Executive Briefings

Dealing with Price Volatility in the Turbulent Global Marketplace

In the Hackett Group's recent insight on Taming the Inflation Dragon, we find out that the average company is facing a 9-percent drop in corporate profits this year due to rising prices and other inflationary pressures and that this translates into a $150m hit to the bottom line for a typical Global 1000 company with $27.8bn in revenue. Ouch!

Obviously, the company is counting on the supply management organization to control costs despite the rampant price increases in a market where commodity inflation has not only increased by 30 percent overall but where price volatility has increased nearly 60 percent since before the recession. Not an easy challenge, especially since speculation in commodity markets is having a major impact on 43 percent of companies and a moderate impact on 17 percent more. And with the majority of suppliers passing on increased cost, every company is feeling the squeeze. So what can a supply management organization do to improve the situation?

Consider these points:

* Use rigorous input price/cost forecasting processes

* Augment input cost forecasting with scenario-based business planning processes

* Employ advanced demand forecasting models

* Create Centers of Excellence that use deep predictive analytics

* Clear direction and strategy is needed

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In the Hackett Group's recent insight on Taming the Inflation Dragon, we find out that the average company is facing a 9-percent drop in corporate profits this year due to rising prices and other inflationary pressures and that this translates into a $150m hit to the bottom line for a typical Global 1000 company with $27.8bn in revenue. Ouch!

Obviously, the company is counting on the supply management organization to control costs despite the rampant price increases in a market where commodity inflation has not only increased by 30 percent overall but where price volatility has increased nearly 60 percent since before the recession. Not an easy challenge, especially since speculation in commodity markets is having a major impact on 43 percent of companies and a moderate impact on 17 percent more. And with the majority of suppliers passing on increased cost, every company is feeling the squeeze. So what can a supply management organization do to improve the situation?

Consider these points:

* Use rigorous input price/cost forecasting processes

* Augment input cost forecasting with scenario-based business planning processes

* Employ advanced demand forecasting models

* Create Centers of Excellence that use deep predictive analytics

* Clear direction and strategy is needed

Read Full Article