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Strategic Sourcing Lessons from the Chicago Stock Exchange (Part 1)

29 January 2008 - Features - Editor

Western economies have transited from agricultural domination to industries and services, so stock investors unfamiliar with the Mid-West of the United States, and basically urban in upbringing, treat pork belly futures with misplaced mirth. Though inclement weather and sudden pest and disease outbreaks can play havoc with production levels, farms are ideally suited for forecasting based on models. We can use hard information on area planted and numbers of animals to foretell how much of agricultural commodities will be available during coming months. The entire stock trading world owes the Chicago stock exchange for making a science of predicting farm output.

The lessons of the Chicago Board of Trade have applications in industries and services as well. Strategic sourcing has many applications for durable competitive advantage. It is a cost-effective way of outdoing your business rivals, because you can use scientific negotiating principles rather than advertising dollars to garner market shares: force your adversaries in to frequent ‘out-of-stock’ positions or enjoy unmatchable cost price advantages. Outsourcing business processes to low-wage countries is the kind of anti-national action to which some business sectors have been reduced, just to stay in the market sector.

Futures are Common Drivers of All Stock Values

Foresight is perhaps the most important asset of any stock investor, but it is a function of accurate business modeling rather than mysterious astrology! The dollar is a prime example of how future stock value can be reliably estimated by anyone who understands the import and export balances of a corporation: stocks of companies that export to well-managed economies will thrive, while those of companies that pay for imports in dollars will fall. Similarly, the Asian stock market world has learnt to respond positively to all suggestions by Chair People of the US Federal Reserve that interest rates will fall yet again: it is no longer secret what our financial institutions do with cheap money!

Russia, China, and Japan, are champions at strategic sourcing, though most of their important moves are outside the stock market arena. These three countries focus on natural resources, specifically related to energy and to metals of industrial significance. They assiduously build inventories of scarce materials, often at premium prices, and with countries such as Australia, with which they share no ideological affinity. The United States does not lag behind in this respect, but material reserves are kept aside for military rather than business advantages.

How to Unearth Root Systems of Stocks

Examining supply resilience is a valid method of stock appraisal. Strategic sourcing matters most in enterprises where brand-switching due to stock-outs can lead to significant and permanent market share losses. Stock investors should find out as much as possible about suppliers of companies. Indirect sources such as transporters can provide useful leads if companies do not yield information easily.

Strategic Sourcing Lessons from the Chicago Stock Exchange (Part 2)

 


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