Eltirus

Eltirus founder Steve Franklin and TKB co-founder Julia Georgi explore how the intersection between better resource and market knowledge can have a big impact on your bottom line.

Resource optimisation is key to determining the optimal extraction boundary and extraction sequence for quarry operations to maximise value net present value (NPV). A key input to this process is a comprehensive market assessment.  More specifically, this entails gaining an understanding of what the market will buy, what the volumes are and how the site is placed in relation to competitors. 

With this knowledge operators can determine (based on resource and extraction cost knowledge) what is available for sale, when and in what quantity to maximise NPV. The intersection between thorough resource and market knowledge can bring substantial bottom line gains and is well worth understanding.

When Eltirus needs a market assessment conducted, it turns to partner specialist software and consulting group TKB International.

TKB co-founder Julia Georgi explained that market assessments are done by utilising both local knowledge and purpose-built software such as Market Bee. “The team from TKB sets about determining the actual market to be analysed based on what we call “consumption center(s),” she explained.  According to Georgi, this process includes three key steps.

First, gathering critical supply and demand data on the market boundary. This includes took at supply site location, sales volumes, production split, and reserves lifetime; demand sites location, production volumes, suppliers (including self-supply), as well as vertical integration and partnerships. 

The next step is to build market overview for each end use. This includes looking at standard outputs by market size, market shares of suppliers and producers, self-supply overview, and basic market ratings in terms of consolidation and free market.

The last step is to evaluate market content for each end use. This means looking at overall market factors and key issues regarding demand growth, raw material requirements and players strategy. 

Doing so will help establish a market competitive position and market attractiveness rating.  “As we are trying to ascertain appropriate go-to-market strategies, we need to consider where construction materials will be used,” Georgi said. This can include major project sites and at facilities such as ready mixed concrete, asphalt, precast plants, etc.  Good information to have includes logistic access, permit constraints, capacity, vertical integration, supply contracts, plant type and any competitive advantage to be had. 

Further factors that determine the consumption center are logistics constraints, logistic modes (truck, rail, barge, etc.) and any borders that need special consideration. “We then ascertain (to the best of our ability), where each of the fixed plants (concrete, asphalt, precast, etc.) source their sands and aggregates,” Georgi continued. 

“It is nearly impossible to know each fixed plant consumption, however, it is acceptable to make assumptions on volumes if the assumption you make is based on some sort of fact.

“For example, if you know that a concrete plant makes 40,000 cubic meters of concrete per annum, and producer X supplies 24,000 tons of coarse aggregates. A simple equation will enable you to calculate that the balance of the volume of aggregates will be sand. The same logic would allow you to calculate the tonnage of asphalt produced if you knew the volume of binder purchased at a given plant,” she said. 

And when it comes to identifying information on competitors, this includes looking at their annual production capacity, reserves/resource situation, any product pricing information, information on vertically integrated or captive supply (contracts in place), their logistic mode capability, permit conditions – inducing hours of operation, and geology.

With the “consumption center” fully populated with potential customers, competitors, and future projects, TKB uses local knowledge and data/data analysis to look for opportunities to move into new markets and improve rates.

The real value in studying the consumption center on a map (excluding for the purposes of mergers and acquisitions) is to study and quantify the supply and demand situation in the area.

“Typically, when we are doing a market assessment, the client is already producing and selling into that market (consumption center),” Georgi noted. “Because they have these data points, fact-based assumptions and “filling in the blanks” is simpler than it may seem. Throughout our experience of completing market assessments, we continuously see companies learn a lot about their own potential or destroy some of the myths that might exist in relation to these.”

Apart from hard data, local knowledge plays a part in forming a strategy or plan from the information gathered for the consumption centre. 

Driving tangible insights

In this example, expert local knowledge was supplied by the Eltirus team, and the software and methodology were supplied by TKB. By doing so several factors became immediately apparent. 

For example, results showed that the company was a much larger player in their market than was initially thought. Likewise, whilst similar, different sites served two different market segments and due to a 24-hour permit for operation at one site, this operation could service a different consumption center than others within the group.

The largest material end use was dominated by companies self-supplying, resulting in low margins, making this area only moderately attractive. Given that the company already supplied 50 per cent of the free market (meaning no vertical integration or supply contract), further volume increases were less likely.

The market assessment identified that a lack of certainty of supply (due to previously poor resource understanding) was driving otherwise loyal customers to competitors. Some materials were being bought by resellers at a relatively low cost and a significant margin was being realised by their re-sale as a “specialty product”.

In some instances, the company was one of the very few remaining suppliers of a specific high value product but were not extracting a premium margin from this position. High value segments were “controlled” by brokers and resellers such as landscaping yards with over 25 per cent of this market and focused on segments such as specialty products and small clients.

One site particularly was being sold “out of balance”, meaning that the supply of just one product (without) a significantly large market for the other products was driving up costs, reducing viability and causing extraction headaches. There was also significant pricing scatter through lack of pricing discipline.

Identifying opportunities 

Taking the new knowledge about the consumption centers, market conditions and understanding the significant impact of brokers or resellers, a review was done to determine where the company fit within the buy-sell hierarchy and what the options might be to move from primarily transactional buyers to more strategic buyers.

Several opportunities were identified to drive actionable results. 

This included liaising with quarry technical staff to ensure that there was a clear idea of what products would be available, when and in what quantity.  Confidence gained in this area would ensure that market opportunities for higher valuable products could be approached with more certainty.

Next was to stop selling products out of balance. Doing so would result in more effective quarry planning and the ability to value-add existing products.

Likewise, the need to put commercial process tools in place was identified. This ensures that product price indexing (the value that measures the impact of price alone on the top and bottom line of the financial result) and jobs won/lost are accurately tracked, and that pricing scatter was reduced.

Further opportunities were identified such as creating an online sales channel to directly take orders and deliver to high value niche customers, as well as an automated order processing and delivery monitoring platform.

Additionally, creating a true key account management approach would achieve long-term revenue growth by reinforcing relationships with large concrete producers.  A suggestion was also made to construct drainage pads to supply drier concrete sands. A combination of these opportunities was used to drive up revenue through a better understanding of the market and improved relationships with customers due to certainty of material supply. 

In one instance alone, better market understanding allowed a key product line price to be increased approximately 30 per cent, dramatically improving site viability.

Summary 

Typically, when a company assesses a market, it is done in an informal manner, and the results are usually skewed to align with gut feelings and best-guess assumptions.  Up to date data on your market is critical to ensure you maximize your profitability.  TKB recommend that you refresh your market data annually to ensure opportunities that arise can be taken advantage of.

Using data to enable decision making in sales is a new concept for our industry, but one that can show significant increases in profitability.

This article was originally published in Quarry Magazine – click here to view original article.

To find out more, contact Steve Franklin on +61 474 183 939 or steve.franklin@eltirus.com