Case Study - Dynamic Margin and Risk Management


Executive Summary


Roquette’s partnership with Tradesparent has had a formative impact by fostering business alignment.


The continuous forecasting of the margin has empowered close collaboration among multiple stakeholders across the company to optimize margins. This is crucial in an industry like the commodities business, which is characterized by relatively short commercial cycles.


In this case study, we sit down with Philippe Lebannier, Head of Finance and Group Supply Chain Controller at Roquette to explore:


1) The drivers behind the implementation of Tradesparent’s Risk Solutions and Dynamic Margin Management


2) The capabilities of the analytical solutions and insights they provide to the different margin stakeholder


3) How the Dynamic Margin Management™ technology is an alignment enabler, creating lasting impact at different levels of the organization

About Roquette

Roquette is a global leader in plant-based ingredients, a pioneer of plant proteins and a leading provider of pharmaceutical excipients. The group addresses current and future societal challenges by unlocking the potential of nature to offer the best ingredients for food, nutrition, and health markets.


In collaboration with customers who are also passionate about the ongoing food revolution, Roquette contributes to developing a whole new gastronomy that meets consumers’ demands. In the pharma sector, Roquette offers solutions that play a critical role in medical treatments that cure and save lives.


Thanks to a constant drive for innovation and a long-term vision, the group is committed to improving the well-being of millions of people all over the world while taking care of resources and territories.


Founded in 1933, Roquette is a family-owned company which operates in more than 100 countries, has a turnover of around 3.5 billion euros, and employs 8,360 people worldwide. The Business Case


Like other processors in the Food and Agri value chain, Roquette is exposed to volatile markets (maize, wheat, crude oil, etc) which add pressure on margin and profitability.


At a time when volatility in grain markets hit new highs and raw material costs soared, the company took steps to unify its scattered data, model all its exposures and ramp up its risk management. The ambition was to foster multi-stakeholder alignment to manage margins globally, anchored around an IT business solution.


Since 2011, the company was engaged with Tradesparent to introduce and advise on the business practices of dynamic risk and margin management. This led to the implementation an innovative analytical reporting system: a collaborative data management solution featuring a near real-time comprehensive forecasting of the gross margin.


Project code name RADAR 1.0


In the broad sense, “RADAR” is a system, a set of tools and practices and methodology referred to by Tradesparent as Dynamic Margin Management™ (DMM).

At Roquette, RADAR initially consisted of:

- A tool: Tradesparent Dashboard, providing risk exposure and margin trends - Governance bodies: Cross-functional decision making to optimize commercial activities globally

- Governance rules: the freedom and limit to operate for each area, as per the Risk Management Framework


RADAR and the Tradesparent solutions generate critical margin reports and risk analyses that have become crucial to daily operations and executive management guidance at Roquette.


The driver: Market Risk Exposure


Roquette’s global sales activities result in commitments to the sale of a wide variety of products, which in-turn require products to bought and processed.


“Our sales cycle does not evolve in tandem with the buying cycle. It does not make sense to buy exactly when we sell because the prices may not be favourable. As a result, we have natural positions to manage. We must use all available hedge instruments to manage the underlying mismatch.”


The trading and contract commitment activity drives the need for the Tradesparent Risk and Margin Management solutions: The level of risk held by the company, and to which processes and products they apply must be well evaluated. In Philippe’s words, “Managing that risk well means success”. Margin Forecasting on a continuous basis


The process starts with Roquette loading all commercially relevant data into RADAR (S&OP, Raw Material Requirements, Purchase and Sales contracts, Commitments to customers, contract prices, price expectations, market prices for raw materials etc).

Normalizing the heterogenous internal and external commercial data, RADAR produces reports and performs a variety of risk and margin calculations, allowing Roquette to achieve a very clear picture of their risk and Profit/Loss estimates for the coming periods.


We refresh the data (commercial commitments and expectations, MATIF, CBOT, etc) on a weekly basis allowing us to have a rolling forecast of the margin and risk assessment. This requires organizational discipline.”


