AFRICA BUSINESS SCHOOL | UM6P | COLOMBIA BUSINESS SCHOOL

3/20/2024
Assignment 6 - Materials
and Other Costs and 2 –year
forecast
EMBA 7

ANAYNYAA Noureddine | ELBAZ Karim

GUESSOUS Ghizlane | SABIRI Sofia
a. What are the primary types of materials/components/parts/outside products or
services the company uses in its products or services? How are they sourced?

Lesieur Cristal primarily uses the following materials/components in its products and
services:
• Vegetable Oils (such as soybean, rapeseed, sunflower, and palm oil)
• Soaps (for soap production)
• Raw materials for margarine production
• Hygiene products (including paste soap)
• Lesieur Cristal's core activity revolves around the production of a diversified range
of vegetable oils, including soybean, sunflower, and rapeseed oils. These oils are
sourced from international markets through modern and environmentally friendly
production processes
• Through its subsidiary Indusalim, specializes in the production of margarine.
Attention is given to the quality of raw materials used in the manufacturing process
to ensure nutrient-rich margarines with a focus on taste and texture .
• In addition to oils and soaps, Lesieur Cristal offers a variety of hygiene products,
such as paste soap, to meet consumer needs
• Packaging materials essential for the branding, storage, and distribution of their
products, packaging materials such as PET bottles, tins, and labels are crucial
components of Lesieur Cristal’s supply chain.

These materials and components are sourced through various methods:

• Lesieur Cristal imports a significant portion of its raw materials, such as soy,
sunflower, and palm oil, from international markets. This is influenced by global
agricultural outputs and market prices.
• For olive and olives, as well as for other agricultural inputs like colza and sunflower,
Lesieur Cristal aims to develop the local agricultural sector. This involves supporting
local farmers, potentially through knowledge sharing, financial support, or by
guaranteeing purchase prices, to encourage the local production of these crucial
inputs.
• Lesieur Cristal sources its agricultural inputs both globally and locally. Given the
international disruptions in the supply chain and the emphasis on food sovereignty,
the company seems to balance between importing raw materials and developing
local agricultural capabilities, especially in oléicole and oléagineux sectors.
• To mitigate the risks associated with the volatility of raw material prices and
availability, Lesieur Cristal employs diversification and hedging strategies. This
involves sourcing from different geographies and possibly leveraging financial
instruments to hedge against price fluctuations.
• The company has initiatives aimed at developing local agricultural sectors,
particularly for olives, colza (canola), and sunflower, to reduce dependency on
imports and support local farmers. This involves engagement in agricultural
development projects and possibly entering into contracts with local producers.
 • The sourcing specifics for chemicals used in soap production are not detailed in the
document.
b. How scarce are these materials/parts and are there any key suppliers or key regions
that provide the materials/parts? Who has pricing power (supplier or your company?).

Lesieur Cristal can vary depending on factors such as market conditions, global supply
chain disruptions, and specific material availability. However, based on the information
provided in the annual financial report, there are indications of challenges related to raw
material availability and pricing fluctuations, Lesieur Cristal faced disruptions in raw
material supplies due to adverse weather conditions leading to global droughts and the
conflict between Russia and Ukraine, major producers of sunflower seeds. This scarcity
resulted in increased demand for alternative crops like rapeseed, soybean, and palm oil,
leading to their scarcity and significant price hikes .
Lesieur Cristal sources its raw materials globally, with a focus on key regions known for
the production of vegetable oils. The company may have key suppliers in regions such as
South America, Europe, and Asia, where soybean, rapeseed, sunflower, and palm oil
production is prominent. Specific supplier relationships and regions are not explicitly
mentioned in the provided excerpts.
In a scenario where raw materials become scarce and prices increase, the pricing power
may shift between the supplier and Lesieur Cristal. If the raw materials are essential and
in limited supply, suppliers may have more pricing power, especially if there are few
alternative sources. However, if Lesieur Cristal has diversified its supplier base,
implemented effective risk management strategies, and has strong negotiation
capabilities, the company may have some leverage to manage pricing pressures.

c. What are the “commodities” that are significant components of the cost of
product/service? How sensitive is the company to price changes in the commodity(ies)?
• Commodities such as soybean, rapeseed, sunflower, and palm oil are essential raw
materials for the production of edible oils, margarines, and other related products
offered by Lesieur Cristal.
• Raw materials used in soap production, including those for the saponification
process and continuous processing, are also significant components of the
company's costs.
• Ingredients used in the production of hygiene products, such as paste soap,
contribute to the overall cost structure of Lesieur Cristal.

