Mastering the Complexity of CP Commodity Trading
December 16, 2019
Commodity trading is challenging, with constantly evolving markets and volatile pricing. For consumer products (CP) companies, securing commodities can be particularly difficult because consumer products companies consume a variety of different commodities across all asset classes.
For example, a cookie manufacturer doesn’t just need agriculture products – grains, sugar, milk – to make cookies, it also requires plastics, metals and paper for packaging. Each type of cookie may have different ingredients – wheat, oats, raisins, cocoa, etc. – so each product manufactured requires a different list of commodities.
An estimated 40 to 60 percent of manufacturing costs are related to raw material costs, so procuring resources at the wrong price significantly impacts profits – and risk. Maintaining the right level of raw materials requires detailed, real-time analyses of budgeted spend, demand forecasts, and coverage – often for dozens or hundreds of products, multiple commodities, and numerous manufacturing plants in different locations.
There is a lot of data to analyze, and it’s often located in different, disconnected systems throughout the organization. To reduce risk and improve margins, CP companies must find a more efficient and effective way to manage their portfolios.
Today’s CP commodity management
Many consumer products companies manage commodity exposure and risk on spreadsheets or with in-house systems. This is in part because so many of these companies have grown through acquisition, so they are tying together different systems developed for different commodity portfolios in different regions. As a result, they must bring all their commodity data together manually, which takes time.
The problem with spreadsheets, as outlined before, is that manually aggregating and analyzing data is very time consuming, opens the door to human error, and increases risk. Spreadsheets do not provide real-time visibility into coverage or the impact of market shifts on company portfolios and managing risk on spreadsheets requires lot of manual effort for companies with multiple products and commodities.
Eka – a better way
Eka’s modern, flexible commodity management platform delivers the functionality CP companies need to improve efficiency and margins. With Eka, consumer products companies can:
1. Make better buys: Connect markets, portfolios and commodities automatically for real-time visibility into commodity positions and availability. Monitor markets in real time with user-defined alerts and evaluate potential contracts quickly so you can take advantage of market opportunities before they disappear.
2. Reduce exposure: Create real-time coverage and variance analysis reports for real-time visibility into coverage and address potential problems quickly. Analyze historical coverage and variance to determine changes over time and highlight which items are most or least affected.
3. Improve risk management: Improve visibility into risk with a consolidated, real-time view of price risk and coverage. Evaluate the impact of moving markets on exposure in real time. Manage risk better by making better decisions on when to buy, how much to buy and what to buy.
4. Collaborate more: Tie all information together – automatically – on one platform and create one single version of truth for the entire organization. Create and share market intelligence to the entire business highlighting market news, current exposure and movement, and market prices to enable better collaboration and faster decision making.
5. Improve compliance: Create user-defined, real-time alerts for breaches in compliance and governance policies, so you know the moment a breach occurs and can take immediate action to address the breach. Automate regulatory compliance to ensure regulatory reporting compliance, including EMIR, CFTC, MiFiD, ICE, MAR, Dodd Frank, and FinFrag.
6. Better manage budgets: Quickly analyze historical trends and deviations from forecast and budgets to understand and prevent future deviations.
Commodity trading can be challenging for consumer products companies, but real-time data and a modern trading platform can help reduce uncertainty and improve profit margins. You need to take advantage of the latest technology to make smarter, faster decisions and ensure you always have the right materials at the best price when you need them. And, many forward-thinking consumer products companies are making the switch and adopting a modern commodity management platform to reduce risk and increase profits.
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.