scholarly journals Measuring the financial effects of mitigating commodity price volatility in supply chains

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Barbara Gaudenzi ◽  
George A. Zsidisin ◽  
Roberta Pellegrino
Keyword(s):  
Supply Chain ◽  
Risk Mitigation ◽  
Price Volatility ◽  
Commodity Price ◽  
Price Risk ◽  
Costs And Benefits ◽  
Content Type ◽  
Advantages And Disadvantages ◽  
Commodity Price Volatility ◽  
The Impact

Purpose Firms can choose from an array of approaches for reducing the detrimental financial effects caused by unfavorable fluctuations in commodity prices. The purpose of this paper is to provide guidance for effectively estimating the financial effects of mitigating commodity price risk volatility (CPV) in supply chain management decisions. Design/methodology/approach This paper adopts two prominent and complementary methodologies, namely, total cost of ownership (TCO and real options valuation (ROV), to illustrate how commodity price risk mitigation strategies can be analyzed with respect to their effect on costs and performance. The paper provides insights through a case study to demonstrate the application of these methods together and establish the benefits and challenges associated with their implementation. Findings The paper illustrates advantages and disadvantages of TCO and ROV and how these approaches can be adopted together to contribute to effective purchasing decisions. Supply chain flexibility is a key capability but requires investments. Holistically measuring the financial effects of flexibility investments is imperative for gaining executive management support in mitigating commodity price volatility. Research limitations/implications This study can provide supply chain professionals with useful guidance for measuring the costs and benefits related to developing strategies for mitigating commodity price volatility. TCO provides a focus on the costs associated with the commodity purchasing process, and ROV enables the aggregation of all the costs and benefits associated with the use of the strategy and synthesizes them into the net value estimate. Originality/value The paper provides a comparison of different but complementary approaches, specifically TCO and ROV, for analyzing the effectiveness of CPV risk mitigation decisions. In addition, these two methods allow supply chain professionals to evaluate and control the financial effects of CPV risk, particularly the impact of mitigation on firm’s cash flows.

US actions raise agricultural trade costs globally

2018 ◽  
Keyword(s):  
Price Volatility ◽  
Commodity Price ◽  
The United States ◽  
Agricultural Trade ◽  
Export Markets ◽  
Content Type ◽  
Agricultural Exports ◽  
Commodity Price Volatility ◽  
Food Imports ◽  
The Eu

Significance US President Donald Trump last month targeted Canada’s supply management system for dairy, poultry and eggs as an example of unfair restrictions on agricultural exports to that country. Meanwhile, Canada, Mexico, China and the EU, the largest US farm export markets, are imposing retaliatory measures on key agricultural and food imports from the United States in response to US tariffs on steel, aluminium and Chinese manufactured goods. Impacts The tariffs will disrupt agricultural markets, trade and supply chains globally, and commodity price volatility will increase. Food security and price stability worries will rise and may spark a vicious circle of more restrictions and interventions by governments. Chinese retaliation is targeting US agricultural and processed food exports, affecting activity in ‘swing’ states ahead of the elections.

Stability in the banking industry and commodity price volatility: perspective from developing economies

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Rexford Abaidoo ◽  
Elvis Kwame Agyapong ◽  
Kwame Fosu Boateng
Keyword(s):  
Banking Sector ◽  
Banking Industry ◽  
Developing Economies ◽  
Generalized Method Of Moments ◽  
Price Volatility ◽  
Commodity Price ◽  
Capital Adequacy ◽  
Bank Stability ◽  
Content Type ◽  
Commodity Price Volatility

PurposeThis paper aims to examine the effect of volatility in prices of internationally traded commodities (the backbone of most economies) on the stability of the banking industry from three main perspectives; bank liquidity reserves, overall bank risk and bank capital adequacy.Design/methodology/approachData were compiled from various sources for 30 emerging economies from 2002 to 2018 and were analyzed using the two-step system generalized method of moments estimation technique.FindingsThe study finds that all things being equal, the magnitude and direction of impact of commodity price volatility on bank stability among economies in Sub-Saharan African (SSA) depend on the type and nature of the commodity in question; and the bank stability proxy used. For instance, an increase in crude oil prices is found to foster stability in the banking industry (proxied by bank liquid reserves) but insignificant when stability in the banking industry is proxied using other banking sector parameters. Additionally, government effectiveness and corruption control have varying moderating influences on how volatility associated with prices of internationally traded commodities influence various proxies for banking industry stability.Originality/valueThis study highlights the effect of fluctuations in prices of key internationally traded commodities (adjusted for foreign exchange impact) that are important sources of revenue among economies in SSA on banking sector stability from liquidity, overall risk and capital adequacy perspectives. The influential role of governance in the relationship between volatility in the price of commodities and bank stability is also revealed by the study.

scholarly journals Discussion: Commodity Price Discovery: Problems That Have Solutions or Solutions That Are Problems

2009 ◽  
Vol 41 (2) ◽  
pp. 393-402 ◽  
Author(s):  
T. Randall Fortenbery
Keyword(s):  
Futures Markets ◽  
Market Failure ◽  
Commodity Prices ◽  
Price Volatility ◽  
Commodity Price ◽  
Price Risk ◽  
Futures Trading ◽  
Unacceptable Behavior ◽  
Commodity Price Volatility ◽  
Negative Impacts

This paper examines three invited papers focused on commodity prices. Public responses to high nominal commodity prices and perceived increases in price risk have ranged from attempts to assign blame, attempts to change contracting arrangements, and development of public policy that “protects“ the market from future occurrences of unacceptable behavior. Interestingly, a result of increased commodity price volatility has suggested that futures markets no longer “work.“ This is ironic given that futures markets initially came into existence as tools for managing the negative impacts of commodity price risk. In response to perceptions of market failure some are looking for strategies to regulate the who and how of futures trading.

