Position Recommendations

All clients have a different risk tolerance and pricing horizon so providing standard position recommendation results is irrelevant. However, a detailed look at two customers’ positions over the past few years gives a basic overview of the outstanding results we can deliver. Savings are calculated as the cost paid versus the market price.

Snack Food Manufacturer

This manufacturer has a very long contractual arrangement with its customers.  Therefore it tends to be very long the ingredients as a hedge against those contracts.  After some risk assessment of being shorter than normal, purchases were made as shown in the chart below.   Savings were not generated.  The market remained weak.  However, significant cost avoidance was achieved as forward carry in the futures market was avoided.

2016 wheat chart

 

Manufacturer of Baked Products

This manufacturer has very transparent pricing with its customers. That means showing value to its clients with good purchasing decisions is critical. The client has major exposure to wheat, vegetable oils, natural gas, sugar, and nonfat dry milk. Total purchase of these base commodities is $50 million annually.

Engagement Savings (Loss) in $Million vs Market
Year 1 3.2
Year 2 (3.1)
Year 3 2.3
Year 4 5.6
Year 5 0.4
Year 6 (3.4)

 

Manufacturer of Packaged Food Product

This small manufacturer produces private label products that must be high quality and cost competitive to displace branded products. Beeson & Associates, Inc.’s support is primarily focused on vegetable oils, a key component of the final product. The total purchase of fats and oils is only $2.5 million, but the product has a large percentage of its raw materials based on fats.

Calendar Year Savings (Loss) in $Thousands vs Market
Year 1 270
Year 2 (73)
Year 3 28
Year 4 319
Year 5 364
Year 6 (0.5)
Year 7 (0.3)

 

How the Process Works

  • We develop a risk profile for the client. It includes amount of risk to accept, key measures of success (budget, market, or other), and a definition of an “even” position.
  • We meet monthly with the client’s decision-making team to review market fundamentals and recommendations. An agreed strategy is put in place considering all available market tools. The decision-making team is usually led by purchasing with participation by key finance and marketing personnel.
  • We provide a weekly update to assure the client’s personnel are informed of the most recent factors. If a revision in strategy is needed, it is communicated in the weekly update or via conference call.
  • We execute positions as directed in the strategy meeting assuming the market reaches the targets set.
  • We track positions for variance to market, budget, or other measure set by the client. Monthly reports are part of the monthly strategy meeting.

The Benefits

  • Information is communicated and understood broadly. Importantly, rationale for decisions is shared providing qualitative insight and financial metrics are communicated for financial planning.
  • The clarity of the process removes the mystery of the markets for those not closely involved in the daily management of purchasing activities.