Commodity Management BlogInnovative Ideas and Thought Leadership for Volatile Commodity Marketplace
Triple Point’s Algosys metal accounting team have been busy in South American recently. Donald Leroux was invited to speak at two prestigious mineral processing conferences: Procemin in Santiago, Chile and ENTMME in Goiânia, Brazil.
Both presentations focused on the need for accurate in-process inventory estimation methods in mineral and metal processing plants. As these inventories can represent a significant amount of money, they need to be estimated as accurately as possible. Algosys metallurgical accounting solution enables organisations to reconcile differences in measurement results, ensuring any changes to in-process inventories are both transparent and auditable.
Managing in-process inventories is just one of the Ten Best Practises of Metallurgical Accounting* as set out by a group of six companies (including BHP Billiton and Anglo American) in the AMIRA P754 code. These guidelines were developed as a response to rigorous corporate governance requirements and turbulent economic conditions. By adhering to the Ten Best Practices and implementing a powerful enterprise metal accounting software solution, organisations can reduce risk, maximise profitability and ensure compliance.
*Ten Best Practises of Metallurgical Accounting
- Straight-Through Processing: Completeness and Integration
- Measurement Accuracy
- Data Redundancy and Validation
- Target Accuracy
- Provisional Data
- In-process inventory
Read more about the Ten Best Practises of Metallurgical Accounting
One month ago, U.S. oil traders weren’t paying much attention to the healthcare debate in Washington. They were more concerned about refinery operations in the Gulf, growing tension with Syria, and hundreds of other factors that would likely affect oil prices. After all, what were the odds that the U.S. government would actually shut down?
On October 1, everyone found out. Non-essential employees were sent home, projects were put on hold indefinitely, and non-mandatory spending was cut off. Suddenly the world’s largest oil consumer needed a lot less oil. Market participants who hadn’t accounted for the possibility of a shutdown, or come up with a contingency plan, found themselves exposed. And even as the shutdown appears likely to come to a close; uncertainty looms large as traders await the release of inventory data.
It is clear that the only way to succeed in today’s oil markets is to rely on new technology. No series of spreadsheets can account for all of the variables that threaten to dissolve margins and eliminate profits. Triple Point’s energy trading and risk management (ETRM) enterprise software, Commodity XL, stands alone in its ability to mitigate risk by providing comprehensive analysis throughout the oil market value chain. Learn more about Commodity XL for Oil.
I’ll take it as read that you’re all fans of the Prussian military analyst Carl von Clausewitz. Who doesn’t have a copy of his 1837 work, Vom Kriege, on their nightstand?
For those unfamiliar, he coined the term “fog of war”. In his book, he writes “War is an area of uncertainty; three quarters of the things on which all action in War is based are lying in a fog of uncertainty to a greater or lesser extent.”
(Stay with me.)
By fog of war, von Clausewitz is talking about military commanders’ incomplete or inaccurate intelligence about the enemy’s numbers, disposition, and capabilities—and the same about one’s own forces. Limited reconnaissance, deliberate misinformation campaigns, and delays in receiving vital field updates all contribute to the challenge of making accurate tactical and strategic battlefield decisions. If commanders make bad decisions on bad data, they could lose the war.
Anyone responsible for making decisions based on information gathered from the field knows this challenge inside out.
Consider supply chain planning teams. They make critical planning decisions based on their customer forecasts. With the right data from their customers, they have a clear competitive advantage. With the wrong data—or, equally bad, the right data showing up after they’ve had to make their decisions—they’re in trouble. In the supply chain world, this “wrong data” translates to lost profits and lost opportunities.
So, how do you cut through this forecast fog? By leveraging ways to help get more accurate and more frequent data updates.
Triple Point’s Mobile Demand Planner (MDP) is one example of technology that supply chain planning teams can use to gather more accurate data more frequently. If you are on the supply chain side of your business, think of MDP as your field salesperson’s link to the overall demand picture. It allows your field representatives to capture forecast data while meeting face-to-face with your customers. No latency, no errors—just real time updates from the field.
