I’m running out of Helium and Shrimp! – Sourcing During Shortages
A recent ISM report on non-manufacturing commodities (October 2013) listed commodities where prices were rising and falling. The report also listed two commodities that are facing serious shortages, Helium and Shrimp. The fact that such different commodities could land is the same list is a bit comical; the challenge of sourcing commodities in the face of a shortage is not. Let’s look at one of these commodities in the context of our sourcing expertise where Capgemini would begin helping you tackle a commodity shortage.
We have developed many Commodity Knowledge Packs(CKP’s) for commonly purchased commodities and services such as safety supplies, labels, industrial gasses, and uniform services, just to mention a few. Numerous CKP’s have been delivered to clients and represent work we have done to analyze specific supply markets, develop an effective sourcing strategy that is appropriate at the time for the client we were serving and provide an implementation plan to deliver savings. While we do not have CKP’s for unusual commodities like Helium or Shrimp, we can create them quickly from a global perspective using our established sourcing methodology and rigorous research.
Getting Started: Understanding the Market
The first step is to understand the supply market for Helium as well as where and why it is consumed. Helium is an inert gas that is separated from natural gas. As a practical matter, it is ultimately a non-renewable resource, although with the advent of fracking, potential future supply is currently increasing. Buyers of Helium span many industries including aerospace, defense, electronics, medical imaging (Interesting Fact: MRI’s consume 30+% of global Helium supply) as well as welding, commercial diving, research that requires very cold temperatures and, of course, party balloons. This is the beginnings of CKP development and would involve generation of detailed global supply and demand graphs looking forward an appropriate number of years. Often we can identify a potential supply crisis in advance and develop mitigation options, and provide facilitation using OpEx tools to help our clients select the best mitigation option.
In the case of Helium, there are multiple drivers for the current and anticipated supply crises which are unusual and fascinating. Those sourcing Helium should consider the following:
- The existence of the Federal Helium Reserve: The FHR was set up in the 1920’s when blimps and other airships were considered military assets. This reserve includes a huge underground helium storage facility in the US, the only such facility in the world, which contains 10 billion cubic feet of Helium today. The obscure 1996 law that created the Federal Helium Reserve included a provision to close the reserve on October 7, 2013, effective shutting off 35% of the current global supply of Helium. Intense industry lobbying has resulted in new legislation to phase out the reserve over the next six(6) years via annual auctions.
- The FHR has been selling off Helium well below market price: The FHR has engaged in this practice for years and will continue for another year before the auctions begin. These low prices have been a serious disincentive to recovery and reuse. Businesses will be challenged to develop inventory strategies before the auctions begin and adjust those strategies afterward. This will become tricky as the actual supplier to any given user may change as a result of the auctions. Second, the price will rise to market at some point during the five(5) auction years and will drive changes in use, as well as recovery/reuse practices for the end users.
Sourcing Helium effectively over the next 5-7 years will require a clear strategy based upon an in-depth understanding of the supply market, the global demand and options for recovery/reuse. Supplement this with a clear plan to implement the strategy and you have a Commodity Knowledge Pack that will delight any CPO and guide you to cost savings.