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 companies? The book gives us the answer. Since prices fluctuations of goods are based on changes in supply and demand in the market and such fluctuations of prices are out of the direct control of any company, understanding companies’ exposure to price risk and making decisions on how to manage the risk become pivotal to supply chain mangers. The book points out that the risk exposure of business might be impacted directly by purchases of raw materials and indirectly by costs from energy and transportation.
According to the authors, commodity price volatility affects industries’ performance both negatively and positively. It is obvious that fluctuations of raw materials or transportation cost can directly influence the profitability of companies, such as food industries and aircraft industries. At the same time, a good understanding and effective managing of price risk also impel companies and organizations to seek for impactful budgeting and innovations of products and designs. The analysis on prices can give a better estimation of cost structures and provide a favorable foundation for negotiation with suppliers and customers.