Like a lump of coal in your stocking, Gartner VP and Research Fellow Andy Kyte portends price increases and supply constraints for 2007.

In an interview earlier this week, Kyte told European Leaders in Procurement (ELP) that “…with the price of materials such as plastic and metals increasing, it looks as though CPOs are going to face a whole new set of challenges over the next 12 months.”

But other experts contend that there may be a silver lining in commodities prices yet. Although, prices for copper, nickel, and zinc all hit new record highs earlier this week, some market watchers predict that base metals prices will be lower in 2007.

Moody’s reports that metals prices could cool in 2007, thanks to slowing demand from the U.S. And Purchasing Magazine’s prognosticators offer a mixed bag: “…since the dollar is expected to keep weakening next year, the prices of gold, silver, and platinum group metals will continue to escalate through 2007.” Purchasing pegs the increases to bullish demand, political uncertainty, and insufficient production capacity. And they suggest that China may be hording gold, boosting prices for the precious metal high for years to come.

(Jessica Mahre, VP of Operations at A.T.Kearney, offers tips on how to combat China as a competing consumer of raw materials and other goods in the latest SupplyNow podcast. Listen to her advice here.)

However, on the plus side Purchasing says prices for nonferrous metals “are expected to retreat in 2007.”

One thing is certain: navigating the supply market environment in 2007 will only get more complex. In his ELP interview, Kyte offers the following advice for supply management execs: “It’s essential that CPOs analyze their markets carefully so they can identify areas where shortages may occur at the earliest opportunity and then formulate plans to deal with them.” He also recommends that supply managers consider alternative (and possibly longer term) supplier relationships to “ensure they can still source the kind of quality products that are required.”

Kyte also wisely suggests that CPOs and commodity managers be proactive in setting expectations with stakeholders and executives that price increases may be on the way.

A previous Supply Excellence post highlights how Compass Group, one of Europe’s largest food service providers, has become proficient at setting such expectations when sourcing in the volatile food marketplace. The Compass supply squad uses pre-briefings and deal sheets to prep stakeholders and execs on market dynamics, sourcing approaches, and pricing and supply trends for certain items. A Compass sourcing executive says the approach prepares stakeholders for what to expect from each sourcing event. It also helps the team prove the value of strategic sourcing by beating prevailing market price increases.

Upshot: supply uncertainty requires extra diligence. Be proactive about assessing market dynamics and communicating realistic expectations to your team and other stakeholders. 

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