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One of the world’s largest privately owned food/agribusiness companies delivered millions of dollars in value over 4 years through enhanced global sourcing. Its strategic sourcing team used market intelligence to manage price volatility for both the company and its suppliers so they can deliver greater value to customers.
When you are part of a global sourcing organization that is responsible for globally sourcing indirect raw materials and services, your success depends, among other things, on having access to timely and accurate information and insights — about current prices, the direction prices are heading, why they’re trending that way, and more.
As one of the world’s largest privately owned businesses, with $134.9 billion in revenue in fiscal year 2014,1 Cargill provides a vast array of food, agriculture, financial, and industrial products and services to the world. Cargill’s Strategic Sourcing team sources the indirect raw materials and services that are used to support the 65-plus businesses that operate in 67 countries. The Strategic Sourcing team is involved in establishing sources of supply for a variety of indirect raw materials and services – ranging from dairy, sugar, spices, hydrochloric acid, resins to metals.
Cargill’s global sourcing team must contain costs, manage price volatility, leverage internal demand across the 65 plus business units and tap into measurable value without compromising safety, quality and service to our customers. Achieving these objectives requires a comprehensive understanding of ever-changing prices and trends for materials worldwide so the team can negotiate effectively with their suppliers.
Fortunately, Rajesh Kumawat, Global Market Intelligence and Data Analytics Manager for Cargill, knew where to turn for answers to help the Strategic Sourcing team. He went to the pricing and purchasing experts at IHS for additional support.
“We wanted data and analysis about pricing trends that covered the wide array of products we were responsible for,” explained Sandy Hetchler, Market Intelligence Senior Analyst. “We also wanted first-hand access to IHS economists who could provide perspectives and insights on these diverse global markets they cover. These insights have strengthened our supply chain management in a way that brings value for our customers, as well as for Cargill.”
Moving Beyond Unreliable Data Sources
Previously, the 200-member global sourcing team had sought information from a variety of sources, but they often received pricing and trending data that was inconsistent or incomplete and at times conflicting. They could not rely on those disparate sources to get the broad, deep information and insights they needed, when they needed it.
Sometimes Cargill’s sourcing professionals would get a useful report that allowed them to gain perspective on a particular area. But the person who wrote that report might only update it once every two or three years. What does a company do in the meantime? Cargill needed a source of information and analysis that was updated frequently and addressed the most recent market movements.
We wanted data and analysis about pricing trends. We also wanted first-hand access to IHS economists who could provide perspective on markets they cover.
Providing Unified, Up-to-Date Insights
Today, eleven team members in the Global Market Intelligence Group author commodity and indicator reports by leveraging IHS data and analysis. The Intelligence Group makes these reports available to the entire worldwide sourcing team, which has offices in North America, Europe, the Middle East, Africa, Asia Pacific and Latin America. These reports give the entire sourcing team a clear, cohesive view of what’s happening in various markets. The insights gained from reviewing IHS economic commentary have been helpful in giving Cargill a competitive edge about where the markets are heading and the opportunities from a sourcing perspective.
As the world changes minute-by-minute, Cargill analysts have found it invaluable to talk to IHS economists to learn what is happening and why they have a certain perspective on the market. If an economist delivered a report in August, Cargill could now touch base to gain insights into any changes over the past months. Speaking with the economists helped the Cargill team understand the economist’s viewpoint and remove any bias that may be there.
Achieving Millions of Dollars in Value
Overall, Cargill’s global sourcing organization has a customer focus and helped the company deliver millions of dollars in value for the business units over the four years since the company began leveraging IHS information, analysis and expertise. This value is supported from the ability to use accurate price, supply and demand and trend information to partner more strategically with suppliers. It is value that gives a competitive advantage for Cargill and helps its customers thrive in a globally competitive market.
In one case, Cargill with the help of IHS information was able to use market data, insights from the economists to realize a market potential that would benefit both the suppliers and Cargill to have a more nimble supply chain while maintaining or improving prices/costs. The situation was such that prices had seen some unplanned volatility. Large price swings were a concern for the Sourcing Team members. Cargill asked IHS economists to understand the rationale for the movements and factors that could affect the price changes in the next 6-12 months. The analysis helped Cargill develop a data driven strategy and a plan to address these price volatility with the incumbent and new suppliers while maintaining security of supply for its customers. Cargill was able to manage the volatility because the IHS analyses gave Cargill the insights beyond just the numbers.
Many of Cargill’s products use multiple indirect raw commodities, each of which may have volatile prices. For example, one Cargill business unit relies on approximately 35 non-traded commodities with more than 100 permutations/combinations. The group developed a cost-driver-analysis model, including short- and long-term forecasts by IHS economists and other data sources, to help sourcing professionals understand the impact of price changes for these non-traded commodities and how they impact the final product’s cost. More than simply reducing costs, having accurate pricing information provides a more holistic view of the market that minimizes risks for Cargill and its suppliers and customers. With this model, Cargill gains understanding of the impact of the market on the overall product.
In addition, Cargill’s sourcing group now shared this component-based price information with its suppliers, which means they can now have more balanced and meaningful discussions with those suppliers and use the data to talk about not just price changes but also the impact on supply/demand and any potential risks – not just for Cargill but also for the suppliers and eventually for the customers.
Moving beyond Savings
The Cargill leadership team appreciates the value brought from the savings that have been realized, but it is also understood that the steps taken to increase the market focus on the indirect raw materials side has brought a more transparent and robust supply chain.
In conclusion, Kumawat says: “The key insights that our team gains across these global markets help us develop a more agile, secure and reliable sourcing organization that brings reliance, trust, and execution capacity for our customers and helps them thrive – and that is at the very core of Cargill’s values.”