Trade compliance is only one thing we cover, supply chain risk for commodities is something different we do
In the post-COVID world, supply chain "resilience" is something that everyone is talking about. But supply chain resilience - shortening supply chain lines, increasing transport options, and diversifying suppliers comes with an increasing need to look at what DCM calls the "static/variable supply chain distinction". It is something we have developed after a number of years working with energy buyers, food products and feed suppliers, agricultural products traders, and even major manufacturing companies.
The static side of the equation is that portion of direct (and indirect) spend dollars that can be easily forecasted on a unit cost for one, two or even three years. This is things like staff labor costs per person - you won't be changing their pay during the budget year by an impactful amount outside budgeted numbers. Similarly, your some of your external supplier costs - cost of paper supplies or computers is not likely to drastically change. These products are very amenable to standard strategic sourcing and resilience normative models.
The other side, the variable side, is much more problematic. This would supplies of items like natural gas, diesel fuel, aluminum, interest rate products or corn or wheat. These product may fluctuate dramatically on a daily - even hourly - basis. The measure of that risk of fluctuation is the volatility of prices. Procurement departments that don't look forward to at least observe the markets' expectation of potential fluctuations can be caught in an noncompetitive position by a sudden increase in supply (or decrease in output) prices that were not managed.
So, when you begin to restructure or even reexamine your procurement function in the post-COVID world, first identify the static and variable components. Determine how much impact the potential movement that the market is expecting and gauge the EPS impact of a change that decreases your margin (supply cost up or output side down). If you want to get deeper into the issue, look at the correlation between the supply and output variations and see how likely a negative impact from both sides is to occur.
Redesigning your supply chain just to unknowingly increase the potential negative impacts of procurement of variable components of your supply chain can just install a new set of problems to replace those uncovered by COVID.
If you have questions about how to looks at these issues, feel free to send us an email or call us. The information is on our Contact page.We are happy to chat and see if we can help.