Coffee is one of the most highly traded commodities, second only to oil. To manage commodity risk and support business decision making, too many coffee companies are using older technology, even spreadsheets. In today's environment these homegrown solutions are no longer adequate for commodity management as the data is inherently outdated and incomplete.
But what are the specific reasons coffee companies should give up their love affair with spreadsheets? And what's the alternative?
1) Fluctuating origination markets
The quality of coffee is dependent upon many factors including the country of origin and the season of harvesting. Yet blenders must procure uniform qualities from different countries in different seasons and carefully watch origination markets to assess trends that could cause price movements. This is impossible without the right tools to support origination and prevent errors.
2) Lack of real-time information
Coffee companies need real-time information throughout their supply chain from origin to destination. Throughout the coffee value chain, real-time information must be tracked on product quality and quantity as the raw materials are procured, processed, packed, transported, and exported. Coffee companies have complex supply chain requirements for traceability as well as measuring and accounting for grade variances over moisture, screen size, and foreign material.
Because of the global nature of the supply chain, coffee companies must accurately track and optimize complex itineraries. Multiple origins, points of pickup from each origin, legs, modes of transportation, and destinations must be tracked. All while tracking the traceability from as far down the supply chain as is possible across hundreds of unique grades.
Complex global supply chains are impossible to manage with spreadsheets. And with older generation CTRM systems, companies frequently need to run overnight processes to get the information they need. Then, by the time they have the information they need, the markets have changed again.
3) Volatile commodity prices
In a market of volatile commodity prices, it is particularly difficult for commodities companies to forecast correctly. Regarding the price volatility of agricultural markets, the Food and Agricultural Organization of the United Nations has stated:
"Price fluctuations are a common feature of well-functioning agricultural product markets. But when these become large and unexpected – volatile – they can have a negative impact on the food security of consumers, farmers and entire countries. Since 2007, world markets have seen a series of dramatic swings in commodity prices. Food prices reached their highest levels for 30 years during the summer of 2008, collapsing the following winter, before rapidly rising again in the months that followed. Food prices today remain high, and are expected to remain volatile."
(See more information at http://www.fao.org/economic/est/issues/volatility/en/#.VIm3lTHF-So.)
4) Increasingly complex supply chains
Many commodities companies have become more integrated, expanding deeper into the supply chain. Efficiency and effectiveness throughout the supply chain are keys to maximizing profitability. This is an impossible goal if a global organization is using multiple spreadsheets. Companies need "one version of the truth."
5) Changing positions and price exposures
In today's environment, commodities companies must deal with continually changing positions and price exposures. With a homegrown, spreadsheet-based system, this requires constant updates. To maximize profits, commodity companies need to know their positions and exposures in real-time — an impossible feat with spreadsheets. As prices change, coffee companies need to see exactly how this affects their operating margins so they can take appropriate actions.
Summary
Today’s coffee markets are tougher than they have ever been. Prices across commodities continue to be extremely volatile. And these treacherous markets get much tougher without the right tools. With next-generation CTRM software, vital information is brought together in a single, central system to enhance decision making instead of being squirrelled away in individual spreadsheets or siloed systems.
The commodity markets have evolved over the past ten years. It's a one-way journey. We aren't going back to a period of relative calm. Fortunately, Smart Commodity Management solutions have developed to meet the needs of today's commodities companies for advanced analytics and decision support.
Ditch the spreadsheets once and for all. Learn how Smart Commodity Management can help coffee companies manage in today's tough markets.
