White Papers The Evolution of Smart Commodity Management | Página 4

Smart
 Commodity
 Management

 A
 ComTech
 Advisory
 Whitepaper

The
 Creation
 and
 Evolution
 of
 a
 Software
 Category

CM
 emanated
 from
 CTRM
 -­‐
 ‘CTRM’
 is
 the
 acronym
 for
 Commodity
 Trading
 and
 Risk
 Management
 that
 originated

from
  what
  is
  now
  a
  subcategory
  of
  CTRM
  software
  known
  as
  ETRM
  (Energy
  Trading
  &
  Risk
  Management)

software.
 ETRM
 was
 first
 coined
 as
 a
 software
 category
 name
 in
 North
 America
 sometime
 after
 electric
 power
 de-­‐
regulation
  took
  place
  and
  was
  subsequently
  defined
  by
  Vasey
  &
  Bruce
  (2006)
  and
  by
  Vasey
  &
  Reames
  (2010).

Subsequently,
  the
  term
  was
  modified
  to
  ‘CTRM’
  in
  order
  to
  include
  other
  commodities
  beyond
  energy
  such
  as

softs,
 ags,
 metals,
 emissions
 and
 freight
 rates.

The
  core
  functionality
  of
  a
  CTRM
  system
  is
  simply
  to
  capture
  trades,
  calculate
  and
  manage
  position,
  report
  on

exposure
  and
  account
  for
  the
  various
  transactions.
  CTRM
  has
  recently
  evolved
  to
  CM,
  or
  commodity

management,
 as
 concentric
 circles
 of
 incremental
 functionality
 have
 been
 added
 to
 CTRM,
 allowing
 these
 systems

to
 address
 the
 needs
 of
 a
 much
 wider
 market
 beyond
 just
 trading.
 This
 incremental
 functionality
 includes
 areas

like
  vessel
  management,
  storage
  and
  facility
  management,
  and
  production
  management.
  The
  edge
  of
  what

actually
  constitutes
  both
  CTRM
  and/or
  CM
  has
  become
  increasingly
  fuzzy
  and
  it
  now
  overlaps
  with
  other

application
  areas
  such
  as
  traditional
  ERP,
  accounting,
  supply
  chain
  optimization,
  operations
  management,

treasury
 management
 and
 other
 software
 categories.

The
 genesis
 of
 the
 CM
 software
 category
 can
 be
 found
 in
 the
 early
 1990’s,
 following
 the
 de-­‐regulation
 of
 natural

gas
 in
 North
 America
 as
 a
 direct
 result
 of
 FERC
 Order
 636
 in
 1992.
 At
 that
 time,
 a
 number
 of
 small
 private
 software

companies
  developed
  gas
  marketing
  software
  solutions
  on
  a
  client/server
  platform
  and
  began
  to
  offer
  them

commercially.
 By
 1996,
 the
 North
 American
 electric
 power
 markets
 were
 also
 being
 de-­‐regulated
 and,
 for
 the
 first

time,
  traders
  were
  seeking
  commercial
  software
  solutions
  for
  multiple
  commodities
  to
  manage
  trade
  capture,

position
 keeping,
 risk
 reporting,
 scheduling
 and
 accounting;
 the
 ETRM
 category
 software
 had
 been
 established.

As
 wholesale
 commodity
 trading
 evolved,
 more
 and
 more
 markets
 and
 instruments
 or
 contracts
 were
 created
 in

regional
 trading
 centers
 around
 the
 globe.
 In
 turn,
 this
 placed
 demands
 on
 the
 fledgling
  ETRM
 software
 category

as
  more
  functionality,
  configurability
  and
  flexibility
  were
  required
  to
  meet
  the
  increasing
  complexity
  of
  the

market.
  Traders
  demanded
  more
  sophisticated
  risk
  metrics,
  credit
  risk
  emerged
  as
  a
  serious
  issue
  in
  the
  post-­‐
Enron
 market
 collapse,
 and
 the
 movement
 and
 management
 of
 physical
 commodities
 became
 more
 complex
 in

an
  increasingly
  globalized
  market.
  Added
  to
  this
  was
  the
  need
  to
  cover
  a
  host
  of
  other
  commodities
  and
  their

particular
  physical
  characteristics,
  often
  specified
  in
  contracts
  and
  having
  an
  impact
  on
  price.
  Tracking
  of
  these

physical
 characteristics
 or
 specifications
 from
 source
 through
 storage
 and
 transportation
 to
 final
 point
 of
 sale
 or

purchase
 was
 also
 extremely
 important.

During
 this
 evolution,
 the
 software
 category
 became
 known
 as
 CTRM
 to
 acknowledge
 the
 widening
 reach
 of
 these

products,
 from
 energy
 to
 a
 variety
 of
 agricultural
 and
 soft
 commodities,
 base
 and
 precious
 metals,
 and
 freight
 and

shipping
  derivatives.
  The
  footprint
  of
  what
  constituted
  a
  CTRM
  software
  solution
  was
  expanding
  and
  growing

rapidly.

In
  the
  last
  several
  years,
  what
  was
  the
  CTRM
  software
  category
  grew
  further
  into
  the
  supply
  chain.
  One
  of
  the

unique
  elements
  of
  commodity
  companies
  is
  that
  not
  only
  do
  they
  participate
  in
  the
  financial
  markets
  to
  manage

risk
  but,
  in
  addition,
  they
  operate
  very
  physical
  supply
  chains.

  It
  was
  a
  natural
  progression
  for
  the
  vendors
  to

integrate
  deep
  supply
  chain
  functionality
  such
  as
  bulk
  handling,
  processing
  optimization
  and
  shipping
  to
  their

trading
 and
 risk
 solutions.

©
 Commodity
 Technology
 Advisory
 LLC,
 2014

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