Your Career Questions Answered: A letter from Michael, my former student of De La Salle University-Dasmarinas.

 Michael is working at General Motors-Melbourne, Australia

Thank you Michael for subscribing Strategic Management:Building Competitive Advantage  at IPad

We have experienced significant fluctuations in price of commodities over the past six months and I have been asked to develop a strategy to deal with this. What approach should I take?

The Answer:

When significant commodity price shifts take place, organizations can make savings by moving away from the usual supplier renegotiation tactics of electronic requests for quotations and long -term deals. Instead, they should re-examine their functional product specifications-or even packaging specifications.

Although specification changes require a lot of support from engineering departments to understand the requirements of the source materials, and often require coordination with sales and regulatory groups to approve changes , they will yield significant savings. Common tactics include altering base product materials (adjusting plastics , alloys or chemicals), re-engineering packaging , or changing product shapes and sizes to consume less material.

Once you understand specifications, you might also want to develop a total costing model to allow you to adjust your mix of commodities based on the latest prices of alternative materials. These types of models are commonplace at food, metal alloy and plastic goods manufacturers.

How Time Flies!