Alignment on risks and opportunities, centrally and regionally


RADAR presents reports and data in a highly intuitive and consumable way, making information accessible and shareable across the organization.

“Rolling forecasts are shared with the heads of business units. The constantly refreshed forward-looking view empowers them to take proactive action related to commercial opportunities and risks, particularly facilitating the pricing strategy, key success factor in the commodities business where speed is of the essence.”


The backbone of a comprehensive picture and internal communication


In the cyclical commodities value chain, the ability to look at historical performance of positions is invaluable:


1. Thorough understanding of margin drivers and risk exposures

2. Empowering productive financial communication between procurement and sales

3. Enhancing speed of reaction, as stakeholders understands the same thing at the same time


Granular understanding of margin drivers


Roquette is involved in the value chain at many stages for its respective commodities. It is present in many industries from pharma to cosmetics and nutrition. Roquette requires the ability to deep-dive into each of their products and their supply chains. With RADAR, they can control for variables and look at highly detailed data.


Each product that Roquette engages and trades with has a deep level of position, cost, and profitability data in the backend of RADAR. In this way, RADAR allows for every stakeholder and product manager to access to the source of truth for their product through the aggregated data in the system. This further contributes to alignment and transparency throughout the organization in terms of revenue, risk, and positions.


“With Radar we can go to the lowest granularity level of analysis. We can know the exact contribution of a given product sold is a given geography and understand what variable is driving the cost. The lowest granularity gives a thorough understanding of margin driver. We have all the dimensions.”


Empowering the budgeting process


This access to collective historical reports gives context to the organization as it budgets and manages risk each year going forward. This includes visibility into seasonal commodities and how prices were impacted in prior years, as well as how unexpected events impacted positions and prices within Roquette’s formulas.


RADAR is a hub full of data and insights. It has considerably improved financial communication internally. We can conduct a large variety of correlation analysis such as volume effect, price effect and mixed effects.”


The implementation and roll out of Tradesparent, together with the new communication dynamics, empower the organization to finalize its budget with greater speed and precision.


“When we start the budget process, RADAR already gives us a rolling forecast of the variable margin. For instance, as of July 2021, we have already developed an idea of the margin of 2022. Radar empowers us to frame the budget for coming year.”


Mirroring organizational change, seizing opportunities


As the company changes over time, Roquette requires risk and reporting solutions that can be reassembled time and time again. Business units change as certain product markets open and others close. RADAR is built to accept dynamic data with any variety of field types and contents. This is the direct result of the flexibility of the data structures, designed in close collaboration with Tradesparent’s data engineering team.


Radar’s business architecture is malleable to follow organizational reshufflings. We have all the business dimensions present, can recombine them to mirror the changes: product, market segments, market zones, typology of products (raw materials, commodities, specialty products and by-products, energy, etc).”


When the business enters a new market or begins offering a new product, the Radar system can swiftly be adapted to accept it along with its respective data such as prices, contracts, and futures.


Evaluating the commercial strategy in a market which is volatile by nature


For Roquette, the translation of the impacts of the company’s various positions to its business units comes crucial. This is another component of commercial alignment within the entire organization.


RADAR allows Roquette to ultimately perform follow-through on their positions and evaluate how accurate their expectations of prices were as the year progresses and contracts come to fruition. They can witness their realized positions profit/loss as it rolls into expiry and look back at an entire year’s price changes to see how profit/loss was impacted by fluctuations in the market.


Conclusion


By acting as a single source of truth, the trusted data behind RADAR secures alignment in Roquette across its business units and leaders. This deep transparency saves the organization valuable time and enables Roquette to rapidly act on risks and opportunities.


Tradesparent’s support to Roquette over the years has kept RADAR a malleable system. Position and price information from new product initiatives by Roquette are added to the data hub, novel reports and metrics are created by the Tradesparent team, and training new users are among the activities of the continued engagement.



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