Pricing Fertilizer Blends: Vendor Managed Inventory, Unpriced Contracts and Live Blending

The basics of fertilizer blending are simple.  You buy commodities such as potash or urea as ingredients and blend them into a finished product.  The challenge is that ingredient prices can fluctuate widely. Agrosoft and AgExceed support several ways to manage that, and the common thread is flexibility: pricing the product on what the ingredients actually cost, to ensure your margin is protected.

Why Ingredient Cost Matters at Blend Time

Crop input sales are often concentrated in a short window of opportunity; you might do 90% of your crop inputs business within a few weeks during spring planting season. Decisions have to be made quickly, and product has to be delivered when it is needed. Knowing your costs, and when your ingredients will arrive and at what price, has a major effect on your dollar margin. Without a strong handle on timing and price, margins can suffer.

The techniques below are different ways to keep ingredient pricing current and to manage cost through that window.

Vendor Managed Inventory: Ingredients at the Current Market Price

Vendor Managed Inventory (VMI) is a method of just-in-time inventory. Your vendor is empowered to look into your inventory system and see your current ingredient quantity. Within a certain price range, the vendor is authorized to schedule shipments so you have an adequate supply.

This approach offers two main advantages:

• You hold only the inventory you need. It is especially efficient when you don't have the storage capacity for the short window in which you are trying to sell the fertilizer to your farmers.
• You price at the current market price. Ingredients are priced as of that day, so you are not buying a large amount of inventory based on speculative pricing. You receive the inventory as you need it, at the current market price, and price accordingly.

Like many of our features, VMI began as a customer request. The customer wanted ingredients priced on current pricing at the time of use, and wanted inventory managed offsite so it would arrive in a more timely way and be priced as delivered. We developed Vendor Managed Inventory as a customized feature in Agrosoft to handle exactly this situation.

Unpriced Fertilizer Contracts: Calculating Better Margins

Unpriced fertilizer contracts are quantity contracts. You commit to the volume, then price the product later using the price of the ingredients on the days the fertilizer is delivered.

This gives you greater flexibility and lowers the risk of pricing the product too far in advance and guessing an incorrect margin.

Blending and Formulation: Testing Ingredient Choices

AgExceed has a blending system that lets you experiment with formulations. You can substitute ingredients in real time and see the effect of mixing different ingredients to reach an overall nitrate or potassium level. Several different blends may reach the same target, so you can try different ingredient choices and see how each one affects your costs.

If you prefer to do formulation in another system, Agrosoft and AgExceed have interfaces to various third-party systems. You formulate there and import the results into the sales system.

Whether you use vendor-managed inventory, unpriced contracts, or blending with interfaces into formulation software, the key is flexibility. Depending on the scope and needs of your business, you may use one or more of these techniques for different business lines.  Regardless of the method you choose, GSS systems give you the tools you need to manage your costs and maximize your profits. 

Related questions

How do unpriced fertilizer contracts help with margins?

Unpriced fertilizer contracts are quantity contracts. The product is priced later, using the price of the ingredients on the days of delivery. That gives you greater flexibility and lowers the risk of pricing in advance and guessing an incorrect margin.

What is the role of Vendor Managed Inventory in fertilizer retail?

With Vendor Managed Inventory, your vendor can see your current ingredient quantity in your inventory system. Within a certain price range, the vendor is authorized to schedule shipments so you have an adequate supply. It lets you hold just the inventory you need, which is useful when you lack large storage capacity for a large quantity of ingredients, and it prices ingredients at the current market price as you receive them.

How does blending software help with ingredient costs?

The blending system in AgExceed lets you substitute ingredients in real time and see how different combinations reach an overall nitrate or potassium level. You can try different ingredient choices and see how each one affects your costs. If you formulate in another system, Agrosoft and AgExceed can import the results into the sales system through third-party interfaces.

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