En
bgThe vertically integrated business model comprises four integrated functions which cover all aspects of the supply chain, from the extraction of recycled lead, through its recycling operations, to the production and sale of lead-acid batteries to the market
The vertically integrated group, with currently four recycling plants allocated to its diverse sourcing base, allows Monbat Group to constantly apply opportunity gain management.
Vertical integration not only brings high integrated margins; it also allows for natural hedging to lead price variations on the London Metal Exchange throughout the year.
In instances of abrupt LME behavior, many players can suffer missing trading volumes or squeezed margins. At Monbat, this brings the chance to tap into a window of opportunity.
Recycling is no longer a matter of sourcing but rather a conscious business choice.
Vertically integrated business model
1
Recycling
Value drivers
- Regular sourcing (leveling the LME-based lead price formula)
- Economically feasible premium charge, matching the production costs
- Feasible logistics and internal technology waste routing
Enterprise risks
- Scattered market of collection companies, which hinder the ease of sourcing
- Collection companies are tempted to lock supply in low LME lead price market as well as to initiate price wars in such periods of supply shortage
2
Inventory management
Value drivers
- Optimum Mass Production Balance
- Optimum deployment of the working capital
- Balanced annual contract commitments with external L&A vendors
Enterprise risks
- Over/under rolling inventory of lead equivalents and lead & alloy grades
- Eroded margin due to high CoGS as well as locked money in drastic decrease of the LME and
- Shortage of L&A to support a market intensity triggered by drastic increase of the LME lead price as well as almost immediate CoGS increase preceding the battery prices adjustment
3
Production
Value drivers
- Optimum batch sizes
- Lean manufacturing
- Availability-to-promise (ATP) seasonal stock to milk the order peaks
4
Trading
Value drivers
- Go-to-market approach
- Product mix
- Own brand/private label mix
- Trade insurance
Enterprise risks
- Overdependence on a few big distributors/ territories in the B2C segment
- Over-pricing in the commodity driven segments
- Product specification, which is not meeting the buying/quality expectation of the end client
Value drivers
- Regular sourcing (leveling the LME-based price formula)
- Economic feasible premium charge, matching the production costs
- Feasible logistics and internal technology waste routing
Enterprise risks
- Scattered market of collection companies, which hinder the ease of sourcing
- Collection companies are tempted to lock supply in low LME market as well as to initiate price wars in such periods of supply shortage
Value drivers
- Optimum Mass Production Balance
- Optimum deployment of the working capital
- Balanced annual contract commitments with external L&A vendors
Enterprise risks
- Over/under rolling inventory of lead equivalents and Lead & Alloy grades
- Eroded margin due to high CoGS as well as locked money in drastic decrease of the LME and
- Shortage of L&A to support a market intensity triggered by drastic increase of the LME as well as almost immediate CoGS increase preceding the battery prices adjustment
Value drivers
- Optimum batch sizes
- Lean manufacturing
- Availability-to-promise (ATP) seasonal stock to milk the order peaks
Value drivers
- Go-to-market approach
- Product mix
- Own brand/private level mix
- Trade insurance
Enterprise risks
- Overdependence on a few big distributors/ territories in the B-t-C segment
- Over-pricing in the commodity driven segments
- Product specification, which is not meeting the buying/quality expectation of the end client
Benefits of the vertically integrated business model
The vertical integration model has a three-fold benefit:
Margin management
The LME lead price fluctuation defines a price curve, which influences the market behavior of the industry chain, namely scrap battery providers, distributors of batteries and final clients.
The vertical integration model provides a tactical response to these behaviours by securing margin gain in all scenarios, including the extremes of market-driven margin squeeze and margin spread.
Steep
LME lead price is High
Flat
LME lead price is low
The temporary margin squeeze or margin headroom implications are moderated through the mechanisms of the natural hedging of vertical integration, in which the rolling inventory of L&A and lead equivalents play a major role.
Any abnormal and steep change in the LME lead price (up or downward) can conditionalise different market behaviour from players in the industry chain. An upward steep curve can cause a “buyer” behaviour at the distributors’/final clients’ end, respectively, increasing their selectivity and buying patterns. A downward steep curve can cause a “seller” behaviour among scrap batteries’ collectors, causing them to increase the price or become unwilling to sell. In such context, a tactical re-focus of business activities in our vertical integrated model is required to offset any repercussions on the integrated margin.
Margin is optimized in the Finished Goods Division
In Low LME lead price market context, Monbat is aiming to minimize the margin squeeze on the integrated margin.
Margin is optimized in the Recycling Division
In High LEM lead price market context, Monbat is aiming to maximize the margin gain from the opening market spread