Rapid global population growth combined with increasing urbanization is driving demand for raw materials of all kinds. By 2030, it is estimated that there will be 1.4 billion middle class consumers in China compared to 365 million in the US and 414 million in Europe1, placing increasing strains on the supply and distribution of raw materials and finished products. For the last five or more years, commodity and raw material prices have been extremely volatile, in part due to supply/demand tightness, and this paradigm is one that is set to continue in to the future. For consumer product companies, these facts represent a significant challenge and risk to their businesses.
Consumer product companies, faced with volatile raw material and energy costs on one side, and price conscious customers willing to shop around on the other, have sought ways to minimize these risks. They have stripped costs and inefficiencies from their supply chains and businesses and, in some instances, radically overhauled the way in which they manage the procurement and planning functions in favor of a commodity management approach. Commodity management means approaching price exposure more like a trader tracking price movements, utilizing hedging and other risk mitigation tools and measuring performance against market as opposed to budget or forecast. Some companies have deployed commodity management software, fully integrated with their ERP and other systems, to manage supply chain price exposure.
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