Commodity Management and Supply Chains

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Commodity Management and Supply Chains

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INTRODUCTION For most raw materials and commodities, the supply chain is both long and complex. Increasingly, firms have been focusing on these supply chains in an effort to better control operational risks and exposures, but increased geopolitical and other risks have now served to sharpened that focus even further. Issues like COVID-19 lockdowns and trade wars, for example, have meant that managing sourcing, movements, processing, production, procurement, contracts, storage and other activities along complex supply chains more effectively not only reduces costs and improves profitability, but also helps ensure business

continuity. Meanwhile, although CTRM (Commodity Trading and Risk Management) software applications that help manage trades and the risks associated with trading are seen as critical, the broader commodity management aspects around managing the supply chain more effectively are rightly gaining in importance.

A ComTechAdvisory Whitepaper

Commodity Management and Supply Chains

SUPPLY CHAIN MANAGEMENT When political decisions can mean supply disruption or more costly supply, having alternatives can be the key to maintaining competitive finished good pricing. Equally, when disruptions along the supply chain can result in the need to use alternative transportation routes or modes of transport, it pays to be in a position to respond. In the last couple of years, these have been some of the challenges posed to those in the business of procuring raw materials. Even without such unwanted complexities, managing supply chains is a complex activity fraught with operational risks such as delays, missing documentation, quality issues and more. Each of these issues can add costs in the form of penalties and extra expenses that were unplanned and eat into the bottom line. COVID-19 has brought with it many additional complexities, such as a home-based workforce, making managing operational risks even more difficult. Managing supply chains effectively is a key attribute of a successful and profitable business. This not only means sourcing, moving, processing, and accounting for various activities and commodities, but these days, also includes traceability and tracking through that supply chain. The ability to track end products back through the supply chain to point of origin for purposes such as food security, recall (brand protection), traceability, environmental (deforestation, CO2 etc.), sustainability, social factors (slave and underage labor), regulation, supply chain optimization, and vendor optimization is very important. Buyer purchase preferences and regulations around social and environmental issues require this and, should a substandard product reach the market, then brand protection policy requires it. Another key aspect to supply chain management is the plethora of documents that must be created, signed, shared, and maintained, ranging from bills of lading to customs documents. Ensuring the right document is on hand at the right time can avert a penalty or delay.

Other critical activities include collaboration with third parties including vendors and suppliers and monitoring their effectiveness. Identifying vendors or suppliers that are often late or provide substandard goods or services can help eliminate inefficiency. In the same vein, identifying very manual and repetitive business processes or use of spreadsheets and automating or eliminating these can also help. Here workflow can use automation and even AI to keep employees focused on exception management and problem resolution. Managing shipping, movements, processing and other activities along the supply chain efficiently also means having transparency into those activities and identifying any likely issues or bottlenecks. Managing operational risk and the effectiveness of supply chain activities also goes hand-in-hand with managing other risks like price and credit risk. Contracts and agreements often include optionality that needs to be effectively managed as well as complex pricing

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A ComTechAdvisory Whitepaper

Commodity Management and Supply Chains

arrangements. Hedging may or may not be possible depending on the raw material being moved and managed and whether there is a financial market for that product or commodity, thus introducing additional complexities around managing margins and exposures. Monitoring counterparties is also a key activity in ensuring that exposures are within reasonable and planned ranges at all times. Beyond these supply chain activities, managing cash is also a critical activity and this often has an FX aspect to it as multiple currencies are frequently used. Treasury and FX activities also need to be well planned and managed, as there are also legal and contractual issues in funding different business entities in different jurisdictions and/or ensuring adequate funding of operations along the supply chain. In some instances,

transferring funds into or out of certain countries requires certain notifications and conditions to be met, for example. This all adds up to complexity and exposures to various risks that can be difficult to manage, especially if the business is involved in multiple commodities each with their own specific supply chain and issues and a requirement to manage cross commodity risks and exposures. It is no wonder that digitalization has become a buzz word in commodities, as any entity involved with raw materials and commodities seeks to increase efficiencies and effectiveness in their operations. Eliminating spreadsheets and manual processes and replacing systems that can’t support business agility is a key thrust in IT across the industry where change is the new normal.

