|
MarginQuest is a package of products, programs and services designed
to increase profits and reduce risks for businesses operating in the food
supply chain. Different businesses have different customers and within a
supply chain there are multiple transfer points each with costs and margins.
The margins which impact any single business depend upon their position
within the supply chain and will often increase in both volatility and
complexity as one moves up the supply chain toward the ultimate consumer.
Informa's MarginQuest program combines commodity market data and
customer transaction data with historical financial performance metrics to
forecast and manage margin from upstream suppliers through to the consumer
point of sale. Informa has assembled a unique team of economists and
seasoned industry professionals to administer the MarginQuest program
for the benefit of food-based companies.
There are five tools in the
MarginQuest toolbox with each addressing a specific need.
Tool 1: Value Based
Procurement (VBP)
VBP
uses specifications, costing models and formula pricing to ensure fair
market value for the commodity products processed and sold by your business.
Many businesses purchase the inputs for their production process at prices
that may not be “fair” given what it costs to produce those inputs. This
can mean millions of dollars are routinely “left on the table” as a result
of out-dated procurement practices. In the VBP process, Informa
professionals will closely examine the methods by which your company arrives
at the price it pays for inputs and recommend alternatives, if appropriate.
The goal of this process is not to squeeze suppliers to the point of margin
loss, but rather to assure that all parties are getting a fair shake in the
pricing of goods that pass between them day in and day out. Not only are
there often large cost savings to be realized, but the new purchasing
approach can often be structured so that overall price risk is reduced or at
least made easier to manage. In this way, VBP can reduce the impact of
market volatility and promote more stable margins for your business.
Tool 2: Measuring and Managing Margin Risk with Portfolio Models
Using a
Risk Measurement Model custom-constructed for your business, the risk to
profit margins created by proposed sales and promotion activity can be
measured. Where risk is unacceptable, feature selection and promotional
prices can be changed in order to meet margin objectives with less risk.
Risk measurement models are variants of the models that are used by large
trading desks to monitor and manage price risk on a daily basis.
Unfortunately, many food companies do not have the ability to accurately
measure the risk involved in forward transactions or even in their
day-to-day activities, particularly when a large number of items are
involved. A tailored Margin-at-Risk model can fill this need by succinctly
reporting the risk to margins as a single number that can be easily
monitored by management.
Tool 3: Customer Demand Analysis
Knowledge of the demand curve (that is, how much customers will purchase at
various prices), is the most powerful piece of information any business can
possess. Businesses that have this knowledge can exploit it to price
products in a way that maximizes profit margins. Using your proprietary
customer sales data, whether warehouse shipments, specific customer sales
history or retail scan data, Informa is able to analyze specific customer
demand, price elasticity, margin generation and trend analysis on a
historical basis and determine promotion effectiveness over time at the item
and segment level of your business. This allows for better assortment
selection, promotion planning, product pricing and margin enhancement while
creating the knowledge required to develop new and more accurate sales and
margin objectives for your business. This work also has the potential to
decrease the inefficiencies caused by over- or under- estimating sales
volumes. By quantifying the demand curve and using it to project volumes
given the selected price point, errors in the quantity ordered can be
reduced. Often, companies find that the reduction in shrink alone far
outweighs the cost of developing and implementing a customer demand model.
Tool 4: Maximizing Profit with Optimization Models.
By
grouping the demand relationships for a large number of products, an
optimization model can be constructed that will deliver optimal output
pricing in order to maximize profit over an entire category or line of
business. The same data used in customer demand and trend analysis forms the
basis for the demand work that feeds the optimization model. An important
aspect of the optimization model is that it considers the cross-effects
between products—that is, if the price of one item is lowered it is possible
that the volume of other, related products will go down. A well-constructed
optimization model truly exploits the power of knowing customer demand and
has the potential to add millions of dollars to your company’s bottom line.
These models are most effective when they are constructed to operate at a
local level, which recognizes that there will be different customer demand
in different geographic regions and socioeconomic climates.
Tool 5: Risk Management Support
Beyond
the quantitative tools, commodity risk management other elements that are
critical to long-run success. Among these are a written company policy to
guide risk management decision and systems for assimilating and tracking
commodity exposures across all areas of a company. Informa’s professionals
have helped many agribusinesses put these elements in place over the years.
We can guide your company through the process of developing a sound risk
management policy that aligns the risk-taking behavior of the procurement
staff with the wishes of upper management. The days of ad hoc risk
management are fast slipping away as shareholders are now demanding a
structured and well-thought out approach to controlling commodity price
risk.
Hedging
and risk control require accurate and timely knowledge of the firm’s cash
commodity position. Many companies have difficulty extracting the
information needed to provide risk managers with an accurate assessment of
their commodity exposure. Let the MarginQuest team help you design and
implement a turn-key solution to this problem. We recognized early on that
a one-size-fits-all approach to these tools would produce an unsatisfactory
result for most companies. Accordingly, we have focused on building custom
systems that work well and accommodate growth without becoming overly
complex. Our professionals can help you determine the platform
(spreadsheet, database or web application) that is most amenable to your
specific situation.
Our Maintenance Program
When
you work with the MarginQuest team you get personalized support to help
assure that the products we deliver add value for your business. We do not
believe in delivering a technical tool then leaving the user to figure out
how to best use it. Instead, we plan on being available for telephone
consultation and on-site visits as often as needed for many months following
implementation.
Routine
data downloading is a common feature of our maintenance program. This will
allow for a regular updating of models that will keep them from becoming
out-of-date and should help you quickly recognize important shifts such as
those involved in customer demand. Another important feature of the
maintenance program is the development of a results metric specific to your
business that will allow on-going monitoring of progress. Because each
business situation is unique, Informa specialists will work with your
company to construct a results report that best conveys the financial impact
that the MarginQuest program is having on your business. This
becomes a scorecard of performance toward your company goals and
objectives. As markets are dynamic the scorecard will allow for continuous
improvement efforts using all of the tools indicated above. |
