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Five Surprising Facts About Commodity Risk Management

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Five Surprising Facts About Commodity Risk Management

Between a major global pandemic, intercontinental freight capacity shortages, and events that have ground supply chains to a complete halt, it’s been an active 18 months for those managing commodity risk.

We’ve learned a lot of valuable lessons during this period – many of which have helped us compile and create our new white paper exploring commodity risk management maturity. Inside, we explore what it takes to enable a mature approach to commodity risk management that helps commodity managers make proactive decisions and create value even when facing the most severe supply chain crisis events.

The paper looks in detail at the different stages organizations find themselves at along a maturity curve, exploring the characteristics of teams at each stage, and what those teams need to do if they want to push ahead along their journey to maturity. But, it also includes many other insights about the state of commodity risk management maturity today – several of which you may find surprising.

Here’s a quick look at five of the more unexpected takeaways from the paper:

#1: There is such a thing as too much commodity risk data

When organizations recognize the value of investing in their commodity risk management capabilities and start taking steps towards empowering commodity and category managers with greater insights, one of the most common mistakes they make is overwhelming their experts with an excess of charts and data.

Too much data can muddy the waters and make it harder for managers to identify valuable trends and translate data into actionable insights that drive value. For organizations at the earlier stages of the commodity risk management maturity curve, it’s often far more valuable to start small and work with more focused datasets.

#2: Mature CRM isn’t just about data and insights – it’s about culture too

While data, insight quality, insight delivery, and the processes that surround them are all very important factors in commodity risk management maturity, they aren’t the only factors that influence it.

Culture is also extremely important if an organization wants to reach the highest stage of maturity. In the most mature organizations, there’s a culture of respect and acknowledgment of the value that procurement teams can deliver through the strategic management and optimization of commodity risk.

In these teams, stakeholders from across the business take an active interest in the insights generated by and acted on by procurement teams. They understand that commodity risks are fundamentally business risks and can even represent the greatest commercial opportunities available at any given time – and that understanding is reflected in their operations.

#3: A huge number of organizations haven’t aligned intelligence and strategy

Commodity risk management maturity isn’t just about having the right data, insights, or culture either. To have the right impact on the organization, the insights generated, gathered, and used by these teams need to be tightly aligned to their strategic objectives.

No matter how strong, recent, or reliable insights are, if they don’t help the team move towards achieving their goals, or support the overall strategic goals of the business, they’re not going to deliver value.

That’s a huge stumbling point for a lot of teams. They’re actively gathering and using insights, but they’re not seeing the results they need. That’s a big indicator of a strategy that appears mature, but it actually still in the earlier stages of the maturity curve.

#4: Sophisticated AI and data science capabilities aren’t for everyone

Like any other data-driven area of modern business, AI and data science have incredibly powerful applications in commodity risk management. The right capabilities can help teams make the critical leap from reactive decision-making to proactive operations that keep the organization ahead of developing commodity market trends.

However, they’re not for everyone. These capabilities demand significant volumes of clean, structured, and actionable data, and some teams don’t have access to data of that quality. For many organizations, simple forecasting and traditional manual approaches to data analysis can be just as effective for what they’re trying to achieve at their current stage of maturity.

#5: There is no ‘one size fits all’ way to optimize commodity risk management

When you look at the latter stages of maturity, it’s easy to conclude that every organization should be striving to reach that point, using all the technology and intelligence available to enable proactive, value-driving commodity risk management.

In practice, however, that’s not really the case. The level of capabilities required to optimize commodity risk management is proportional to an organization’s risk exposure.

For example, pharmaceuticals companies – where the global supply of active ingredients is relatively isolated against major fluctuations and ingredient costs have little impact on the final market price of drugs – may only need fundamental commodity risk insights to see strong results.

On the other hand, in food processing or oil and gas, where margins are much slimmer, companies need deeper intelligence and stronger insight capabilities to see significant value from their efforts.

Master post-pandemic commodity risk management

Want to learn more about what it takes to manage commodity risk effectively and transform emerging threats into powerful opportunities for value creation?

Download your copy of our new white paper to discover which stage of maturity your organization is at today and get practical advice to advance your journey towards proactive, crisis-ready commodity risk management.