COMMODITY MANAGEMENT Commodity Management (CM) software solutions are now emerging that incorporate the key functions and features of ERP solutions with that of CTRM software. They help manage all aspects of a commodity business from sourcing to production with increased efficiency and an emphasis on most forms of risk management. Whereas the focus of CTRM is on trade management and market risks, the Commodity Management solution incorporates the entire supply chain, helping manage logistics, inventory, processing, and much more. Commodity Management solutions, with integrated workflow and approvals, document management and ERP-like functionality, can help commodity firms ensure that time frames are met, risks are managed, and costs controlled. They help increase the efficiency of supply chain operations and alert users and

management to potential issues. Furthermore, they can aid in collaboration – not just between departments – but also with partners and business associates. With Commodity Management software available via cloud deployment, issues around home-based workforces can be easily managed as well.

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A ComTechAdvisory Whitepaper

Commodity Management and Supply Chains

Commodity Management (CM) solutions have a broader footprint than traditional CTRM, although there has been a trend for CTRM software vendors to try to extend their functionality into the supply chain as well. CM offers the trade and market risk management features of CTRM software but extended with integrated ERP-like functions as well that can include; • Contract management and origination functionality to help in sourcing and agreeing purchases and sales over a longer-term horizon, • Logistics including all forms of transportation, route and vessel management, estimated and actual cost tracking, documentation and more, • Inventory management at multiple locations tracking quality factors as stock is consumed and replenished, • Quality management, including tracking each raw material and quality details at each stage (e.g. receipt, blending, packaging, etc.), • Accounting, financials and treasury, amongst others.

A fully integrated CM solution may come with its own accounting solution to form a fully integrated solution for the business, or it may require some degree of integration with a commonly used accounting package like SAP or JDE, for example. As trade margins have been squeezed and supply chains monitored more closely, there has been a growing interest in CM as opposed to CTRM, especially in bulk commodities like mining and ags & softs where managing the physical commodity is so critical to maintaining profitable and efficient operations. This has seen a number of CM solutions emerge specifically for commodity players as well as many of the CTRM software vendors adding incremental functionality.

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A ComTechAdvisory Whitepaper

Commodity Management and Supply Chains

IRELY – A LEADING COMMODITY MANAGEMENT PLATFORM iRely is a well-funded, 30-year old business with a track record of success in commodities like Coffee, Tea, Cocoa and Spices. Irely operates globally and is known for its commitment to customers. i21 is its software platform. It was completely redeveloped on a modern technology stack with a modern UI and is available on premise or in the cloud. The software is a strong CM platform that offers financials and accounting functionality as well as CTRM and ERP-type functions like, • • • • • • • • •

Quality management Traceability and certifications Production planning Inventory management Logistics and movements Coverage reporting Contact management Portal for collaboration Recipes and processing.

As a fully functional solution available in the cloud, i21 offers users a number of the business benefits associated with Commodity Management including; • Fewer delayed and missed activities. Workflow, alerts and notifications to users drive focus to issues like sending shipping instructions and pricing unpriced contracts before first notice day, • Automation of tedious business processes via workflow to save employee time,

• Collaboration with business partners and customers via portals allowing data entry and inspection of pertinent information, reducing time spent on such activities, • More efficient audits due to comprehensive audit trailing available in the solution that allows auditors to easily see what and why things were done, • Centralized document repository providing easy access to documents for those that need them, • Time savings by integrating directly to markets for derivative and settlement prices, • Replacement of Excel spreadsheets and other home-grown systems that can cause security and data management issues, • Greater emphasis on overall profitability via tracking costs across the supply chain and tracking of forecast to actuals, • Ability to perform vendor assessments looking at late shipments, rejected samples and other measures of vendor performance. Significantly enhanced supplier performance measurement to influence procurement decisions and drive continuous improvement. Place responsibility where it belongs, e.g. on Grower, Vendor, Shipping

