Pricing Risks – Be Prepared for the Next Round of Commodity Price Swings

Purchasing and supply managers were caught off-guard by the tremendous swings in commodity prices over the past few years and volatility has not disappeared, despite the recent global economic downturn.

Supply chain professionals need to monitor the drivers of commodity markets in order to understand and better anticipate these commodity price movements.

A thoughtful and systematic tracking system of key commodity price drivers, updated on a frequent basis, needs to be developed by each purchasing manager to avoid:

• Buying at the peak
• Setting false price expectations for senior management
• Not being prepared for cyclical inflection points
• Being pressured into buying decisions to meet short-term goals of finance, sales, and marketing

Given that not all price drivers can be monitored with data, important qualitative factors must also be identified to estimate the potential impacts these factors have on commodity price movements.