Price Wise: Managing resin prices, a roadmap


Risk management guards against or eliminates potential cost increases while securing profit margins and sales. Hedging is part of risk management, but risk management is a process that, implemented wisely, adds quantitative and qualitative value to your business.

"Hedging" and "risk management" are often used interchangeably. The problem that causes is not just a lack of understanding of risk management. It's that risk management gets a bad rap because hedging has a bad rap. Hedging has a bad rap because a few unqualified and careless individuals have hedged or overseen hedging activities and caused unnecessary and unexpected losses. Neither risk management nor hedging deserves a bad rap; that's like blaming cars for accidents caused by drunk drivers.

With that introduction, if I worked for a processor who wanted to control resins prices, and increase sales and secure profit margins, I would follow this roadmap:

Specify Objectives
These are strategic and bottom-line objectives, such as:

1.Meet or beat budget or other profit margin expectations
2.Mitigate or eliminate price risk in purchases and sales
3.Secure and increase revenues...
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