Using Japanese Auctions To Manage Price Volatility

Situation

  • A food manufacturer needed to purchase cocoa powder
  • Market prices were volatile but currently low so they needed to act fast
  • The goal was to obtain a fixed price for a term of 12 months due to volatile market prices

Solution

  • A Japanese Auction on total volume was chosen to address the volatile market conditions
  • In Japanese format, bidders must affirmatively confirm their pricing at each point
  • This bidding format adds an extra layer of certainty to the process

Result

  • In spite of difficult market conditions significant savings of 61% compared to current price were achieved
  • The best bidder lowered his start price significantly - 21,9%