Supply chain management: Commodity risk management in transformer industry

Sa？etak Transformer manufacturing includes a number of raw materials, which show significant price fluctuation and therefore represent a major risk for transformer producers. During 2004-2008, when commodity prices exploded globally, many producers have had huge losses due to lack of understanding of the risk management methodology and wishful thinking. Some of the raw materials used for transformers are market-traded commodities and specific commodity exchanges exist (copper, aluminum, crude oil). But there are other raw materials such as structural steel and grain-oriented electrical steel where no specific commodity exchange exists. It is a complicated process to understand the risks involved in managing these raw materials and finding proper methodologies to mitigate these risks. This requires combined efforts of sales, procurement and treasury/finance functions, and well-established company policies and procedures