In the early 2010s, the Chinese government was in the middle of a plan to systemically raise the minimum wage. The reported goal was to double the minimum wage over 5 years. The Chinese Central Bank also began to move the needle on the currency exchange rate. As someone who watched markets and acted in a proactive manner, I knew that the 30% of what we sold that was sourced from China would soon cost more.
Rather than waiting for my vendors to send me a letter telling me they were increasing prices, I took action. I crafted a letter to each of our vendors in China telling them that had recently been acquired by a large American holding company and that I needed a 10% cost reduction.
The responses that I received were exactly what I expected. Most responded that they were about to contact us and tell us that they needed to increase costs and that I’d asked them something very hard. I agreed that it was hard and acknowledged the challenges they faced, but reiterated my need.
Ultimately, I did not achieve the 10% cost reduction, the results were mixed between not changing costs and reducing costs by 6%. I avoided a cost increase in a year where no one avoided a cost increase.
As a commodity manager, it is important to be proactive in order to effectively manage risks and opportunities in the commodity markets. Proactive management involves anticipating market trends and making strategic decisions in advance, rather than simply reacting to events as they happen.
One key benefit of being proactive is that it allows a commodity manager to take advantage of market opportunities before they pass. By staying ahead of trends and identifying potential opportunities early on, a proactive manager can make timely and informed decisions that can lead to cost savings or increased profits for your organization.
