MAPI: Hedging isn’t working
By Tom Stundza -- Purchasing, 7/19/2006 9:43:00 AM
Hedging commodity prices to help reduce their volatility has had limited success, according to data released this month by the Manufacturers Alliance/MAPI, an Arlington, Va.-based business and public policy research group. A recent poll conducted by the Procurement Strategy Council of the Illinois Manufacturers’ Association finds that increasingly volatile commodity prices are aggravating budget and cost management. According to the IMA research, procurement managers constantly are being challenged to correctly anticipate and manage fluctuations in commodity price in order to prevent any revenue losses. “We are by no means trying to be an investment or profit center,” says one purchasing manager answering the IMA poll. “All we would like to do is smooth out the commodity price curve and remove peaks or troughs that occur throughout the year.” However, it is nearly impossible to correctly ‘time the market’ on a continual basis, so a strategic plan that looks forward and takes action based on market conditions and business requirements, instead of short-term “lowest price” considerations, is price hedging. However, the Manufacturers Alliance/MAPI survey of 59 of its member companies, generally large multinational manufacturers, found that a minority -- 46%--are hedging commodity prices. Of that group, only 4% were “very successful” in smoothing the buying prices of commodities, 54% had “limited success” with hedging and 42% claimed “moderate success.” Fifty-nine percent of all the member companies the alliance surveyed have had to add surcharges on products to try to offset at least some of the higher commodity prices. But success, again, was mixed. While 49% said they were able to pass through to customers most of the higher costs of commodities, 36% reported only “moderate success,” and 15% said they were able to pass through “very little” of their higher costs.
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