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Customer Advisory Board

Reducing Exposure to Oil Price Changes

The Challenge

A company that supplies a full range of thermoplastic nurdles (resin beads) to manufacturers of products produced by plastic extrusion and plastic injection molding was interested in exploring ways to stabilize its wholesale prices to customers. As oil-based products, the company's nurdles were subject to the unpredictable volatility affecting world oil prices. The company wanted to be proactive and involve their customers in the discussion.

The Solution

With input from the company, the solution agreed upon was a Business-to-Business (B2B) Customer Advisory Board comprised of 14 key customers and invited experts who met for a 1½ day meeting. Participants included 4 senior buyers, 4 Directors of Material Procurement, 2 customer-CFOs, 2 economists specializing in oil and plastics, and 2 commodity-hedging experts.

The meeting began with a presentation by the company's president outlining its price-stabilizing goals and ideas. Through a series of 8 primary questions and multiple secondary questions, participants engaged in extensive moderated-discussion. The questions were:

  1. How have the price fluctuations in the oil markets affected sales of the companies' extrusion and injection-molded products?
  2. What percentage do plastic raw materials account for in overall production costs; in overall product price?
  3. What is the "pricing elasticity" tolerance for plastic-made products in your markets?
  4. Are customers contemplating manufacturing more parts with non-oil based products?
  5. What are the best, worst, and most-probable case scenarios for oil prices in the next 12 months?
  6. How can there be a U.S. oil glut at the same time as rising prices?
  7. How much more would customers be prepared to pay to "fix" the price of raw materials for 12-, 24-, and 36-month contracts?
  8. Would customers be interested in a direct risk-sharing program (hedging; long-term bulk warehousing; co-op buying, etc.)?

The Outcome

Through the B2B Customer Advisor Board, the company was able to convey its proactive efforts to its customers, and several strategies that could involve the customer directly. From the far-ranging discussion with customers and experts, and the Report and Analysis of the meeting, the company was able to develop an innovative solution that helped reduce their exposure to oil-price fluctuations. Additionally, the company solidified its relationships with major customers.