When the Western Hemisphere’s latest mammoth earthquake struck Chile on Saturday, it not only imperiled thousands of lives and homes, but it also sent copper prices surging. Chile is the largest producer of copper in the world, and the immediate market reaction to the earthquake was to drive up the cost of that commodity. Only two days later the news on the ground is encouraging: Some temporary production shutdowns at Chilean copper mines have already been lifted, and operations appear to be headed back to normal.
Procurement specialists and supply chain managers hold their breath when natural disasters strike, both out of compassion for those affected and for the supply and budget implications that attend such events. Creating a nimble supply chain with redundant supply points can help a manufacturer hedge against the physical disruptions, but what about cost? Global markets being what they are, prices essentially move in concert worldwide. And recent developments indicate that the biggest supply concern of them all is about to rear its ugly head. Its big, oily head, that is.
BusinessWeek reported today that:
Hedge-fund managers and other large speculators increased their net-long positions, or bets that oil prices will rise, for a second week, according to the U.S. Commodity Futures Trading Commission.
The story quotes Tim Evans, energy analyst at Citigroup Global Markets Inc., as saying, “The situation is similar to what occurred in the first half of 2008, just the price level is lower. There’s a lot of investor interest.”
If that doesn’t send a chill up your spine, you may want to have your spine checked out because we are still in the short grass of an economic meltdown, and we have a long way to go before the U.S. industrial economy and its counterpart in China are running at full steam again. Getting there will take a lot of oil, and the speculators know that.
So, how do you hedge against what many fear is an inevitable price hike? You get more efficient. Take a look at some past Managing Automation articles that can guide you in that direction:
Driving Energy Efficiency at Ford, a look at how the automaker is cutting its energy bill with smart thinking and simple technology.
Business Transformation – Save Energy, Save the Future, a cover story detailing how manufacturers are embracing a more holistic approach to energy management in a way that betters the bottom line.
New App Tracks the Energy Efficiency of Assets, a write-up on Infor’s asset management application to track the energy use of pumps, motors, conveyors, and other assets in the manufacturing environment.
What about you: How are you hedging against supply chain disruptions?
One Comment
Thank you for raising the topic Chris. One of the biggest supply chain risks is not being prepared and letting the fear take over. This is why you often see prices soar. The greatest risk to many is the fear of the unknown.
Personally, I’ve seen the greatest success from companies that plan ahead. We simply cannot know every event that can impact a supply chain, be it a catastrophic event at a plant, strike at a port, a natural disaster, or a sudden increase in demand for a product. The proactive approach might take a little more time upfront but will pay off greatly in the end. To answer your question, the best way to hedge against supply chain risk is to plan.
A good question to ask on top of yours is, do you know what you are going to do to hedge your risk or are the recent events like this making your company start the planning process?