is essential to remain competitive. However, it is not the only strategy that must be considered. The profitability advantages gained from insightful commodity purchasing and trading decisions can be obliterated by a poor volume management strategy that quickly erodes margins by causing costly mistakes such as expedited shipments, lost orders, missed sales opportunities, poor inventory staging, stock-outs and overruns.
Global volatility only adds to the planning challenge. The importance of maintaining an accurate volume demand forecast, production schedule, distribution schedule, and inventory management strategy should not be lost on anyone.
Triple Point’s Supply Chain Optimization (SCO) solutions help you address your risk mitigation strategy from a volume point of view. Triple Point SCO integrates your data silos into a single planning database, allowing everyone to collaborate on one set of numbers to arrive at a highly accurate volume demand plan. This plan then drives more efficient downstream production planning and scheduling decisions which translates to higher utilization, higher service levels and reduced inventory costs. Learn more.
Mining companies are no strangers to advanced technology – geological models, dispatch, and plant control systems offer sophisticated databases and solutions for asset optimization. But there’s one exception: supply chain management for tracking assets from mine to customer.
Mining companies often rely on a patchwork of generic spreadsheets to manage the tonnage, quality, and value of their coal or mineral supply chains. This is a very dangerous practice – spreadsheets are not sophisticated enough for handling complex operational processes such as planning, material tracking, and grade control – however, they are often relied upon to do just that.
In addition, studies show that as many as 94% of spreadsheets contain errors, which often go undetected. These errors can spread throughout key corporate processes that control hundreds of millions of dollars of inventory, putting the entire firm at significant operational risk.
To learn more, read “The Hidden Threat,” an article recently published in Mining Magazine. Authored by Steve Maxwell, Triple Point’s resident mining supply chain expert, the piece details the dangers of relying on spreadsheets for mining supply chain management, making the case for advanced supply chain management systems. Read it now.
News-grabbing headlines highlighting commodity price increases due to weather-related and other supply issues have completely shifted the dynamics of Commodity Management and broader procurement, sourcing and supply chain management activities.
According to advisory group Spend Matters, organizations are observing radical commodity price fluctuations of up to 40% which are having a massive impact on their P&Ls. However, despite this volatility and its impact, precious investments in technology solutions and skilled resources often go towards other areas of the business rather than being allocated towards efforts to control, mitigate and manage commodity risk. Companies that allocate little or nothing towards Commodity Management head down a very dangerous path towards declining returns and higher risk profiles.
A new white paper from Spend Matters, “Beyond Sourcing and Supply Chain: Commodity Management Solution Fundamentals,” explains that “now is the time for organizations to make the right set of investments in Commodity Management.” It outlines the business case for Commodity Management, including how to build a quantifiable argument to invest in the right team, processes and solutions to take action in the current environment. Read it now and learn how to prepare your organization to manage the dips, twists and turns of today’s roller coaster economy.
A new trend is emerging in the manufacture of automobiles. Faced with fundamental changes in the metals, chemicals, plastics and energy market environment, global organizations have begun to look at energy companies and commodity houses and wonder whether they could benefit from the types of technology platforms deployed by these institutions.
For years, the world’s most successful energy companies and global commodity houses have relied on sophisticated commodity management platforms that enable them to proactively manage purchasing, demand/supply balancing and risk management of raw materials and financial derivatives. These systems also provide logistics tools, accounting and decision support that create a complete commodity management platform that enables companies to optimally balance between cost, profit and risk.
Automotive manufacturers and suppliers are now recognizing that these same systems can help manage raw material risk and preserve profit margins in the face of today’s unprecedented commodity volatility.
The new normal: volatility, volatility, volatility
The focus for supply chain groups over the past fifteen years or more has been on efficiency (and speed). Manufacturing and supply chain techniques such as just-in-time, inventory management, demand-driven supply networks and total quality management were introduced to eliminate waste, reduce inventory and improve quality.
These efforts have led to a striking reduction in buffer inventories, bringing them down to the bare minimum. At the same time these leaner supply chains have become more global as organizations look for lower cost suppliers and new markets in which to sell products. A side effect of this is that the ability of businesses to handle unforeseen shocks to the system such as sharp raw material volatility has been significantly limited.
We are experiencing unprecedented levels of volatility in all kinds of commodity markets. The vehicles that roll off today’s assembly lines contain hundreds of raw materials – as do the machines that make them. Automotive companies therefore have some of the most diverse and complex procurement portfolios, which represent equally complex supply networks and a broad series of commodities markets – any one of which can be experiencing severe volatility at any given moment.