As the world’s economy begins its recovery from the effects of 2020, prices for raw materials have skyrocketed. From oil and natural gas to coffee and iron ore, 2021 saw an upward movement in commodity prices with some going to levels unseen in many years. The trend seems to be up, especially with the imminent lifting of some countries’ lockdown measures due to successful vaccine programs.
Reference: IMF Primary Commodity Price Index (PCPI) JULY 2021 Chart.
Volatile and unstable global markets have widespread implications for manufacturing and CPG organisations. Whilst we have seen supply chains adapt and become more resilient to cope with the pandemic’s impacts, rising energy costs unexpected fluctuations in raw material costs, and the usual unforeseen obstacles continue to be a destabilising force.
Experience is the Best Teacher
However, companies with high- performing procurement teams that have led recoveries in previous crises have gathered the expertise and knowledge to navigate these uncharted waters. According to research by McKenzie, “In the five years immediately following the 2008 global financial crisis (GFC), total return to shareholders (TRS) for companies with top-quartile procurement capabilities was 42 percent higher than for companies whose procurement operations were in the bottom quartile.”
If Collaboration is King…
By creating a consolidated data landscape and bringing together sales and purchasing efforts, commodity procurement leaders have been able to adapt and thrive quicker during and after the storm. The same study shows that comprehensive commodity hedging strategies have the potential to reduce EBITDA margin volatility by as much as 20 to 25%.
High performance in commodity and raw material procurement rests partly in the ability to understand and measure commodity price risk in order to undertake efficient hedging decisions. Additionally, consolidated reporting on open positions, inventory levels, updated market prices, a clear understanding of financial performance, risks analytics, and a view on the possible impact of a market scenario on the portfolio, are ingredients to a successful recovery.
As the world recovers from the pandemic, companies who have greater visibility over their commodity price risk are better placed to withstand and adapt to different scenarios. As commodity prices rise and fall, players with greater visibility over their commodity price risk, will be able to optimise and adapt their hedging approach quicker, and develop more robust risk policies to cope with the disruption.
..Then CTRM Software is His Castle
Today’s CTRM solutions offer an integrated solution for manufacturing and CPG companies who want to increase visibility of positions, implement effective hedge strategies, synchronize information flow throughout the supply chain and have access to real-time key performance indicators (KPIs). Cloud native technology also allows for sales and operations teams to work collaboratively anytime, anywhere.
Because really – who doesn’t want a single version of the truth?