Summary and Analysis of Zsidisin &Hartley’s (2012) Managing Commodity Price Risk

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Summary and Analysis of Zsidisin &Hartley’s (2012) Managing Commodity Price Risk Summary As every organization and business in the market is exposed to price risks due to the commodity price volatility, it’s imperative for managers to predict those risks and make strategies to mitigate the damages brought by price volatility. This book not only shows us the importance of commodity price management, but also teaches organizations how to adapt and adjust themselves to commodity price volatility and provides approaches to decrease the exposure to risks for managers. Therefore, this book is a necessary one to manage commodity price risk for managers and organizations. Why is the commodity price risk management so important for…show more content…
Then managers can use regression to forecast prices. With judgment and updating information, supply chain managers can make the final forecasts. Any company by itself could not control the prices of its productions, so even great managers cannot influence the prices directly. However, understanding their productions’ price risk exposure and finding ways to manage the risk are pivotal to make appropriate commodity price volatility management strategy. Of course, modification for managing foreign exchange risk is important to supply chain mangers of international companies as well. Mainly, there are several strategies that are outlined to manage commodity price risk in this book. In the process of managing price risk, the very first approach is to find substitute productions when price increases. Passing or sharing the risk with customers and suppliers is another way to alleviate those attacks for a company. The collaboration with supply chain partners becomes very important in this strategy. Considering the capability and necessity of buying materials in advance, a forward buying could be an alternative to manage the price risk for a company. But in this method, lacking financial or other resources to hold a large stock will restrict a company’s profitability. Under such a condition, this book recommends to use the hedging strategy. For the commodity with future contracts, hedging uses a financial instrument to reduce the risk.

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