Raw material for thought: What to do when the war disrupts the commodity market?

The war between Russia and Ukraine disrupts the activities of Israeli industry.

Prices of goods and raw materials change from day to day, with not only price increases in the background, but also a fear of shortages.

The field of sourcing helps the local industry to emerge from the crisis

Itamar Sommer, Deputy CEO of Mashik

22/03/2022

Tuesday, 22 March 2022, 10:54 Updated: 11:18

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The war on European soil dramatically disrupts the activities of Israeli industry: shortages of equipment and raw materials, unprecedented price increases that lead to financial losses, or the need to find new suppliers - all of which burden manufacturers who have not yet recovered from the effects of the global corona crisis.

The general feeling in the commodity market is of utter chaos with daily fluctuations in prices - equivalent to what until recently were annual fluctuations.

While some of the world's largest raw material suppliers cancel contracts for "higher power" claims, others have stopped exports and full reserves for self-consumption, and manufacturers are forced to turn to expensive alternatives, with the problem of raw material availability no less troubling than the sharp rise in prices itself.

The volatility is expected to continue even more in the coming months, and its economic shock waves, the manufacturers will feel even after the fighting has subsided.

Thanks to the unusual combination of circumstances, the deficiencies are felt in almost every industry and hurt profitability to the point of closing small factories that are collapsing under the burden, and a cash flow shortage due to the need for credit to finance goods at high prices.

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A warehouse of goods in Ukraine is on fire.

The war drove the commodity market crazy (Photo: Reuters)

Also disruptions in supply, also rising energy prices

If these are not enough, the rising price of oil, which has affected the prices of goods such as sugar and corn, has in turn led to a significant rise in energy prices, including natural gas, fuels, industrial oils and especially in the prices of maritime and air transport.

The rise in air, sea and land transport prices, which also results from a combination of circumstances such as the merger of shipping companies, lower shipping lines, an increase in the price of goods insurance and a shortage of active transport vehicles (ships and planes), only deepens the industry's distress.

Following the boycott of Russia, there is also a shortage of urea in Israel - a supplement to reduce pollution from trucks, which could lead to the shutdown of hundreds of trucks and further damage to land transportation in the country.

Itamar Sommer, Deputy CEO of Mashik Consulting (Photo: Mashik)

Almost every commodity will have a replacement or alternative supply source

So how can local enterprises cope with the meteoric price increases and existing and expected shortages, get through the crisis period and avoid an economic collapse?

In such a state of affairs, companies have realized that they must prepare for future extreme scenarios in order to mitigate the impact of the current catastrophe.

Although in the field of risk management one must also take into account the optimistic (or naive) side where the "risk premium" will fall rapidly (in case of a positive turnaround in combat, for example) and lead to sharp corrections in downward raw material prices, most companies today prefer to enter "Absorption alert" and optimal preparation for a rainy day.

The sourcing industry has become for industry in 2022 a first strategic issue in its importance, whose main purpose is to locate new or alternative sources of supply, and to assist in risk management and diversification, in order to deal with the dramatic extent of global shortages and market turmoil.

The local industry has realized that the global supply chain crisis is forcing it across sectors, for special preparedness, for tackling price volatility and intensifying shortages.

For this reason, experts in the field of international procurement will look for bypass solutions to maintain the flow of raw materials and packaging and the international shipping options.

Many companies turn to consulting and reorganization in the field of procurement, to find solutions to the rolling crisis.

In the sourcing toolbox, industry experts offer solutions such as expanding the circle of suppliers and finding alternative suppliers, locating new relevant markets (such as Turkey, India, the Gulf countries, etc.) and examining the use of substitutes without compromising the quality of the final product. For recycled plastic).

Alternative sources of supply are found while in motion and in parallel with market fluctuations.

For example, these days we have located in South America alternative sources of supply for raw materials used in the chemical industry, as a replacement for a market that has closed in Ukraine and Russia, and in Poland we have located packaging materials for the toiletries industry, as a replacement for the Turkish market.

We have identified new markets for packaging materials for the food industry in India, and recycled raw materials for the plastics industry - in Turkey.

In other cases, new technology provides an alternative solution to the raw material in short supply, such as an aluminum cable developed with innovative technology and replacing copper from the Far East.

The sourcing process also includes reference to the optimization of the distribution and transportation system within Israel, in order to reduce expenditure in this area.

In this regard, the local industry is looking for cost-effective transportation solutions like the use of green electric vehicles.

Mashik is one of the leading consulting and technology companies in the country in the fields of procurement, logistics and supply chain.

The company develops technology systems by its software house Mashik-tech.

Using its engineering arm, Mashik designs advanced factories, warehouses and production systems

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