Fayetteville's CapSpire Targets Pricing Risks, Aims for Efficiency

by Chris Bahn  on Monday, May. 13, 2013 12:00 am  

Jeff Hardcastle is co-founder of Fayetteville firm capSpire, which works to lessen risks associated with commodities pricing. (Photo by Ryan Miller)

Through relationships built with energy companies, other consulting opportunities have opened up, including an 18-month project with ConAgra. Hardcastle and Scharf are hopeful a dip of the toe in the consumer packaged goods market will become a full-fledged dive as the company works toward a $10 million revenue projection for 2014.

“In the last decade, consumer packaged goods companies have been focused on decomposing their price risk,” Hardcastle said. “It requires taking a finished product and breaking it down to the raw materials that are assembled to create it. This gives them an accurate view of what the raw materials costs are and allows them to implement hedging programs to lock in prices for their customers. In a high-volume, low-margin business, this transparency is critical to maximize profits.”

Consumer packaged goods companies often deal with increased prices for raw materials used in a finished product. Consider the purchase price of poultry used in a TV dinner for an easy example of a problem capSpire would try to solve. A company buying chickens isn’t just paying for the chicken. Included in the price are costs incurred in getting the chicken ready to sell. Growers pay for feed. They have energy costs. All of that goes into determining the price of the chicken.

What capSpire is trying to do is help companies identify those hidden costs and the factors that can lead to spikes.

“We can help a company decompose a finished product like chicken into corn, soybean meal and energy, which allows them to go to the financial market and execute hedges to lock in their buy price,” Scharf said. “So regardless of what the market does, their commodity prices are fixed.”

By developing cost forecasts for raw materials, manufacturing and transportation and warehousing, capSpire can help a company improve its profit margin. It can take up to 30 days for companies to make those evaluations with their existing software, Scharf said. What capSpire has done is turn that month-long process into one that can take less than an hour.

This is not where Hardcastle and Scharf saw the company going when they founded it. But they see opportunities developing beyond the energy companies that have traditionally used risk management resources.

“When we started the company we were primarily focused on energy organizations,” Scharf said. “The market continues to evolve to include both consumer packaged goods companies and auto manufacturers because they recognize the importance of understanding their commodity price risk.”



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