Beverage companies deal with a portfolio of commodities, such as agri-cultural commodities, energy and packaging materials like aluminium, glass and cartons. Managing these risks should be a key activity. Learn how KYOS can help to translate your procurement experience into clear and understandable financial risk reports.
Aluminium price risk is a good example of the risks faced by beverage companies. By linking the aluminium component of cans to the LME, packaging companies pass on price risks to the beverage industry. Our beverage clients use the portfolio system to calculate the exact underlying aluminium position. This enables procurement and finance teams to manage the company’s expected costs and price risks more effectively.
With the KYOS system, each user is able to define a category specific portfolio of commodities. Spreadsheets are no longer needed, because all category buyers use the same integrated commodity & risk management system. The Chief Procurement Officer has an up-to-date helicopter overview across all commodities, packaging materials or ingredients. Compliance and consistency is secured for all categories.
Managing commodity risks is crucial for industrial companies to survive in a competitive environment. Managing commodity price risk in Excel can easily lead to mistakes or even fraud. ERP systems, such as SAP, do not offer a good solution either. They look backwards instead of forwards and cannot perform the required risk management calculations. In addition, they can be extremely expensive to customize. Unlike ERP systems, the KYOS portfolio & risk management system is tailored to managing commodity price risks. It builds on years of experience in managing commodity contracts and price volatility.
For example, suppliers of glass often link bottle prices to energy (oil, natural gas) and can producers link the price to aluminium. In the KYOS portfolio & risk management system users are able to compare several of such commodity price formulas in a split second. Calculating the best applicable formula takes less time in the KYOS system than with Excel and hence saves time and cost.
Managing cashflow variance
The higher and more frequent market prices move up or down the higher its volatility. Volatility is often expressed in a percentage and can be calculated for e.g. interest rates, currencies (FX) and commodities. A highly volatile market price is not per definition a bad situation but you probably feel more comfortable with less volatile costs. Aluminium has shown an average volatility above 20% in recent 5 years. This is more than double the volatility of EURUSD in the same period. Calculating the volatility should be an integrated part of your aluminium risk management strategy.
You can store in the portfolio & risk management system commodity budgets, consumption, inventory and contracts. The automated market price analytics are combined with your physical positions. It will provide you with clear insight in the current cashflow and potential cashflow variance versus budget expectations.
You will have a better insight in contracted and/or open positions, cashflows and the associated risks. This is a clear added value for procurement, sales, finance and treasury. KYOS has extensive experience with beverage companies specifically on aluminium risk management.
Fixed or floating prices
Finding a balance between fixed and floating prices is for sure part of your hedging strategy. Fixed prices give cashflow stability, but offer no possibility to profit from favourable price movements. An acceptable balance of fixed and floating prices depends on multiple factors. The KYOS portfolio & risk management system will help you to find your “risk and reward” optimum by simulating multiple cashflow scenarios. It will provide you with clear insight in the potential cashflows given any combination of fixed and floating prices.
Better managing your cashflow variations will lower your required working capital.
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