Managing Commodity Price Risk

CHAPTER 6

Managing Commodity Price Risk—Value Chain Purchases

Overview of Risk Characteristics and Approaches

In Chapter 5, we examined various approaches firms can implement for managing commodity price risk from direct commodity purchases. However, risk exposure can come from other sources, such as energy purchases, packaging, transportation, as well as from upstream in supply chains from commodities purchased by suppliers. For example, in the trucking industry, passing on price increases to customers in the form of fuel surcharges is a common practice.¹

The focus of this chapter is to examine several approaches you can consider for managing commodity price volatility stemming from the commodity purchases made by your component and subassembly ...