Getting these real-time updates gives you an early-warning indicator to issues that require adjustments to your production and distribution plans. With this up-to-date picture of your changing demand, you are one step closer to being able to stop reactively planning and start proactively planning.
So, remove the fog from your forecast. Learn how you can leverage Mobile Demand Planner (available from iTunes, August 23) and other technologies from Triple Point to maintain a clear picture of your supply chain planning “battlefield”.
The Federal Energy Regulatory Commission (FERC) made headlines after it issued a record fine of $453M against Barclays PLC and several of its power traders. FERC stated that the bank manipulated energy prices in California and other western markets between November 2006 and December 2008. The agency is also working towards a similar settlement with J.P. Morgan Chase.
When I read the news, the dollar amount of the fine wasn’t what resonated. The fact that it was issued for manipulation that began over 7 years ago did. FERC doesn’t have to abide by a statute of limitations, and other agencies often use revisions to extend any that do exist. Energy traders are exposed to heightening levels of regulatory risk with every passing day, and FERC may be the least of their concerns.
The introductions of Dodd-Frank, EMIR, MIFID, and REMIT, among others, have elevated complexity in U.S. and E.U. power and gas markets. Rules within each regulation continue to evolve, making it extremely difficult to interpret them. Traders cannot keep up. The task of capturing necessary information and knowing where to send it becomes more convoluted as more parties become involved in each transaction and the number of transactions processed increase. The only effective means to ensure compliance is to partner with an energy trading and risk management (ETRM) provider to implement a regulatory solution.
Triple Point Technology’s ETRM, Commodity XL, has dedicated modules to meet the stringent requirements of Dodd-Frank and regulations in the E.U. Triple Point also employs dedicated experts to remain vigilant in proactively developing and adapting its enterprise software to meet the demands of regulators so your company can focus on making profitable trading decisions. Contact us at email@example.com to learn more.
Recently, Supply Chain Digest’s (SCD) Editor-in-Chief, Dan Gilmore, shared insights from a joint SCD-Gartner study focused on identifying the top priorities of supply chain professionals. In its sixth year, this study, led by Gartner analysts Dwight Klappich and Chad Eschinger, showed a shift in priorities over the last few years. As the economy ever-so-slowly recovers, it’s becoming apparent that companies are striving to return to “pre-recession volumes and activity without adding back all the supply chain head count and costs”—a trend arguably supported by recent employment numbers.
While the last few years have predictably seen cost-cutting measures holding the top spots on the survey, for 2013, companies have set their sights on using the supply chain to drive business growth as the primary goal, with customer service following a close second and reducing costs at number three. This is further recognition of the supply chain’s journey to the board room table as a key contributor, and now driver, of overall business strategy and development.
So what’s holding companies back from achieving these goals?
As many might expect, forecast accuracy/demand variability came out on top, followed by an inability to synchronize end-to-end processes, and a lack of enterprise-wide supply chain visibility. Interestingly, these problematic issues are mainstays that supply chain solution providers address with advanced supply chain planning solutions. You’d expect most companies to have solved these issues by leveraging such technologies by now. Yet the study identifies a discrepancy between the desire of companies for supply chain agility, and the flexibility of the supply chain software they currently have. This “agility gap” is large, with some 85% of respondents saying that flexible supply chain applications are critical, but only 42% saying their current software provides that flexibility.
Curious indeed. Triple Point’s Supply Chain Optimization (SCO) solution has been helping companies with these issues for over 25 years. We’ve worked with companies throughout the process industry to achieve flexibility to respond to unplanned events, obtain visibility to see the entire supply chain at a glance, and improve accuracy in forecasting, scheduling, and distribution.
So, what’s happening behind the scenes? Are these companies not recognizing this disconnect? Are they establishing their supply chain priorities without a tangible plan in place to achieve them?