The company is sensitive to price changes in these commodities due to the following
reasons:

• Fluctuations in commodity prices, driven by factors like global supply and demand
dynamics, weather conditions, geopolitical events, and currency fluctuations, can
impact the cost of raw materials for Lesieur Cristal.
• As a consumer goods company, Lesieur Cristal may face challenges in passing on
increased commodity costs to customers, especially in competitive markets where
pricing power is limited.
 • Dependency on specific commodities and suppliers can expose the company to
supply chain risks, particularly when prices surge or when there are shortages in
the market.
• Price changes in key commodities can directly affect the company's profit
margins, especially if the cost increases cannot be fully offset by adjustments in
selling prices.

d. What is the portion of total cost of products that is represented by

materials/parts/outside products or services?
• 2022 Revenue: 6,897 million dirhams
• 2022 Purchases: 5,646 million dirhams
• Portion fo total cost of products that is represented by materials/parts/outside
products or services = (Purchases/Revenue)x100 = (5 646 Million dirhams/6 897
Million dirhams)x100 = 81,86%

How and why did this change last year and how and why is it expected to change next
year? (NOTE THIS WILL JUSTIFY WHAT IS IN YOUR FINAL MODEL for cost of
products and services FOR THE FORECASTS)

The annual report highlights several key factors that influenced costs last year:

• The conflict between Russia and Ukraine, coupled with adverse weather
conditions affecting global agricultural output, notably impacted the availability
and prices of raw materials, especially oils like soy, sunflower, and palm.
• Lesieur Cristal faced inflationary pressures on raw material prices, necessitating a
strategic response in sourcing and hedging to mitigate impacts on production
costs and consumer prices.
• The company embarked on optimizing its supply chain and logistical operations,
including digitalization efforts to enhance efficiency and reduce operational costs,
indirectly affecting the cost structure of products and services.

Looking ahead, the report outlines several anticipatory strategies and expectations for
managing costs:

• Lesieur Cristal aims to diversify its sourcing strategy, including efforts to increase
local production of agricultural inputs (e.g., colza and sunflower) to reduce
dependency on international markets and mitigate supply chain risks.
• Continued investment in digital infrastructure and processes is expected to
further streamline operations and reduce costs associated with procurement and
production.
• Through initiatives like increased use of renewable energy sources and biomass
for energy needs, the company is looking to reduce its environmental impact and
potentially lower energy costs in the long run.
 The increase in the percentage from 2021 to 2022 indicates that the cost of materials,
parts, outside products, or services constituted a larger portion of the revenue in 2022.

• 2021 Revenue: 4,863 million dirhams

• 2021 Purchases: 3,935 million dirhams
• Portion fo total cost of products that is represented by materials/parts/outside
products or services = (Purchases/Revenue) x100 = (3 935 Million dirhams/4 863
Million dirhams) x100 = 80,90%

The strategic focus is on enhancing operational efficiencies, diversifying sourcing to

mitigate risks, and leveraging technology for cost management. These strategies are
designed to adapt to the changing economic and environmental landscape, indicating a
proactive approach to managing the portion of costs attributed to materials, parts, and
services.

For the next year, Lesieur Cristal's cost of products and services is expected to be
influenced by ongoing efforts in supply chain optimization, sustainability initiatives, and
digital transformation, aimed at mitigating the impact of external pressures on cost
structures and enhancing overall operational efficiency

a. When does the company pay for its supplies? How does this compare to when to the
product is sold and paid for? (One thing to do is to consider the days payable outstanding
to the days inventory on hand)

To evaluate when the company pays for its supplies and how this compares to when the
product is sold and paid for, we'll consider the Days Payable Outstanding (DPO) and Days
Inventory on Hand (DIO).

Ending Accounts Payable (Dettes fournisseurs courantes) for 2022 is 804 million dirhams,
and for 2021, it is 652 million dirhams.

Ending Inventory (Stocks et en-cours net) for 2022 is 463 million dirhams, and for 2021, it
is 336 million dirhams .

DPO = ((Ending accounts Payable)/COGS) x365

DIO = (Ending inventory/COGS)x365

2021 2022
DPO ((Ending accounts 60.48 days 51.98 days
Payable)/COGS) x365
DIO (Ending 31.17 days 29.93 days
inventory/COGS)x365
These figures indicate that, on average, the company paid its suppliers about 60 days after
receiving the supplies in 2021, which decreased to approximately 52 days in 2022. This
reduction in DPO could suggest the company negotiated shorter payment terms with its
suppliers, improved its cash management, or faced pressure from suppliers to settle dues
faster.

The Days Inventory on Hand (DIO), which represents how long inventory sits before being
sold, slightly decreased from about 31 days in 2021 to approximately 30 days in 2022. This
improvement indicates the company was able to sell its inventory more quickly in 2022,
possibly due to better demand forecasting, more efficient inventory management, or
increased sales efficiency.

Comparing DPO to DIO, the company pays for its supplies faster than it sells its inventory,
especially in 2022. This gap highlights a working capital consideration, where the company
might need to manage its cash flows carefully to ensure it has enough liquidity to cover the
period between paying suppliers and receiving cash from customers.