Commodity markets like paper, sugar, chemicals, metals, or any other segment like energy are highly volatile in terms of prices and demand / supply gaps. This impacts the production cost for suppliers where these commodities are used as raw material. These costs further percolate down to the entire supply chain.
Category Dashboards are an important tool to track these price fluctuations and supply / demand gap of specific commodities or a related category. Today purchasing managers especially those responsible for Direct Materials find it difficult to manage and track their categories. As each category is dependent on multiple upstream and downstream commodities and all of them in turn have different market drivers impacting their prices. Category Dashboard is helpful as it presents all parameters and drivers at one single place. It records, analyzes and helps in forecasting global and regional market pricing and supplier inventories related data on materials for their categories. It helps them to assess and mitigate the risks of supplier failure.
What is Category Dashboard (Part of Procurement KPI Dashboard)?
Category Dashboards are prepared for clients in order to arm them with powerful insights and resources which come in handy during contract negotiations and managing inventories when markets are volatile. We keep a close watch on the trends and latest updates on all the categories, and refresh them fortnightly or monthly as required. The data points for dashboards are collected from multiple sources like RISI for paper related categories, ICIS / IHS for Chemicals, Metal Bulletin and LME for Metals, and others. Our category dashboards primarily include:
- Industry Snapshot and Current Market update
- Leading Suppliers and their ranking based on Market Share or Revenue
- Cost Drivers, Cost Components & Average Supplier margins (in % Terms)
- Market share and growth rate for downstream applications
- Commodity and Upstream market prices, indexes and futures
- Downstream application demand and related price trends & indexes
Industry Snapshot and current market update:
We dive deep into understanding each category and identifying resources that can provide accurate and timely updates on factors that can affect the pricing and supply of the commodity like energy prices, labor index, and fuel prices among other upstream factors as well as demand from downstream segments at regional and global levels. We also keep track of information such as mill inventory, operating rates, import / export data and exchange rate fluctuations and include them in this section.
Supplier research is one of our core competencies. The dashboard includes competitive set of all leading suppliers along with incumbent vendors based on market share for the related category. This helps purchasing managers to compare their vendors to the leading players in the market. Depending on the category requirement, the leading suppliers are identified for regional or global markets.
Cost Drivers, Cost Components & Average supplier margins (in % Terms):
This section is one of the most critical sections and contains information about the break-up of costs that contribute towards manufacturing of the final products (category). It includes cost factors in percentage typically raw materials, utilities, labor, capex depreciation costs, selling & general administrative expenses, suppliers’ margin and conversion cost if applicable. For most of the categories – the raw materials and utilities account for major share of the cost break up.
Market Share and Growth rate for downstream segments:
Most of the commodities have multiple end applications. Based on research and market updates, we identify the market share of downstream segments and their growth rate along with their impact on our segment.
Commodity and Upstream market prices, indexes and futures:
The key cost drivers for commodities are usually indexed. We support our clients by presenting appropriate price escalation mechanism and the associated data. We utilize resources such as RISI (Resource Information Systems Inc.), ICIS (Independent Chemical Information Service), BLS (Bureau of Labor Statistics), Asian Metals, Metal Bulletin, LME (London Metal Exchange), Commodity Exchanges, USDA (United States Department of Agriculture), etc. to identify historic price trends and forecasts. Additionally, we use CME (Chicago Mercantile Exchange), ICE (Intercontinental Exchange) and other commodity exchanges to collect data on futures for respective commodities.
Downstream application demand and related price trends & indexes:
Relevant indexes like BLS, Sunsirs, 100ppi, etc. are used to identify demand/supply gap and impact of other downstream applications to our segment.
How Does It Work?
Case Study: Category Dashboard for Dark Brown Sugar for Food & Beverage Client
We prepared this dashboard in November 2015 factoring all of above sections. We developed a predictive model based on the data points from multiple sources. We connected all upstream market and downstream market parameter and indexes into one single table so as to able to run regression analysis.
Some of the key data points considered were:
- US Sugar 11 Historic prices and Futures
- Sugar 16 Historic Prices and Futures
- Ethanol Historic Prices and Futures
- PPI Raw Cane Sugar
- London 5 Sugar Historic Prices
- White Sugar Futures.
The major cost drivers identified were:
- Sugar cane prices
- Increasing demand for white sugar from confectionary sector
- Global stock deficit
- Increasing demand from Asia Pacific and Indian subcontinent
- Sugar cane based ethanol production in Brazil
We ran a regression analysis on our model and were able to forecast a price increase by mid of Q1 2016. In March 2016, there was a sudden spike in prices of US Dark Brown Sugar prices due to huge demand of White sugar from confectionery giants like Hershey’s as they diverted to use of cane sugar after Anti-GMO influence on sugar beet. This event caused millers to divert dark brown sugar (less-refined form) to refiners who produce white sugar at higher prices.
Thus utilizing Category Dashboard and our predictive modelling techniques we were able to help our client prevent shortage of one of the most important ingredients. We successfully helped them mitigate the supply risk.
Leverage Our Category Dashboard & Procurement KPI Dashboard
We at EmpoweringCPO with vast pool of experience, we have plenty of case studies to elaborate on how we were able to help our clients mitigate supply risk. Our focus on procurement intelligence and procurement analytic services have been our two key ingredients to achieve successful results.