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A ComTechAdvisory Whitepaper

Commodity Management and Supply Chains

• • •

•

Line as appropriate, A modern UI so users can better consume and visualize key business information, Better compliance and regulatory risk management, Integrated and live risk management reporting – position/risk always known in real time and consistent with actual transactions (not separate spreadsheet system with possibility of inconsistent data/errors), and Cost forecasting to avoid surprises and test the impact of possible market scenarios for contingency business planning.

I21, as a leading CM solution, can provide many of the required benefits discussed above and help its users by providing measurable cost reductions and revenue improvements, improved risk management across all forms of risk, as well as many intangible benefits such as improved counterparty and vendor relationships and a better ability to forecast business performance. Being the primary repository for much of the information about the business, it also provides numerous ways to access that information quickly and easily so as to make informed business decisions.

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A ComTechAdvisory Whitepaper

Commodity Management and Supply Chains

SUMMARY Any company dealing with physical commodities is aware of just how complex and volatile that business can be. Change is the only constant in the world of commodities, and this has become even more so over the last couple of years due to geopolitics and the COVID-19 pandemic. As trade margins are squeezed and costs escalate, successful commodity businesses seek to effectively manage supply chains and look for

greater collaboration, more streamlined processes and digitalization. This in turn is driving interest in Commodity Management solutions that combine commodityspecific ERP functionality with that of CTRM software in a modern architecture stack deployable in the cloud. iRely, with its i21 platform, is one example of a solution that ticks many of the boxes associated with the needs for commodity management.

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ABOUT IRELY iRely is a leading global supplier of innovative software solutions that help its agriculture and consumer products clients manage their core business processes. Based on a single, modern and easy-to-use platform, which can be easily configured to customer requirements, iRely has attracted and retained a large and referenceable customer base over its 30-year history and developed a reputation for its laser focus on customer success.

For more information, please visit www.irely.com

ABOUT Commodity Technology Advisory LLC Commodity Technology Advisory is the leading analyst organization covering the ETRM and CTRM markets. We provide the invaluable insights into the issues and trends affecting the users and providers of the technologies that are crucial for success in the constantly evolving global commodities markets. Patrick Reames and Gary Vasey head our team, whose combined 60-plus years in the energy and commodities markets, provides depth of understanding of the market and its issues that is unmatched and unrivaled by any analyst group. For more information, please visit:

www.comtechadvisory.com ComTech Advisory also hosts the CTRMCenter, your online portal with news and views about commodity markets and technology as well as a comprehensive online directory of software and services providers. Please visit the CTRMCenter at:

www.ctrmcenter.com

19901 Southwest Freeway Sugar Land TX 77479 +1 281 207 5412 Prague, Czech Republic +420 775 718 112 ComTechAdvisory.com Email: info@comtechadvisory.com

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Commodity Management and Supply Chains

Published on Nov 23, 2020Technology & Computing Logistics

CTRM Center

For most raw materials and commodities, the supply chain is both long and complex. Increasingly, firms have been focusing on these supply chains in an effort to better control operational risks and exposures, but increased geopolitical and other risks have now served to sharpened that focus even further. Issues like COVID-19 lockdowns and trade wars, for example, have meant that managing sourcing, movements, processing, production, procurement, contracts, storage and other activities along complex supply chains more effectively not only reduces costs and improves profitability, but also helps ensure business continuity. Meanwhile, although CTRM (Commodity Trading and Risk Management) sof tware applications that help manage trades and the risks associated with trading are seen as critical, the broader commodity management aspects around managing the supply chain more effectively are rightly gaining in importance.