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MSc graduate Julius Wilhelmi identifies in his Master thesis entitled “Managing the Risk of Commodity Price Volatility in Supply Chains” which strategies are best suited for mitigating the impact of volatile commodity prices on a company’s supply chain. His insights are published in the current edition of the practitioner journal Log.Kompass.
KLU MSc graduate Julius Wilhelmi conducted structured interviews with different companies from multiple industries that rely on various raw materials. His advisor Prof. Dr. Kai Hoberg, who is co-author of the article, points out that raw material volatility will not return to low historic levels.
According to Wilhelmi, a holistic and cross-organizational integrated risk management concept helps to mitigate the impact of commodity price fluctuations. Transparent flows of goods and information are key prerequisites to developing and deploying suitable risk management strategies. A strong relationship between procurement and key suppliers, in the form of a partnership model, is a prerequisite to guaranteeing and ensuring material deliveries and preventing supply chain disruptions. A well-managed supplier portfolio also increases supply chain transparency and visibility through information sharing.
Wilhelmi advocates that companies should adopt a holistic risk management process beginning with risk identification, followed by risk assessment, and risk analysis. These are the three building blocks for establishing an effective risk management strategy. Three main levers, product design adjustments, contractual relationships, and financial derivatives, have proven to be the most appropriate mechanisms for successful commodity price risk mitigation. While product design adjustments are only useful as part of a long-term strategy, the other two levers can play a role in medium term strategies.
Companies that manage their entire risk management process properly by using intelligent strategies and tools, continuously monitoring and controlling them, will be affected the least. In addition, they will be able to neutralize negative price effects. Companies that institute effective commodity risk management strategies can ultimately differentiate themselves from their competition and turn the risks presented by commodity price volatility into a competitive advantage.
Log.Kompass is a magazine with in-depth background information, company reports, and case studies. Published ten times a year, it regularly features important research and scientific work with a focus on practical relevance. It is published by the industry association Bundesvereinigung Logistik.
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