ILLUMITI INNOVATION BLOG

A Better Way to Manage Commodity Risks: Five reasons to choose SAP Commodity Management over your current trading solution

By: Stephen Thomas
Commodity Management Blog Post Photo #2

When talking to new customers about SAP Commodity Management, I often hear similar feedback: “We already have a process in place. Why fix what isn’t broken?”

From spreadsheets to standalone commodity trading systems, companies large and small have established commodity trading processes and risk mitigation solutions. Yet most of the solutions I’ve seen involve process duplication or other inefficiencies, open up the company to risk on multiple fronts, or just don’t offer full value to the organization. My response is often the same: “Are you 100% confident that your company is managing commodities risk in the best possible way?”

Regardless of your current approach, here are five key reasons that SAP Commodity Management may be a more effective solution for your business:

1. Avoid difficult third-party systems integrations. Over the years, there have been many attempts to integrate commodity trading systems with a company’s ERP backbone—none of which have met with great success. Not only do these integrations result a convoluted set of interfaces, but on a practical level trading systems and CRMs define commodities differently, meaning that extensive translation is required between the two systems. The result is often inefficient and disjointed, creating headaches across the organization. In contrast, SAP Commodity Management isn’t a third-party system integration or a separate module: it’s a powerful set of capabilities within your existing SAP ERP system.

2. Address the fallibility of spreadsheets. For many companies, especially those with fewer buyers or a lower overall volume of transactions, spreadsheets can be an effective commodity management solution. However, we have all heard of unfortunate situations where traders have used spreadsheets to conceal bad trades, hide losses and cover their tracks. These situations can have serious costs to the organization, its reputation, and its profitability. In contrast, use of SAP Commodity Management creates visibility for all stakeholder groups, automatically updates your exposures in real time, and reduces your audit exposure.

3. Increase efficiency while reducing errors: Efficiency is another critical consideration. No matter the solution used, whether it’s spreadsheets, a standalone trading solution, or even a commodity system integrated with the company ERP, there is always duplication of effort required to add business critical information into the necessary systems. Where there’s duplication of effort, there’s inefficiency and the risk of human error—both of which grow as company size and trading volumes increase. Addressing these inefficiencies with SAP Commodity Management can result in immediate process improvements and reduce your risk, regardless of your industry or business size.

4. Mitigate internal controls risk. The reduction in internal controls risk that SAP Commodity Management provides is also an important consideration. When decision-making is conducted with limited visibility for the CFO, risks can become compounded. SAP Commodity Management allows clear line-of-sight on trades, exposure and decision-making, with all data being easily auditable.

5. Forge connections between commodity trades and the physical world. Commodity trading systems are excellent at areas such as tracking pricing and managing risk. However, where they fail is in the extended logistical issues that impact the commodity industry, such as inventory management, transportation costs, or optimization of freight movements. As a result, these logistics are rarely fully optimized. SAP Commodity Management provides a better way, delivering full interconnectedness that enables better decision making and allows you to capitalize on opportunities surrounding the relationships between the trading world (pricing, currency fluctuations) and the physical world (freight options, etc.).

Spreadsheets and standalone commodities trading systems are a thing of the past. SAP Commodity Management is a powerful set of tools inside your existing SAP ERP system that can transform the way that your business approaches commodity trading and mitigates commodity risk.