January 5, 2016 | Written by: Michael Dobbs
Categorized: Supply Networks
Over the past year Consumer Package Goods (CPG) companies have seen many of their Costs of Goods (CoG) decline. This has been driven by lower commodity prices and lower oil prices. These lower prices have affected plastic prices in many packaging materials and also the prices of many chemicals and product ingredients. On top of these lower commodity prices, flat labor costs have helped to keep CoG down.
So…these cost savings must have been passed to consumer…right? Wrong. Consumer Price Index Data (CPI) for 2015 is flat. So you may ask WHERE the excess profits many CPG companies made went? The answer is they probably went to pay for losses made internationally due to the strong dollar.
So what??? Well, what will happen when Oil and Commodity prices go up again? Will companies absorb those incremental costs, or will prices go up??? Chances are good we’ll see prices go UP, even though prices DIDN’T go down when costs went down.
All of this up and down in cost and price … and most companies won’t be able to get ahead of their competition. They may capture a short-term gain on their P&Ls, but they won’t turn that into a competitive advantage. HOW COULD THEY? Great question.
IBM works with clients to understand commodity pricing in the market place. Predictive AND Cognitive Analytics help our clients to turn these volatile times into a competitive advantage. They understand trends and predict cost changes so they can better reformulate or hedge on commodity pricing…helping them beat the competition.
Want to learn more??? Let me know!!!
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