Beef Up Your Buying Strategy

Fresh protein might not be the most exciting thing on your plate, but procuring it comes with an unexpected set of challenges. The market is always changing and can be hard to predict. Balancing the reliability of formula orders with the potential to generate additional margin from spot buys can be a smart strategy. It helps lower costs and keeps a steady supply. But it’s not always so straightforward. That’s why in this article we’ll break down the benefits and nuances of this approach, so you can level up your buying game.

The Benefits of Formula Orders

Formula orders, also called “rake orders,” provide a strong base for beef procurement. They’re agreements between buyers and suppliers that set a fixed price for a certain amount of beef delivered over a specific period. It makes things predictable. And this kind of predictability has several benefits:

Price Stability: Formula orders help protect buyers from sudden price changes. This ensures they pay a steady price for their beef.
Supply Assurance: These agreements guarantee a stable supply of beef and reduce the risk of running out or facing disruptions.
Stronger Relationships: Formula orders foster long-term relationships between buyers and suppliers. One that’s built on trust and mutual benefit.

The Role of Spot Buys

While formula orders provide stability, spot buys give you the opportunity to benefit from market changes and save money. It means purchasing beef on the open market at the current price. Here’s how spot buying can work in your favor:

When prices drop: Spot buying allows buyers to take advantage of price dips or unexpected market downturns.
When supply runs low: This approach can be used to fill gaps in supply or meet unexpected demand surges.
When flexibility matters: They give buyers more freedom if they don’t want to commit to a fixed volume or price over a longer period.

Get Ahead is All in the Balance

If your organization has the flexibility to shift some percentage of your volume from a rake order to the spot market, you have the potential to tap into significant savings and gain a competitive advantage (Fig. 1).

Fig. 1 – By shifting volume between formula, fixed, and spot markets, buyers can optimize cost and supply.

Your buying department can boost margin by strategically balancing formula orders and spot buys. This involves using best-in-class forecasting tools to anticipate market trends and identify potential opportunities. When buyers have a high degree of confidence in the direction of market movements, they can make informed decisions about when to make strategic spot purchases to complement their formula contracts.

Retailers usually stick to a set contract formula for most of their purchases because they need their shelves to stay stocked. They might only feel okay buying 5-10% of their products on the spot market. On the other hand, a processor might have extra inventory, so they could feel comfortable buying 20-30% of their volume if the conditions are right.

A Little Data-driven Intelligence Can Make a Big Impact on Your Bottom Line

The DecisionNext AI-powered forecasting and analytics platform empowers businesses to make informed procurement decisions. That’s a big deal because in our business, every cent counts—literally. A penny up or down can mean millions of dollars at the end of the year (Fig 2).

Fig 2 – DecisionNext’s AI-driven platform enables businesses to optimize formula orders, identify spot buying opportunities, and balance inventory levels for cost-effective procurement.

With strong predictive analytics and accurate market insights, DecisionNext helps buyers:

Optimize Formula Orders: Use data to negotiate better deals and volumes.
Identify Spot Buying Opportunities: Capitalize on market fluctuations, so you can put more money in your pocket.
Balance Inventory Levels: Make sure you have a steady supply while minimizing storage costs and spoilage risks.

Conclusion

Procuring fresh meat might not be glamorous, but being able to balance formula orders and spot buys sure is. Since procurement volumes can be very large, changing just one or two percent can either break the bank or lead to significant margin improvement. The key to success really comes down to accessing accurate forecasting, market insights, and AI-powered tools. Because when you do, businesses can optimize their purchasing strategies and cut costs—by a ton. And with the DecisionNext platform, your team will gain the know-how and confidence they need to navigate market unpredictability. So you can then make the best decisions, at the best times, at the best prices.