This notable discrepancy makes us agree with Dan’s concluding remarks that “companies should probably raise the flexibility to make needed changes higher up in the selection criteria weighting versus functionality differences that dominate selection processes today.” Well said, Dan. Stay tuned.
Second only to oil, coffee is widely considered to be the most valuable legally traded commodity in the world, with an estimated 2.25 billion cups of coffee consumed worldwide every day. However, consistently high demand does not mean that coffee farmers, traders, buyers, and sellers are rolling in the beans. In fact, coffee has a history of significant price volatility that has greatly affected the ability of market participants to turn a profit.
According to Fairtrade International, this volatility spurred the creation of the first International Coffee Agreement in 1962, which was designed to stabilize the market by introducing quotas to withhold excessive coffee supplies. In 1994, a new version of this agreement stipulated that prices would no longer be regulated, and that same year, prices escalated to a high of $2.80 per pound thanks to a frost threatening crops in Brazil. Then in 2001, coffee prices fell to a thirty year low of $.45 per pound almost overnight due to overproduction, devastating farmers and putting many out of business.
Fast forward to 2011, when prices climbed to a 14-year high, spurring growers to expand coffee-growing lands and plant high-yielding tree varieties. Because of this, we are now experiencing what the Wall Street Journal calls the biggest coffee bust in over a decade due to overproduction. Arabica coffee on the ICE Futures U.S. exchange recently fell to their lowest levels since September 2009.
In order to maintain profit margins amidst never ending volatility, companies engaged in the buying, trading, and selling of coffee must have sophisticated commodity trading and risk management (CTRM) solutions providing business intelligence and analysis tools that enable smarter decisions, minimize risk, and optimize supply chain management. Spreadsheets do not provide the sophisticated functionality needed for maximizing efficiency and profitability in today’s unpredictable environment.
Coffee & Cocoa International has published an article featuring Triple Point’s Brian Seidman, VP, Solutions Director, Agriculture, exploring these very issues. It discusses how companies including Armajaro Trading and Mercon Coffee Group are leveraging Triple Point’s Commodity XL for Agriculture solution to mitigate market risk, maximize profitability, and achieve optimized supply chain management. Read it now.
Ahh, the nicer weather is upon us and summer is finally here. No better time to ice up the beverages and slap some burgers, hot dogs, chicken, and other select meats and vegetables on the grill.
Now that you have this great visual, take a moment to stop and think what it really costs to get an average barbeque together before it hits the grill.
Rapidly rising and volatile commodity prices are causing fluctuations in the cost of the raw materials, packaging, and energy that food and beverage companies must purchase in order to provide the ice cold beer, potato chips, ketchup, and other barbeque staples. When food and beverage companies aren’t properly equipped to manage this volatility, the result is reduced profit margins, and oftentimes higher prices.
For example, the ketchup that is put on hamburgers contains commodities such as tomatoes, sugar, salt, and corn syrup. When the price of wholesale tomatoes more than tripled back in 2011, Heinz cut portions of several key products, including its flagship Heinz 57 sauce, which now comes in a bottle that has shrunk by four ounces, but costs the same as the original, larger bottle.
While passing along increased costs to consumers is a very common practice, there are other options. Companies including Heineken are taking advantage of advanced technology solutions to minimize the impact of commodity volatility on their bottom lines so they don’t have to pass along price increases to the consumer. These solutions, which include Triple Point’s Commodity XL Strategic Planning and Procurement™, provide customers with powerful tools for fully mitigating and managing commodity exposure. Companies that don’t invest in the technologies and processes to properly manage this exposure will lose out on a significant competitive advantage, and risk being left behind.
A sustained boom in natural gas recovery has shifted conversations in the United States from speculation about shortages and price hikes to decisions on how much should be exported. Studies continue to locate proven reserves and natural gas companies are vying for permission to build facilities to create liquefied natural gas (LNG) and export it to non-U.S. customers. Of the 20 federal permit applications that have been submitted to the Energy Department, only two (Cheniere Energy Inc., and Freeport LNG Expansion L.P.) have received approval. However, recent actions and statements made by the Obama administration suggest that more will be approved soon.
