A wise man in procurement once told me, “if we could predict what currency was going to do, none of us would be in this business.” Although it won’t stop some people from attempting to break into the growing trend of currency ‘day-trading’, it should remind everyone in sourcing and procurement of 2 things. First, currency markets are extremely volatile (as the graph below shows) and tough to predict. And second, there are loads of highly trained people devoting all of their time, computational models and intuition to it…and even they can’t always get it right.

Despite the rollercoaster ride, all that volatility doesn’t necessarily leave your global supply chain at the mercy of the currency exchange markets. In fact, there are steps you can take to work with your suppliers to reduce the risk and potential exposure to each of you.

For example, a company I’ve been working with recently undertook a currency fluctuation strategy (CFS) with their preferred finished goods suppliers (material items are tied to indexes and therefore include a currency conversion). The goal was to share the burden between the buyer and suppliers, so their relationship could progress in a less risky and more cooperative direction. It’s a bit early to claim success, but at this point both sides seem very happy with the program and excited about it’s future.

If hedging against currency fluctuations is something you’re considering, I’d recommend keeping these principles in mind:

• Start small, but think big - Not every (finished goods) materials supplier relationship warrants a CFS. In fact rolling this out to too many companies will only bog down your resources and dilute results. Instead, focus on your preferred suppliers who are willing to work with you. Those suppliers ‘get it’ when it comes to the benefits for both sides and see this as an opportunity to improve their relationship with your account.
• Set timetables and thresholds - Only adjust the price model with your suppliers when the currency fluctuates beyond a certain acceptable threshold (say 5-10%). And at that point, it’s best to share the margin equally between both sides…whether the swing is in your favor or theirs. For example, if their threshold is 10% and there is a change of 11%, each side moves 5.5% to meet in the middle.
• Visibility is critical - A clear view into the categorized spend is necessary to identify where your efforts should be focused AND to measure results. A proven reduction in risk will help expand the program to more areas of spend and better make the case to additional suppliers.

Kevin Graham is a Category Manager for Metals in Ariba’s Global Sourcing Organization.

Email Forward & Bookmarks

Close this WindowBookmark and Share This Page

Save to Browser Favorites

Ask backflip blinklist BlogBookmark Bloglines BlogMarks Blogsvine BUMPzee! CiteULike co.mments Connotea del.icio.us

DotNetKicks Digg diigo dropjack.com dzone Facebook Fark Faves Feed Me Links Friendsite folkd.com Furl

Google Hugg Jeqq Kaboodle linkaGoGo LinksMarker Ma.gnolia Mister Wong Mixx MySpace MyWeb Netvouz

Newsvine PlugIM popcurrent Propeller Reddit Rojo Segnalo Shoutwire Simpy sk*rt Slashdot Sphere

Sphinn Spurl.net Squidoo StumbleUpon Technorati ThisNext Webride Windows Live Yahoo!

Email This to a Friend

Copy HTML: 

If you like this then please subscribe to the RSS Feed.

Powered by Bookmarkify™

More »