ERP for commodities – it’s not as easy as it sounds
July 22, 2019
Can you use your enterprise resource planning (ERP) software for commodity trading and risk management (CTRM)? ERP vendors will tell you that you can, and the appeal of using familiar technology you are already using is strong. But, ERP systems were not designed with commodity management in mind, so you need to be careful.
Why not choose ERP for CTRM?
Why shouldn’t you choose a standard ERP system to manage commodity trading? The answer is simple: ERP systems are not built to handle the volatility and variability of commodity markets.
An ERP system is great if your business purchases or procures raw materials at a fixed price, in a fixed place, at a fixed time. ERP systems work very well with contractual certainty and provide tremendous value in the standard manufacturing business model, where the price of goods is known throughout the supply chain.
But, commodity trading is different. The way that commodities are bought, sold, shipped, stored, invoiced, accounted for, and valued throughout the supply chain falls outside standard ERP capability.
- Markets are volatile and have a variety of price types – including un-priced, index, NPE, and other more complex pricing models. Various exchanges and exchange types produce hourly, daily or monthly market prices.
- ERP systems cannot create comprehensive contracts in an environment where market prices are volatile and variable.
- They do not offer adequate support for negotiating exposure reporting or provisional invoices.
- Mark-to-market valuations in physical markets are too complex, and exposure calculations require new logic to be written.
- Core derivatives capability is absent in ERP systems.
- ERP fails to deliver the extensive risk and compliance needs that regulators and other stakeholders demand.
ERP systems are not designed to efficiently and effectively meet the unique and complex needs of the commodity trading value chain.
CTRM/ETRM – the smart choice
CTRM (commodity trading and risk management) software is designed specifically for the complexities of commodity trading and risk management. Commodity traders, processors and purchasers use CTRM software to manage physical trades, pricing, accounting, derivative trades, position, mark to market, origination, logistics, risk management, procurement, planning and scheduling.
CTRM can be used for all asset classes, including agriculture (coffee, cocoa, grains, oilseeds, sugar, rubber, palm, etc.), energy (crude and refined products, natural gas, natural gas liquids, liquefied natural gas, power, coal, renewables), and metals (base metals, refined, steel, scraps, and concentrates).
Eka’s Digital Commodity Management Platform
Eka’s Commodity Management Platform takes CTRM and ETRM to the next level. Eka’s platform breaks CTRM/ETRM systems into their smallest components, delivering 60+ enterprise apps that solve specific commodity management issues – P&L attribution, risk monitoring, inventory management, position, and more. The apps connect workflows across the entire commodity value chain, from trading and risk management to sourcing, supply chain, and procurement.
This flexible, app-based system enables companies to build a custom system designed to solve their specific challenges. Users can start with just the functionality they need and add more as they scale. They can enhance their existing system or start from scratch and build a new one.
The platform is cloud-based, and the apps are configured rather than customized to each client, allowing firms to go live in just a few weeks. It is also mobile, enabling real-time insight from any smartphone, tablet, or computer. Its “always-on” ability to integrate current market data helps traders translate real-time market changes into successful trading and risk management decisions.
Choosing ERP for commodity management may seem like a quick and easy answer at first but filling the gaps in functionality become cumbersome and expensive to fill and often results in a system that just doesn’t work. If you need to manage commodity trading, you need to use a solution developed specifically for commodity management. Otherwise, you are like an accountant running numbers in a Word document when you could finish the job in seconds with Excel.
Mary DeFilippe spends her days creating engaging content – blogs, white papers, articles, and more – that helps readers better understand new technology. She can frequently be found walking around the office listening to heavy metal music while pondering ideas for her next blog.