Companies given the go ahead will need to determine if the upfront billion dollar cost and time required to build a liquefaction/export facility is worthwhile. In the last few years alone, the U.S. has seen average prices of natural gas range from as little as $2.66 to nearly $8 per MMBtu. While Asia and Europe have seen double digit pricing during that time, it is difficult to predict what will happen as markets gain access to additional supply.
Regionalized natural gas markets are already volatile. Changes in weather, unexpected problems with transport/refining equipment, and political events/policies can all drastically affect supply and demand. The vast amount of LNG set to enter foreign markets will increase uncertainty, and make it harder to navigate risk. Market participants and energy companies must be able to mitigate the risks of trading on a global scale.
Triple Point Technology’s energy trading and risk management (ETRM) software, Commodity XLTM, offers the best path to success. End users can accurately and efficiently monitor physical commodity movements and price changes, and configure a customized dashboard to display trade information and risk positions across transactions and markets. Click here to read more about Commodity XL for Gas.
Triple Point received the prestigious “ETRM Software House of the Year” from Energy Risk magazine this week at an awards dinner held this past week at the Energy Risk USA conference in Houston. Triple Point was selected as the winner because of its revenue, profit, and customer growth in 2012 along with its unique ability to deliver innovative, next generation commodity trading and risk management (CTRM) solutions including mobile applications.
In 2012 Triple Point grew its revenue by 30% and its profit by 40%, and added 28 new energy companies to its base of 400+ customers including Spanish power generator Iberdrola Generation, Korean-based oil refiner and marketer SK Energy, Brazil energy giant Petrobras, and China National Offshore Oil Corporation (CNOOC) Limited.
Energy Risk also named Triple Point “Software House of the Year – Asia” in 2012. In addition, Triple Point has been named a Leader by two top analyst firms – by IDC in its 2013 IDC Marketscape: Energy Trading and Risk Management (ETRM) Vendor Assessment, and for four straight years by Gartner in its Magic Quadrant for ETRM Platforms.
When accepting the award on behalf of Triple Point, Sr. Vice President and Chief Marketing Officer Michael Schwartz emphasized that what makes Triple Point successful is the people behind the software, who are committed to delivering unsurpassed value.
We recently returned from sponsoring Logichem Europe where over 250 supply chain planning professionals discussed top industry trends. A topic of particular interest this year was supply chain segmentation.
What is supply chain segmentation? It’s a way to have your physical supply chain support multiple, virtual supply chains—each focusing on a different segment of products or markets with unique production costs, distribution costs, and customer requirements.
For example, companies can use segmentation to have their low margin products follow the most cost-effective paths through the supply chain, isolate unpredictable customers into separately forecasted groups to improve overall accuracy, or give premium service only to their highly profitable customers.
That’s good news for an industry facing extreme volatility and price pressures.
If you were to group your company’s products into different categories having similar expected customer service levels, lead times, and packaging varieties, you’d find that each group places different demands on your supply chain and represents different levels of profitability to your company. So why not treat each group differently with product and service offerings tailored to each group’s unique needs?
Supply chain segmentation allows you to do this.
Mature segmentation strategies extend across several areas of your supply chain, involving differentiated customer replenishment programs, supplier replenishment programs, inventory policies, demand policies, allocation and order promising, and Sales & Operations Planning strategies. With segmentation, you can introduce more stability in your production, leverage more economical distribution, and minimize the impact of volatility.
It’s easy to see why segmentation was a main point of focus at the Logichem conference. At Triple Point, we understand the value of segmentation to our customers, which is why our Supply Chain Optimization solution supports such strategies. Contact us to find out how you can implement a segmentation strategy for your company and begin reducing the impact of today’s volatility.