Solution
The dairy procurement team of a US food manufacturer worked with Stable to protect themselves against a number of dairy commodity price risks, so they could insulate their budgets and focus on maintaining the security of their supply.
This enterprise-sized member of the Club uses a variety of dairy products in their production process, and their dairy procurement team is kept busy managing relationships and contracts with many different suppliers. Quality specifications and having the right products in the right place at the right time are key concerns, but adherence to budget constraints is also important for the procurement team.
They needed a simple, effective way to manage price risk across a basket of commodities so they could devote their time and energy to maintaining relationships with their suppliers and dealing with any other supply chain issues that might crop up.
Pork trim is a key ingredient for many of the menu items sold by Stable’s quick service restaurant (QSR) client. But pork trim price volatility was 64% over the past year, making it difficult to forecast prices and complicated to set budgets and plan for the future.
Stable’s technology platform gave the member the ability to view historical prices for each dairy commodity in their portfolio. The Club’s specialized tools allowed them to enter their budgets and stress-test those budgets against their own and other third party forecasts.
They used the Club’s specialized, easy-to-use tools for scenario analysis and selected the protection levels they wanted to safeguard their budgets. The Club then calculated the premium required to protect the risks.
It was important to keep cash flow under control, so they selected a premium payment plan that was aligned with their purchasing projections rather than a plan where they’d have to pay the premiums upfront. Premiums paid into the Club earned interest while in the account.
At the end of the contract, some of the dairy prices had risen and some had fallen. The net settlement amount was calculated and sent automatically to the member, without the need for a lengthy claims process.
Stable’s solution gave the member a tax efficient buffer against volatility in the cost of their dairy procurement basket, giving them peace of mind so they could focus on their day to day business.
The Club helped to manage the members exposure to volatile dairy markets with an innovative and targeted solution that zeroed in on their precise exposure.
Stable’s sophisticated data-science platform allowed them to identify, track and assess their risks.
Stable’s protection contract was linked to a third party, independently published benchmark price selected by the member.
The member was able to choose protection levels which made sense for their business.
When dairy commodity prices rose, the settlement was calculated automatically and paid quickly. And when dairy commodity prices fell, the member was able to keep the relative premium amount they paid into the Club, less Club fees.
Premium may be expensed if you simply add it to the cost of your inventory.
Premiums were held in a segregated account for peace of mind.
Club fees were 100% transparent, and the Club was fully aligned with the member’s success.
