University of Twente Student Theses


A strategy for procurement of natural gas at Royal FrieslandCampina

Willemink, J.R. (2015) A strategy for procurement of natural gas at Royal FrieslandCampina.

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Abstract:The purpose of this Master Thesis is to develop an improved Purchasing Strategy for Natural Gas at FrieslandCampina, including a review on Risk Management and a tool which supports in purchasing decisions. The current Purchasing Strategy has been developed more than five years ago by the predecessor of Category Manager Utilities Schröder, and the Natural Gas Market in Europe has been changed since then. Moreover Risk Management is not incorporated in the current Purchasing Strategy. To come to recommendations regarding the Purchasing Strategy of Natural Gas at Friesland- Campina, the followings steps are made during the project: - Review of Literature about Commodity Procurement. - Description of the development of the Natural Gas Market in Europe and the current Market Dynamics in Supply and Demand. - Research about Purchasing Strategies of other comparable industrial users, like Cargill, Heineken, Tata Steel, Yara, KPN, and NS. - Review of the Purchasing Strategy of FrieslandCampina, by gathering and analysing historical demand figures, analysing historical purchasing performance, and backtest other Purchasing Strategies on historical market data. - Development of a Purchasing Decision Support Tool, which can recognize low market moments in historical market data, by making use of Technical Analysis indicators. The most important results and conclusions from this research are: - The European Natural Gas Market is in development and subject to changes. A shift is taking place from Oil-indexed pricing to pricing via exchanges like ICE Endex. Furthermore world's capacity of Liquid Natural Gas is expected to increase dramatically, which can have huge in uence on the European Natural Gas Market. - Other industrial users of Natural Gas mainly focus on hedging their commodity price risks. The main driver for the chosen Strategy by other companies is the (un)certainty of demand. FrieslandCampina is best compared with Heineken. - Until the appointment of Schröder, the Purchasing Strategy was not followed by Friesland- Campina. Backtesting shows that the current Purchasing Strategy limits opportunities to make use of good market moments and gives financial risks in the stochastic (Profile) part of the forecasted demand. - The Purchasing Decision Support Tool based on Relative Strength Index and Moving Average Relative Strength Index outperforms the market on seven years of historical data by an average of e2,523,762 per year, calculated on FrieslandCampina's demand. I recommend to change the current Purchasing Strategy to a Purchasing Strategy which has more space for opportunities on the long-term and a tightened bandwidth closer to maturity. More attention is needed on the stochastic Profile part of the demand. Furthermore I recommend to use the Purchasing Decision Support Tool as a support in daily buy-decisions.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:83 economics
Programme:Industrial Engineering and Management MSc (60029)
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