Last week week ChAI announced our latest product update, our new Cost Modelling tool, which helps users see the combined impact of a basket of changing commodity prices both over history and looking forward. An exciting new addition to ChAI, the Cost Model tool marks another step in ChAI’s development. In this week’s blog, we will look at a couple of example use cases for the cost model tool in context.
Forecast the price of your finished products
A key use for the cost model tool is for users to be able to review historic and forecast price changes for finished goods in one place. Cost models can help manufacturers assess how their product margin may be affected by raw material prices in the future, and therefore take action to protect their margin. Companies that purchase manufactured parts can also anticipate future price changes from their suppliers due to volatility in raw material markets. In both scenarios, the tool helps companies to optimise their cost management strategies while also saving users time and effort by eliminating the need for manual data exports and spreadsheet analysis.
For example, food prices have been a major factor behind inflation remaining high in the UK recently. The image below shows an example cost model for a cookie, with five years of price history available for each of the constituent commodities. With estimated weightings for each ingredient, the model identifies that the cost of producing the cookie would have been over 30% lower in summer 2018, compared to a base month of June 2023. Looking ahead, ChAI’s current price forecasts suggest that the cost of producing the same cookie in summer 2024 may yet increase by around 3.5%. Whether food products, manufactured parts for machinery, packaged consumer goods or something else, users can build their own models according to their specific role and start using these insights in their strategy planning.
Compare commodity price changes
Another use for the cost model tool is to compare commodity price changes across different regions or grades of your key commodities. For companies with a global presence, this can enable greater insight into the different cost pressures facing manufacturing facilities in different regions. Equally, where companies are able to substitute raw materials in the manufacturing process for the product according to the relative prices of those commodities, the cost model tool can be used to plan when substituting materials could reduce the cost of manufacturing. An example might be an automotive parts manufacturer adjusting the composition of Platinum Group Metals in a catalytic converter, or a food and beverage company switching between different edible oils in the production process according to their changing price levels.
As an example, the image below shows five grades of wheat priced in different locations around the world, allowing a user to quickly identify if specific regions are facing different price changes. The same type of model could be built with plastics, for example, which can be particularly subject to regional demand pressure. A further example of using the cost model tool in this capacity might be for a user to have an energy price tracking monitor, allowing them to view key global energy price benchmarks, alongside their price history and forecasts, in a single dashboard.
As always, get in touch for a demo if you'd like to learn more! The cost model tool is the first of a roadmap of new features, so let us know what's important to you, and help shape the tool's development in the future.
