Many business decisions are made based on what is thought to be known. Instead of what is. (Related: The Power of Why!) This may be due to assumptions, or, because the cost of ‘knowing everything’ is prohibitive. But:
Have you actively thought about what the business inputs (or external factors) are that you need to really know, before making decisions?
This question came to the front of my mind earlier this week. Over coffee, a friend asked me how I thought a number of commodities futures had performed over the past 12 months. I was sure, casually listening to these in the morning news, or reading recent articles, that I had an idea.
I was surprised by what I thought I knew, and how wrong I was. I think I got them all wrong (>5%). These are the 9 basic commodities we discussed:
|Crude Oil||Unleaded Gas||Copper|
Ask yourself, how much do you think each of these has changed (% +/-) in the past 12 months? Which ones impact you, your business directly?
Here in the U.S., a regular part of the morning news often discusses where Market Futures may be trading. As the cost of Crude Oil climbs, so does the price at the pump when we fill up. That item directly impacts our back pocket. It also impacts almost everything else. But have you thought about how, beyond the fill-up? What might each of these mean to your business?
Here was their actual performance, past 12 months (*):
* Note: (02-20-2011) For reference only. Some values, such as Crude Oil, have risen dramatically this week alone due to regional instabilities. Source: Commodities & Futures Overview (subscription may be required for access)
For simplicity, Futures, or futures contract, is an indication of what people are paying today for something delivered in the future. For the typical consumer this is of no matter. We pay whatever the current price is, at the time we buy it.
For a business, this can have very significant impact. If you are a chocolatier, the futures suggest you may very likely be paying 10% more for your primary source material in the near future. What does this mean to you?
If you see copper climbing, you may want to increase your inventory on-hand today, and not wait. Southwest Airlines did something similar, locking in their (low) fuel prices (hedging) years in advance, giving themselves a strong competitive advantage for some time.
If you’re someone dependent on perishable commodities, like coffee, increasing inventories may not be as viable. Instead, you may choose to investigate complementary alternatives. If a cup of coffee becomes too expensive for your customers, having an alternative available may keep them spending, instead of bypassing your shop altogether.
Hopefully this serves to trigger your own thinking: What do I need to know as I make ongoing decisions key to my business? Maybe there are other things outside the box, like commodities, that will come to mind.
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