The financial supply chain provides the cash flow needed to ensure the doors are kept open, the lights are kept on, the employees are being paid and products are being made and shipped.
Commodity Risk Management
As companies become more global, sourcing the materials for their products from anywhere in the world, they also become exposed to a higher likelihood of commodity risk. "Commodity prices have become very volatile," says Ada Cheng, vice president and assistant treasurer with food & beverage giant PepsiCo Inc. (IW 500/18), "to the point where even market experts can't predict future prices." Commodity risk management (CRM) has become very important to PepsiCo because of a need to reduce uncertainty, while increasing productivity.
To better manage the CRM process, PepsiCo has established a global center of excellence, which teams up key decision-makers from treasury and accounting on the finance side and from global procurement on the supply chain side. The center is tasked with developing coverage standards, governance processes and standardizing performance tracking of commodities across the 200-plus countries where PepsiCo has a presence. Global commodity playbooks feature a diagnostic overview of the company's current state and market characteristics.
"It's important to understand the manufacturing side of the business in order to hedge on commodity prices," Cheng says. To that end, PepsiCo's treasury department works hand in hand with manufacturing to ensure everybody is on the same page. "Any change in the production cycle or any specific issues overseas could have a serious impact on our hedging strategy," she notes, so communicating all relevant information across the various departments is a crucial component to effective management throughout the financial supply chain.
