Sourcing Metals (and Other Commodities) as The Euro Craters (Part 1)

Here at Spend Matters, we've spent quite a bit of time lately giving consideration to twenty sourcing, supplier management and related strategies companies are likely to take in the context of the falling euro (see our initial two posts in the series here and here). Yet much of the credit for these strategies, to be fair, should go to the sourcing experts at our sister site MetalMiner, including Lisa Reisman (my better half) and Stuart Burns (our UK-based metals sourcing expert and the often behind-the-scenes but ever present third owner/partner in our parent company). Not to be outdone by Spend Matters, MetalMiner is taking some of the ideas we've introduced around sourcing raw materials in an environment where the Euro is falling and fleshed them out further in the post Sourcing Metal Categories in a Volatile or Collapsing Euro Environment.

In the first post in this series, my colleagues suggest that they "have seen enough intelligence sources suggest that the odds of a complete euro collapse exceed 50 percent (some have gone so far as say that all scenarios point to a complete collapse)." For companies in North America (and elsewhere), there could be a silver raw material buying lining to the scenario, however. To wit, the "weakening [of the] Euro against the dollar will create buying opportunities for US and other non-European countries as commodity prices drop (of course, producers and suppliers will raise prices, but sharp buyers may strike with a hot iron!). In other words, suppliers and producers may not move pricing as quickly as the euro/dollar, Yen, etc. exchange rates move."

What should organizations do, generally speaking, in different types of raw material markets? MetalMiner suggests that in flat markets, where the buying organization doesn't believe prices will move much one way "or another, we've seen organizations simply bid out their requirements on a quarterly basis and fix the price to an index yet locking in the fab cost (or value-add, if you will)." In falling markets, "the strategy above also works, though we've seen organizations take more last-minute decisions to capture every last penny of a declining price. Oddly enough, we rarely see organizations lock requirements forward as markets fall (the notion being, 'we want to ride the wave down'). In contrast, in rising markets "where a high risk exists of the price increasing throughout a particular quarter...organizations [often] negotiate a fixed contract, sometimes loosely called a resting order, to hold prices steady."

We'll check back with MetalMiner in Part 2 of this post to talk about what these strategies might imply in the context of a falling Euro.

- Jason Busch