How much time could you save if you didn’t have to consolidate commodity pries from multiple sources (USDA, New York Board of Trade, and Chicago Mercantile Exchange) every month? Or for some of you… every week?
The answer is… A LOT.
Time savings should become your reality.
Bongard’s and Kraft Heinz Ingredients have implemented automated formula pricing (via Blacksmith TPM) to simplify their commodity pricing practices. Continue reading to hear how this TPM functionality has improved their business. But first, let’s talk about what a commodity is and why commodity pricing can be so complicated in trade spend.
What’s a Commodity?
A commodity is a basic good that’s interchangeable with other commodities of the same type. The idea is that there’s little differentiation between a commodity from one producer versus the same commodity from another producer. For example, a barrel of oil is essentially the same product, regardless of the producer.
Other common commodities are eggs, poultry, meat, grains, coffee, and sugar.
How to Automate Commodity Price Formulas
For most commodity products, pricing is extremely complicated. Every single day, in theory, you could have a different price as markets change. It gets even more complicated because of all the different variations of how you can calculate that pricing.
- Are you using the prior week’s average?
- Are you using the prior month’s average?
- Are you using the actual calendar month?
Blacksmith TPM’s formula pricing module automatically retrieves daily data feeds from the food manufacturer’s designated commodity sources. In the formula pricing module, the user creates the program and selects the schedule for how often the program should price. You determine the sample size you’d want to look at for the commodity to establish the price.
Then, the user builds the formula calculation based on the specific commodities and weighting set for the determined item. Once the program is approved, the pricing interfaces to the manufacturer’s ERP.
The pricing is updated on a user-driven schedule for each contract. The pricing formula considers factors like yield loss, packaging, transportation, and SG&A. Based on the set schedule, the program will reprice automatically with the updated commodity data.
Now, let’s chat with some of our customers about how this functionality is working for them.
Bongard’s Formula Pricing Wins
Bongard’s, a premium cheese producer, uses multiple commodity markets and has various versions of timing, explains Evan Carlson, Director of Marketing. This 113-year-old farmer owned co-op incorporated pricing automation to improve its business processes.
Question: What led you to a trade promotion solution?
Bongard’s: Bongard’s has more than doubled in size in the last seven to eight years. That’s a big change for the organization. As we expanded, managing the business got more complex and complicated. The data around many processes wasn’t centralized; a lot of our pricing was managed in Excel spreadsheets.
When we pull everything together to understand the full trade impact on the profitability of a customer, it could take us days to run down all the details. And in many cases, you’d miss something because you didn’t realize that you had to ask about this rebate or this program or this other impact to the profitability of that customer. So that’s really what led us to embark on the TPM journey. We wanted a centralized solution to give us one source of the truth.
Question: Can you tell us about kicking off your RFP process?
Bongard’s: Prior to the RFP, we partnered with Blacksmith to demo their solutions so that our team understood the capabilities of a good trade promotion management system. Within the world of foodservice, Blacksmith is one of the, if not the, premier solution from a trade promotion management perspective. With our growth over the last several years, we knew we needed a full vetting process. We defined our system requirements and the value a trade system could bring, then we launched an RFP to learn which solutions would make the most sense for us.
Question: Tell us a little about your formula pricing process before implementing a trade promotion management solution.
Bongard’s: A lot of our pricing was managed in Excel spreadsheets. We relied on good communication between sales, customer service, and our accounts receivable teams to manage pricing on necessary deductions and billbacks coming through. You can see how trying to manage all that data in spreadsheets and different documents could become unruly really quickly.
For example, say I scroll down to customer A and here’s their overage using these markets using this timing for this product. It could be completely custom for how you price out that individual customer. Then the customer service team had to pull the markets and use the right days for that customer’s timing. What are those numbers from those markets? What does that blended average look like? There was a lot of room for error in terms of how those formulas were communicated and how those prices were calculated.
Question: How does formula pricing work now with Blacksmith TPM?
Bongard’s: The formula pricing model has allowed us to systematically capture the full calculation of pricing.
Now, when we set up a price list for a customer, we’re capturing the full formula that’s used. We know the overage, which weight brackets, the timing, the blended average, when the pricing is effective for… and more! Through Blacksmith TPM, this calculation is fully automated, and those automated price calculations are pushed down to our ERP. That integration is key. The Blacksmith TPM calculates those prices, then syncs with our ERP and pulls directly into orders.
Question: As far as the process goes, what’s the biggest benefit to automating formula price?
Bongard’s: It’s definitely streamlined the effort that needs to go into pricing on the orders because the system is auto calculating it. The time savings is a pretty critical win there. Blacksmith TPM gives us the ability to go in and see clean, hard numbers. We know pricing and programs are housed in one location.
Kraft Heinz Ingredients Formula Pricing Wins
Kraft Heinz Ingredients, a trusted partner to many foodservice manufacturers, spent lots of time manually pulling commodity prices says Matt Kubeck, Finance Manager. Kraft Heinz Ingredients, an independent business within the Kraft Heinz Company, was ready to automate commodity pricing formulas to grow strategy.
Question: Tell us a little about your formula pricing process before implementing the formula pricing module from Blacksmith TPM.
Kraft Heinz Ingredients: Previously, we performed all of our monthly pricing processes in Excel. We manually consolidated commodity prices, calculated updated finished good prices, uploaded those prices into our SAP system, and then sent letters to customers and reps. I used to pull commodity prices from 4 or 5 sources… consolidate all that data… and ensure it was loaded into our ERP system. I would generate letters directly from Excel. I’ll tell you, it was a lot of manual work.
Question: What’s the biggest issue with Excel?
Kraft Heinz Ingredients: Well, there was a lot of manual updating. It’s a serious time commitment. Since our goal is to allow more time on strategic analysis to drive business, it was time for a new process.
Question: Got it. So, it was time to automate! Tell us about your new process through Blacksmith TPM.
Kraft Heinz Ingredients: KHI is a strong proponent of automation. We collaborated with our TPM partner (Blacksmith Applications) to get the formula pricing automation initiative off the ground. There really wasn’t any hesitation since we’re already using the fixed pricing functionality.
Ultimately, we needed to reduce the amount of time we spent on this every month… and that’s what this functionality did for us.
Now, on a monthly basis, I verify commodity information is accurate in the TPM, and let the calculations run. And since the formula pricing interfaces with SAP, there’s no manual uploading. This automation has probably saved us a whole days’ worth of work every month. With that time savings, we’re able to focus more on business strategy and other areas.
Question: Awesome. Would you recommend this to others?
Kraft Heinz Ingredients: Obviously, I would recommend this to any manufacturer who deals with commodity pricing.