White Papers Commodity Management and ERP | Page 3

Commodity Management and ERP

As a consequence of these trends, many commodity producers, processors, merchants and even sellers of finished
goods have been forced to re-examine their supply chains,
looking for both cost reduction and potential optimizations
in inventory planning, warehousing, and logistics helping to
reduce their feedstock costs. However, these process improvements do little to reduce the exposure to commodity price volatility.
As a result, many companies have also started to hedge that price
exposure using a variety of readily available financial instruments for
commodities. However, with increased hedging via financial trading,
these firms now find themselves exposed to increased regulatory risk
as new and bolstered regulations such as Dodd-Frank, EMIR and
MiFiD2 demand more active and increased regulatory vigilance and
reporting. In summary, current trends in commodities markets means
that many firms have seen the complexity of their businesses increase
dramatically.
Traditionally, commodity risk management has been a highly
specialized function, used primarily by wholesale and retail
commodity trading firms; with the requisite technology solutions provided by specialist commodity trading and risk management (CTRM) applications. A CTRM system provides the ability
to quickly and easily capture deals or trades in the various physical and
financial instruments that are used as hedges. They also allow close to
real-time valuation and position reporting with easy to use analytical,
reporting and drill-down capabilities. This sort of functionality and
capability has not been previously considered to be a part of an ERP
solution.
© Commodity Technology Advisory LLC, 2014

A ComTech Advisory Whitepaper