UPDATE: CNBC picked up Pat’s advice today.

With stock markets surging (thus diverting investment money from t-bills) and the US dollar expected to continue its downward slide in the face of “loose” monetary policy, currency fluctuations are reemerging as a spend management priority. Although the ebb and flow of foreign exchange markets are far beyond the influence of even the most powerful CPOs, there are steps organizations can take to prepare themselves and in some cases, reduce the impact of these macro-economic forces.

Although the podcast is a few months old, Jason Busch’s Category Chatter interview with SupplyExcellence contributor and global category management team leader Pat Furey is as insightful and applicable today as ever (download the podcast here).

Pat’s key take-aways for managing the risk posed by currency fluctuations:

1. Be Prepared. Analyze fluctuations not just in domestic currency, but in the local currency of the suppliers you are evaluating and research regions where currency fluctuations may not be as significant.
2. Know your Costs. Take time to determine key total cost inputs for each commodity you are sourcing, including raw materials, labor, capital expenditures, energy, types of labor, geographic distribution, etc. Also be sure to understand the cost structures of your suppliers.
3. Utilize Raw Material Indices Based on US Dollars. Hedge against significant price increases and manage a key portion of overall costs by pegging raw material costs to an index based in US dollars such as the LME or NYMEX exchanges.
4. Diversify your Supply Base across Multiple Currencies. Include suppliers from multiple regions in all rounds of RFx competition and award business across various regions to mitigate the impact of currency fluctuations and ensure consistency of supply. While China remains a relevant source of supply, emerging markets such as Eastern Europe merit consideration as well.
5. Share Currency Volatility with Suppliers. Share the risks and rewards of currency volatility through price adjustment mechanisms to mitigate fears that often cause suppliers to pad their margins. Factors to consider include: minimum change threshold percentages or basing thresholds on total part cost versus exchange rates.

Justin Fogarty is Managing Editor of Supply Excellence. For any questions or feedback on the blog or its contributors, Justin can be reached at jfogarty[at]ariba.com.