White Papers Commodity Management and ERP | Page 5

Commodity Management and ERP

financial position data in order to identify and explain
changes or trends in valuation or position. This capability requires an intuitive user interface that overlays
an application capable of accessing and processing
complex data structures in real-time. Furthermore,
the position and mark-to-market data needs to be
available at multiple levels across multiple commodities. As exchanged-based trading in commodities
is now global, price movements occur 24-hours per
day, potentially requiring all of this information to be
accessible via a hand held device like a tablet or mobile phone. Unfortunately, this level of performance
and usability is an area in which many existing solutions fall sadly short.

Enterprise risk management, of course, is
not just concerned with price risk but also risks associated with foreign exchange, counterparty credit
and treasury management as well as various other
operational exposures in the legal, compliance,
contract management, logistics and other areas of
the business. Being able to gain visibility into (and
appropriately manage) all of these additional risks
demands the use of a fully integrated solution in
which the appropriate data is accessible and can be
analyzed in multiple different dimensions as dictated by the nature of the business. Such a capability
requires that the risk management aspects of commodity management be tightly integrated with all
the other functions of an ERP solution.

© Commodity Technology Advisory LLC, 2014

A ComTech Advisory Whitepaper

Finally, commodity management solutions also need to help
their users identify opportunities to improve profitability and continually
optimize their businesses according to market dynamics. Opportunities
to perform physical swaps, make sales of intermediate products, optimize recipes, eliminate poorly performing suppliers and logistics contractors, for example, may all help profitability but require an integrated
real-time view of the business.

Providing a commodity management solution for physical commodity producers, processors and consumers demands a very high-level of integration (both across business functions but as importantly,
across a variety of different commodities), a scalable and powerful platform capable of handling large quantities of data often extracted from
external systems and yet providing near real-time information about the
business. Such a solution must have, at its core, a powerful and flexible pricing engine that is capable of modeling and calculating purchase
and/or sales prices based on a wide variety of factors including market
data, differential rules, provisional and final pricing, fees, taxes and other forms of charges (customs, broker fees etc.). It also must to be able
to capture the range of financial commodity trades and instruments
used in hedging, calculate position in a multitude of views for different
purposes, provide analytical tools for drill-down and “what if” analysis,
and ensure compliance with all regulations. Finally, it needs to do this
while still providing all the complex functionality and business benefits
associated with an ERP solution, including inventory management, logistics, production planning, sales, manufacturing and of course finance
and accounting often tracking and reporting on financials according to
a number of complex accounting standards. It is a tall order.