Spreadsheet use is a habit that many commodity traders find hard to break. But the tools that proved adequate for running a trading operation a decade ago are no longer fit for purpose.
So, why should you give up spreadsheets?
When deals are captured in spreadsheets, records of the associated costs will often be added separately to the ERP or financial systems. But the final costs for physical deals in particular can be significant. Fees for transportation, brokerage, and inspection, plus premiums, demurrage, and invoice adjustments can soon wipe out the predicted profit of an individual deal.
Spreadsheets have no means to formally link deals with their costs in a timely manner, and offer very limited capability for accurate reconciliations and tracking of trends. In contrast, commodity management systems allow traders to record and analyze all-in costs to ensure a proposed transaction is as profitable as first appears. They make clear the full commercial value of a transaction as it evolves over the life of the deal from a single report.
Traders can compare the forecast pre-deal costs with actual post-deal costs to assess real profitability, and can slice and dice profitability data by trader or business unit to support and improve future decision making. For a real-time view of true profitability, commodity management is crucial.
The sense of complacency around spreadsheets is becoming almost impossible to sustain in light of a tough new regulatory framework. Underpinning both Dodd-Frank in the US and EMIR in Europe is the need to increase the amount of transaction data to be recorded, speed up its availability, and deepen the level of detail reported. Timely reporting across all regions and markets is the minimum requirement to stay on the right side of the regulator.
Spreadsheets were never developed to collate and export large, comprehensive, and unified data sets from multiple sources. They do not offer real-time responsiveness or enterprise-wide visibility. They do not support comprehensive risk mitigation, reporting, and audit requirements.
Fortunately, commodity management vendors have worked closely with regulators to develop the necessary features within their CTRM software solutions so that organizations can be compliant. In contrast, a trading operation run on spreadsheets is just one fat-finger error away from a compliance breach, fines, and even jail time.
Spreadsheets multiply. Firms that rely on one, tend to rely on a dozen. By their very nature they silo information. Multiple versions often exist, with different people owning or enabling their own part of the business through one or more uncontrolled, unsecured documents.
"Spreadsheets multiply;
firms that rely on one, tend to rely on a dozen."
The use of spreadsheets is an indication that information is inadequately shared. The inevitable lack of data integration between the number and variety of spreadsheets usually results in different parts of the business running and reporting on incomplete or even inaccurate data sets. At critical stages of the value chain the left hand often doesn’t know what the right hand is doing.
Where a commodity management system is in place, however, it shows that integrated, front-to-back, business processes have been developed, and are supported by common data and rules. This business is more efficient and less prone to the information stove-piping that plagues its spreadsheet-dependent rivals.
Consider all the information that has to be recorded for each individual deal. Purchase, sale, and transportation costs; complex structured transactions; hedges; contract terms, collateral arrangements and currency fluctuations; inventory lists, prices and schedules, not to mention invoices and settlement statements. A spreadsheet is not an effective system of record. It is too laborious – and too prone to error.
On the other hand, CTRM software can accurately record all transactions from order through to cash to create a single, trusted and centrally available version of the truth. As these specialist systems evolved over the past ten years, they have honed this capability. Smart, next-gen systems like Eka’s can provide a single view that helps increase awareness among senior managers of how defined strategies are performing, the potential financial impacts, and options for risk mitigation. Consolidated exposures, cash flow forecasting, and single-truth reporting offer a new level of predictability and proactivity when it comes to managing financial performance, which in turn enables smarter risk taking. It supports real-time understanding of counterparty credit risks and exposures, enhances strategic planning and business-planning processes, and allows for better allocation of resources and increased operational efficiency.
Today's next-generation CTRM software ensure better, more competitive business decisions. Not surprisingly, external and internal stakeholders like the demonstrable commitment to transparency that commodity management systems offer, as well as the visibility that helps mitigate multiple types of risk in today’s global and volatile markets.
Eka’s Smart Commodity Management platform, InSight CM, is an end-to-end transaction management platform built on a next-generation architecture that provides all the analytics and decision support tools needed by companies that manage commodities. Eka’s InSight CM software platform is suitable for a wide range of commodities in the agricultural, manufacturing, metals, and energy industries. Commodity market participants use Eka's solution to manage commodity trading, raw material procurement, risk and compliance, and supply chain and operations.
See "4 More Reasons to Give Up Spreadsheets for CTRM Software" to learn four more reasons you should break your spreadsheet habit once and for all, or check out this SlideShare below.