If the outcome of the UK referendum is any indication, there remains significant uncertainty in the global economy. Today, businesses face risk that stems from many origins: everything from political change, climate related factors such as draught in East and Southern Africa, and the Zika virus in Latin America. Recent forecasts reveal commodity price uncertainty lay ahead, reflecting a higher global risk aversion. For raw materials manufacturers and commodity traders in industries such as food and beverage, chemicals, metals, and biofuels, this presents many challenges. Calculating landed costs for commodities for instance requires adopting a successful strategy for dealing with commodity trading risk management (CTRM).
Were the purchase of commodities at a known price, definitive quality, or fixed costs at the time a contract is agreed, handling of commodities could be managed more easily with an enterprise resource planning (ERP) solution alone. However, for businesses dealing in commodities something more is needed for dealing with the risk, logistics, and global supply chains. One successful strategy would be to integrate commodity trading and risk management (CTRM) for a single integrated solution.
With Microsoft Dynamics AX and Scalable Commodity, raw materials manufacturers can now address these challenges by recording all commodity procurement contracts with details of expected quality, costs, price, and delivery dates. Prices may be fixed or where appropriate quoted against a Futures Exchange market e.g. Chicago Board of Trade (CBOT). zedIT Solutions in conjunction our partner Scalable provides the flexibility to fix the commodity price against a contract or shipment as determined by the contract terms (this may even be after the delivery and consumption of the commodity). The tracking of estimated costs for each contract and/or shipment satisfies a number of requirements; accurate mark to market valuations, strong cost accruals process for shipments and ultimately accurate landed cost calculations for materials.
Additionally, the production demand for raw materials is visible to the procurement and logistics departments who can then decide how to satisfy that demand; from inventory, existing contracts or by going out to the market to purchase additional materials. As soon as the allocations have been made and the logistics arranged the plants know when to expect deliveries and production can meet their schedules.
By leveraging standard Microsoft Dynamics AX functionality combined with Scalable Commodity, an organization has visibility of data across all departments, and can improve efficiency and strengthen its supply chain. Read the AGT success story to learn more about how Microsoft Dynamics AX integrated with Scalable Commodity can reduce commodity trading risk.
Author: Rose Chalmers