A should cost model is an all-important technique for deriving and forecasting the actual cost of a product or service over the forecast period. It serves as a competitive edge for supplier negotiations by determining the actual price for the cost components. The outcome helps procurement leaders to understand detailed fact-based cost drivers for the category.
In the sugar processing category intelligence study, we have estimated the pricing for the key cost components. Feedstock costs are the largest cost component of sugar processing. They account for more than 45% of the overall sugar processing cost. Sugarcane and sugar beet are the main feedstock used for sugar processing. Sugarcane is highly preferred globally owing to its easy availability and low processing cost. Meanwhile, Brazil is the largest sugarcane producer. Hence, sugarcane price fluctuations in Brazil play an important role in determining the sugar processing costs. Sugar production in Brazil witnessed a decline in 2020 due to the outbreak of the COVID-19 pandemic and drier weather conditions. This also resulted in a steep increase in price in 2021. The price is likely to decline in 2022 and increase steadily until 2025.
Every organization and its procurement team want to negotiate the best deal while procuring a set of products or services. Rate benchmarking uses price/cost comparison of more than one set of products/services to analyze the most efficient combination, thus helping the procurement team to achieve an optimum rate.
The type of feedstock is one of the most important aspects while analyzing rate benchmarking of sugar processing. In our research, we have analyzed the weight and price of sugarcane and sugar beet to produce 1 kg of sugar. We found that using sugarcane instead of sugar beet is 50% more cost-efficient. However, the volume of sugar beet required to process 1kg sugar is 38% less than sugarcane.
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Labor is one of the key components of costs incurred while offering a product or service. As such, understanding the pricing structure of salaries is important for organizations when selecting a supplier and building a negotiation strategy. It is also essential in determining whether the category under focus should be outsourced or built in-house.
As per our research, operations managers at Nordzucker and Sudzucker earn approximately 20% higher salaries than operations managers working in other leading companies, such as Cosan and Biosev. However, the YoY increment rate in such companies largely depends on the KRAs.
The continuous tracking of developments in the supplier landscape can be a cumbersome task. Our newsletter service helps organizations to stay abreast with the latest developments and innovations, enabling them to avoid disruptions in the supply chain. Outsourcing such activities enables clients to focus on their core offerings. Our research on the sugar processing market has identified the following developments:
In March 2021, Cargill announced selling 50% of its stakes in Alvean to the Brazil-based company, Copersucar. Alvean is the world’s largest sugar trader, handling approximately 12 million MT of sugar per year.
In March 2021, Louis Dreyfus Company LLC (LDC) announced selling the business and assets of Imperial Sugar Company to U.S. Sugar, a privately held agri-business based in Florida, U.S.
In February 2021, Brazil’s Raizen, a joint venture between Royal Dutch Shell and Cosan, agreed to buy Biosev, the sugar and ethanol unit managed by Louis Dreyfus, in a cash-and-stock deal. As per the deal, Raizen will pay USD 670.3 million to Biosev shareholders, who will also receive 3.5% of Raizen preferred shares and 1.49% of redeemable shares.
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Component wise cost break down for better negotiation for the client, highlights the key cost drivers in the market with future price fluctuation for different materials (e.g.: steel, aluminum, etc.) used in the production process
Offering cost transparency for different products / services procured by the client. A typical report involves 2-3 case scenarios helping clients to select the best suited engagement with the supplier
Determining and forecasting salaries for specific skill set labor to make decision on outsourcing vs in-house.
A typical newsletter study by capturing latest information for specific suppliers related to: M&As, technological innovations, expansion, litigations, bankruptcy etc.
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