Margin protection strategies for a competitive animal nutrition market

This article will take a closer look at how companies in the feed and pet food production industry can safeguard their margins in a highly competitive and price-sensitive market.

Understanding the challenges

The animal nutrition sector faces several unique challenges that directly impact margin protection:

• Price volatility of raw materials: Agricultural commodities – the backbone of many products – are subject to price volatility. Fluctuations in global markets due to geopolitical and climatic factors can significantly impact costs. To make the right buying decisions, purchasers need to be able to keep close track of ingredients stock exchange prices and to compare them to their own contracts.
• Long-term commitments and contracts: Securing the necessary ingredients often requires long-term commitments and contracts, adding another layer of complexity to procurement strategies.
• Optimisation of recipes and formulations: Most companies combine manufacturing with trading activities. These 2 activities compete for the same ingredients. How to decide which is more profitable: trading commodities or using them in your production?
• Logistics and transportation costs: Freight costs can eat into margins, making efficient transportation logistics crucial for profitability.
• Product variations and packaging: Offering products in multiple forms and sizes adds complexity to pricing strategies and can affect margins.
• Adding additives: Animal feed may be marketed with various feed additives blended in, which also impacts both costing and sales prices. Given the multitude of potential combinations, it’s crucial to automate the management of these price and margin effects as much as possible.
• Managing non-material costs: It’s essential to automate the management of non-material costs, such as production and storage expenses, as they also impact margins.

Strategies for margin protection

It’s widely acknowledged that key agricultural commodities, crucial components of end products, exhibit high volatility. For companies in the animal feed industry, effectively managing risk necessitates collaboration across departments. A significant challenge is the volatility of soft commodities, which are susceptible to geopolitical and climatological factors. This unpredictability leads to fluctuating prices, requiring close coordination between procurement and R&D teams to develop future recipes that meet animal specifications while maintaining competitive pricing.

To successfully navigate these challenges and safeguard margins, companies require access to accurate, real-time information and robust strategies. Here’s how software solutions like Bestmix can assist businesses across various facets:

1. Managing price volatility: Bestmix provides tools to monitor and analyse market prices, enabling informed procurement decisions. Features such as automatic market price imports, future price predictions, and price hedging mitigate risks associated with price fluctuations.
2. Streamlining contract management: Efficient contract management is crucial for securing favorable terms and optimising purchasing activities. Bestmix offers a comprehensive solution for real-time contract management, enhancing control over purchasing costs.
3. Optimising recipes and formulations: Integrating procurement and recipe optimisation enables companies to anticipate market trends and optimise recipes for profitability.
4. Addressing logistics challenges: Efficient transportation management minimises logistics costs, enhancing overall profitability.
5. Adapting to market dynamics: Flexibility in adjusting recipes, formulations, and pricing strategies ensures competitiveness in a constantly evolving market.

Exploring integrated solutions

Integrated contracting and recipe optimisation systems provide real-time insights, enabling faster reactions and more accurate management of raw materials. By consolidating purchase and sales contracts, sales forecasts, and inventory positions, these systems facilitate informed decision-making and enhance profitability.

Conclusion

In an industry marked by volatility and competition, margin protection is crucial for sustained success. By leveraging innovative solutions and strategic approaches, companies can navigate challenges effectively and secure their positions in the market.

For more information on how Bestmix can support your business, reach out to us at hello@bestmix.com or visit our website.