A hybrid approach for quantifying supply chain risk and prioritizing the risk drivers

2018 ◽  
Vol 29 (3) ◽  
pp. 533-569 ◽  
Author(s):  
Pradeep Kumar Tarei ◽  
Jitesh J. Thakkar ◽  
Barnali Nag
Keyword(s):  
Supply Chain ◽  
Risk Mitigation ◽  
Risk Index ◽  
Hybrid Approach ◽  
Significant Risk ◽  
Petroleum Products ◽  
System Quality ◽  
Content Type ◽  
Risk Quantification ◽  
The Impact

Purpose The purpose of this paper is to identify various risk and sub-risk drivers that affect the supply chain (SC) performance and to propose a framework to quantify the overall SC risk index by considering the importance of each risk and sub-risk drivers and their mutual interactions. Design/methodology/approach A hybrid method based on decision-making trial and evaluation laboratory and analytical network process has been proposed to develop the risk quantification framework. A case study of Indian petroleum supply chain (PSC) has been illustrated to explain the proposed method. Findings The results of this study found that transportation/logistics (delivery system), quality of the petroleum products, crude supply, customer’s order and legal/political regulations are the most significant risk drivers of a typical PSC. It is also found that the Indian PSC possesses a risk score of 34 percent. Research limitations/implications The quantification of risk in operational measure provides an unblemished representation of the overall SC risk. Unlike the existing financial measure, it takes complex subjective operational effectiveness like product quality, customer satisfaction, etc., into consideration. Identifying the high-prioritized risks helps the decision and policy makers to merely focus on the most prominent risk drivers, and reduce the impact of overall SC risk. Planning a risk mitigation strategy at a given level of risk is however beyond the scope of this research. Originality/value The paper develops a risk quantification framework in the context of a PSC.

Risk propagation and its impact on performance in food processing supply chain

2016 ◽  
Vol 11 (2) ◽  
pp. 660-693 ◽  
Author(s):  
Atanu Chaudhuri ◽  
Samir K. Srivastava ◽  
Rajiv K. Srivastava ◽  
Zeenat Parveen
Keyword(s):  
Supply Chain ◽  
Performance Measures ◽  
Food Processing ◽  
Service Providers ◽  
Risk Mitigation ◽  
Interpretive Structural Modeling ◽  
Content Type ◽  
Business Cases ◽  
And Performance ◽  
The Impact

Purpose The purpose of this paper is to identify various risk drivers which affect a food processing supply chain and to create a map of how those risk drivers propagate risks through the supply chain and impact important performance measures. Design/methodology/approach This study involves experts from food processing companies to elucidate the contextual relationships among the risk drivers and between risk drivers and performance measures. This is used to quantify the relationships and to determine the indirect and overall relationships applying Fuzzy Interpretive Structural Modeling. Findings Three categories of risk drivers which Indian food processing companies need to pay maximum attention to minimize risks are identified. These are supplier dependency and contracting, supplier variability, visibility and traceability and manufacturing disruptions. Analysis shows that collaborating with suppliers and logistics service providers, developing mutually beneficial contracts with them while ensuring that adequate technology investments are made can significantly mitigate risks and consequently improve margins and lead to revenue growth. Research limitations/implications This study has been carried out with experts from large food processing companies in India, and hence, the results cannot be generalized across other types of food processing companies. Practical implications The proposed methodology can help understand the interrelationships between supply chain risks and between those risks and performance measures. Thus, it can help a food processing company to create business cases for specific supply chain risk mitigation projects. Originality/value This study is one of the earliest to create a comprehensive risk propagation map for food processing companies which helps in quantifying the impact the risk drivers have on each other and on performance measures.

scholarly journals Exploring the Dynamic Links between GCC Sukuk and Commodity Market Volatility

2018 ◽  
Vol 6 (3) ◽  
pp. 72 ◽  
Author(s):  
Nader Naifar
Keyword(s):  
Management Practices ◽  
Commodity Prices ◽  
Precious Metals ◽  
Price Volatility ◽  
Commodity Price ◽  
Conditional Correlation ◽  
Dynamic Conditional Correlation ◽  
Commodity Price Volatility ◽  
The Impact ◽  
Risk Ratios

This study investigates the impact of commodity price volatility (including soft commodities, precious metals, industrial metals, and energy) on the dynamics of corporate sukuk returns. Using a sample of sukuk indices from Gulf Cooperation Council (GCC) countries, we study the dynamic conditional correlation using a multivariate generalized autoregressive conditional heteroskedasticity dynamic conditional correlation (GARCH-DCC) process. Empirical results show a time-varying negative correlation between GCC sukuk returns and commodity prices. In fact, a negative conditional correlation among assets of a given portfolio implies higher gain-to-risk ratios. An understanding of volatility and dynamic co-movements in financial and commodity markets is important for portfolio allocation and risk management practices.

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