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- Oct. 11, 2012 -


Supply Chain Graphic of the Week: Input Cost Dynamics


An Interesting Look at Commodity Prices over the Past 5 Years; General Direction is Up


By SCDigest Editorial Staff



There is a general consensus among supply chain pundits that commodity and other input costs are more dynamic than ever.

Is that true?


We're not sure, although it is clear that the overall direction has largely been up for quite some time, despite a general commodity price slump since Q2 2011.


The graphic below shows changes in the widely followed Reuters CRB commodity index since October 2007. That index is based on a basket of commodities across energy, agriculture, metals, industrial commodities and more. The chart is from Reuters CRB data, with annotations on the graph from SCDigest.


Reuters CRB Commodity Index Oct. 2007 to Oct. 2012



We think this graphic shows a very interesting tale.


Commodity prices right now are up about 73% from the bottom in November, 2009.


That even though prices on average across the basket are down about 18% from the recent peak in April 2011.


From the pre-recession peak in July, 2008, prices currently are actually down about 7%.


From the bottom in 2009, prices were up an incredible 116% to the peak in April 2011.


Not shown in the annotations, but prices are down about 2% so far in 2012, but up about 12% since this year's bottom to date in early June.


Commodity prices have been held in check recently by general global economic weakness, especially in Europe, China and India, and a generally strong US dollar, the global currency for most commodities. But in Q3, the drought in the US sent many food commodities soaring, and oil prices also spiked. Most metal prices (with the exception of iron ore) also rose sharply, all leading to the rise in the Reuters index.


We're not sure about short-term volatility, but we say the evidence does say the despite occasional hiccups, the overall trend in input prices is up, and likely to continue in that direction.

Any Feedback on our Supply Chain Graphic of the Week? Let us know your thoughts at the Feedback button below.

q3, TH
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Oct. 3, 2008

There are valid reasons for both the DC and DSD distribution models, but neither should determine the store assortment, which depends on the consumer.

The Distribution Center model makes sense when you have many prepackaged products which are continuously replenished and require little in-store servicing. With the facility justified, you can also add seasonal and holiday 'in and out' products which can share the distribution network.

The key is to manage the time supply of inventory in the warehouse and distribute it efficiently.

The Direct Store Delivery model can be implemented purely as a distribution method or also allow the manufacturer to manage some of the in-store merchandizing.

I do not see any advantage of using DSD simply to deliver merchandise. Although it may help the 'mom and pops' that are on the same route as a large retailer, the DSD model must be more expensive. Once the big drops are removed, it will become more costly to reach the independent retailers but the larger retailer must benefit.

If DSD is used to support in-store merchandising, then you have a different story. The manufacturer's representative can give their products the individual attention that increases their sales. The bad thing is that they can also load up the store with inventory if no one is watching.

Bill Bittner
BWH Consulting


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