As the price of a barrel of oil skyrockets, spurring fears of a worldwide recession, officials at Novation, a healthcare contracting supply company, and its members will be able to track supply costs better than before because the Texas-based company just began publishing its Budget Projections Impact Reports monthly instead of bi-yearly.
“This is a projection of where we think markets are headed,” said Pete Allen, Novation’s senior vice president of sourcing operations. The monthly reports, he said, help with an understanding of “where the latest projections are in relationship to the markets.”
The company decided to offer monthly projections because it had made investments in its technology that allowed for quicker response and because it felt it had to given market conditions. “The marketplace is moving so rapidly, we have to make sure we’re serving our members,” said Allen.
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The markets have been in turmoil in part because of recession but also because of natural disasters across the globe, such as floods, that impact the commodities markets – for products such as rubber, cotton and food. “Some of these markets,” Allen pointed out, “have had rapid changes,” and in some cases, the changes have been severe for commodities that are usually fairly stable.
Allen points out the price of cotton as an example. Less than a year ago, cotton was selling at about 65 cents per pound, Allen said. Generally, the cost of cotton has remained stable for decades, but in recent months, it has been affected by weather issues, politics, and an increase in demand from developing countries. The commodity is now selling for more than $2. This sharp rise in cost will have a “striking impact on the economy in total,” said Allen.
“Our members are facing more difficult financial situations than they have in years,” Allen said. “We’re urging our manufacturing partners to look for efficiencies in their processes to offset rises.”
Novation’s January Budget Projections Impact Report reported that overall market prices were expected to increase 2.8 percent in 2011 and early 2012, but with the unrest in the Middle East leading to oil price increases, those projections are likely to change. “If oil goes up significantly,” Allen said, “it raises the cost for everything."