Volatility associated with commodity prices has a direct impact on industrial manufacturing, food & beverage, and consumer products (CP) companies in terms of raw materials, packaging, and energy costs. Together these make up about 40-60% of costs for manufacturers, which presents a huge risk to the business as these costs become increasingly difficult to predict. This coupled with competitive retail markets and price conscious consumers leave CP companies with some difficult decisions to make regarding budgeting, procurement, supply chain management, and pricing of the finished goods.
In any manufacturing or CP business, you can only do so much to increase efficiency and drive down costs. In order to keep customers satisfied while also remaining profitable, manufacturers need a solution to better manage risk and price volatility in procurement.
Increasingly Complex Supply Chains
Many organizations have put supply chain optimization practices in place, such as lean manufacturing and Six Sigma quality programs, which enable them to maintain a lower inventory buffer for additional cost savings. However, supply chains are only getting more complex, and it is becoming more and more difficult to get cost savings from the supply chain.
To further support the focus on optimizing the supply chain, most manufacturers have invested in an ERP, MRP, or a purchasing system to manage transactions, inventory, accounting, etc. However, commodity procurement is typically still handled in multi-tab, error-prone spreadsheets. As you can imagine, this only creates additional risk for businesses, as spreadsheets are not meant for managing the complexities of modern manufacturing businesses. Not to mention, spreadsheets are not secure or auditable, are difficult to share among different departments, and do not provide real-time data.
While ERP systems and spreadsheets are useful for their specific purposes, when it comes to managing commodity price volatility and risk, they just don't cut it. (Learn more in "An ERP Solution in Place of CTRM Software! Really?") Manufacturing companies can and should do more to better manage commodity procurement and protect profit margins.
A New Approach
A next-generation commodity management system such as Eka’s Smart Commodity Management platform provides a new approach for manufacturers to manage raw material price volatility by integrating procurement, supply chain, and risk management in one single solution. Eka's Procurement Analysis solution captures, analyzes, and manages demand, budgets, forecasts, position, coverage, procurement, and hedging while providing real-time scenario and intelligence capabilities to optimize decision making.
The manufacturing industry will continue to get more competitive as companies discover new innovative ways to remove inefficiencies and cut costs. If you are still managing commodity procurement with inadequate systems like ERP and spreadsheets, then you will eventually get overtaken by leading, forward-thinking organizations who implement advanced commodity management solutions.
