Question

Do you agree or not agree with this information provide, Please criticize by provide support reasons. 20 marks (from Six key trends impacting global supply chains in 2022 by KPMG)

5. Commodity pricing
Today, supply chain and procurement professionals are expected to be more than just negotiators. They also expected to have more knowledge of categories as well. A deeper understanding of commodities helps in leveraging the necessary levers and understanding the right price of purchase.

Spend transparency remains poor. While the category price is available, the detailed break-up of price in terms of material component, wastage, conversion, labour and premium added are not defined. Often category pricing is not indexed to the basic commodity price, which has led to category prices falling out of in sync with commodity pricing. For example, very few organisations have a scientific way of pricing paper-based packaging such as corrugated boxes. In many organisations, commodity purchase decisions are based more on experience than a structured mechanism. Timing of purchase and quantity becomes crucial while making these decisions.
To overcome these challenges, teams are focusing on digital transformation and technology to enable a seamless flow of information across value chain and efficient insights-driven decisionmaking. Organisations are leveraging spend analytics tools and software packages to increase visibility of where, how and when they spend. Consolidation of spend is enabling improved buying leverage and negotiating power to help drive value or push for improvements. Often, spend consolidation is a precursor to vendor consolidation and ESG segmentation and helps in reducing the variation in quality and pricing for the same type of product/service across geographies.

Answer 1

Step-by-step explanation:

I agree with the information provided in the context of commodity pricing and its impact on supply chains. Here are my reasons:

1. Increased knowledge of commodities: The statement highlights the importance of supply chain and procurement professionals having a deeper understanding of commodities. This is essential because commodities play a significant role in determining the price of goods and services. Having knowledge of commodity markets, trends, and factors affecting prices allows professionals to make informed decisions and negotiate better deals, resulting in cost savings and improved supply chain efficiency.

2. Poor spend transparency: The lack of transparency in understanding the detailed breakdown of category prices can lead to inefficiencies in supply chain management. Without clear visibility into the components of price, organizations may struggle to identify areas for cost optimization or accurately assess the value they are receiving. This highlights the need for more structured mechanisms and tools that provide comprehensive insights into pricing components, enabling better decision-making.

3. Digital transformation and technology: To address the challenges mentioned, organizations are turning to digital transformation and technology solutions. By implementing spend analytics tools and software packages, they can gain visibility into their spending patterns, identify areas of improvement, and make data-driven decisions. This, in turn, facilitates efficient supply chain management, enables strategic vendor consolidation, and improves negotiation power.

4. Spend consolidation: Consolidating spend across different categories and geographies can lead to improved buying leverage and negotiating power. By consolidating their purchasing activities, organizations can eliminate redundancies, streamline processes, and achieve economies of scale. This allows them to drive value, negotiate better pricing, and reduce variations in quality and pricing for the same products or services across different locations.

Overall, the information provided highlights the importance of understanding commodity pricing, addressing transparency issues, embracing digital transformation, and leveraging spend consolidation to enhance supply chain management. These strategies can lead to cost savings, better decision-making, and improved overall efficiency in global supply chains.