Imagine a busy coffee merchant’s office. It’s after hours but the risk manager is still trying to reconcile a report that was due by the end of the day. Meanwhile, a trader is impatiently waiting to hear whether their new deal can be approved. An operator is on the phone to the shipping line trying to work out which lots have been delayed by a storm, and another has just received cupping information that puts a shipment outside of contract tolerance.
These are just some of the daily challenges that coffee trading firms are used to dealing with. And CTRM systems are often pitched as the answer to many of these operational challenges. But if your CTRM system can’t handle all the specific quality data, crop years, certification, and logistics involved in coffee trading, your people may find themselves resorting to spreadsheets to work around the system limitations.
And with additional systems such as vessel trackers, carbon calculators and satellite verification becoming more common, if your core systems are not all sharing data automatically, there is even more of a data disconnect, even more waiting around for information to be shared, and even more risk of errors.
If you recognise these points of friction slowing down operations in your business now, the trends we are seeing in coffee mean that the operational risk they represent is only going to grow in future.
What’s changing in coffee trading?
Specialty coffee continues to grow globally, with a projected UK CAGR of 10.7% to 2030, and decaffeinated beans are also on an increasing market share trajectory. This means more lots and micro-lots, each with its own cupping profile, quality data, pricing and logistics to manage – more complexity.
Quality information itself is continually expanding; it’s no longer just a question of screen and flavour profile, we now need to be considering the various certification schemes as an attribute. And the increasing mandatory sustainability information all needs to be captured and verifiable too.
This means that any inefficiencies in operations and any operational risk introduced by manual processes are likely to have a more significant impact over the coming years as trading firms deal with ever-increasing mountains of information to continue shipping the same quantities of beans.
What disconnected systems are actually costing your coffee business
The information delay
Every time someone copies information from an email into the CTRM, from a warehouse document into a spreadsheet, or any other manual data process, there’s a gap between when something happened and when it is visible to the rest of the business. As well as slowing down operations, this information delay means that nobody ever has a real view of the entire business, so decision-making is based on out-of-date information and strategic agility is limited. New opportunities are easier to miss, value is left on the table, and expensive hedging errors are difficult to spot when nobody has the full picture.
Slower onboarding
Coffee crops are particularly vulnerable to climate change and growing patterns are already changing, meaning that traders need to ensure their processes for onboarding new geographies and suppliers are both agile and thorough. When adding in new sustainability regulations such as the EUDR as well, there is even more information to verify and more risk of incomplete or delayed KYC processes. And if your counterparty risk reporting is not held in the system where your traders are managing their deals, how disruptive, but also how comprehensive, are your ongoing KYC practices?
Losing valuable expert hours
If your experienced traders, senior operators and risk professionals are spending hours each week manually entering or chasing for data, you are losing their expert time to tasks that don’t add value to their role. The global interest in AI productivity tools shows that trading firms are well aware of how important it is to remove these administrative barriers and let your people focus on the important work.
Compounding errors
An incorrect weight in a logistics spreadsheet flows through to shipping instructions, invoices and position reports. A cupping score entered in the wrong row of the CTRM changes the valuation of the wrong lot. These errors are caught eventually, but correcting them costs time, can delay shipments, and in the worst cases can damage client relationships or leave the business exposed.
Failed Process Controls
It’s all very well having process controls in your CTRM or operational systems, but as soon as your team are working outside that system, these process controls break down. And the more systems you add, the greater the problem, particularly if different teams consider different systems the “main” one.
A spreadsheet can’t physically check that mandatory documents have been sent, or check the expiry date of a counterparty’s certification; it can only use the information that humans have input. The controls therefore rely on people remembering to check them, and post-it notes are not a risk-management strategy.
Invisible Operational Risk
The most dangerous thing about working around different systems is that you can’t measure the risks you can’t see. You don’t know that there are two versions of a spreadsheet, or that a pricing formula has been overwritten. You can’t easily understand what data manipulation has happened, or why. And when errors do occur, there are more potential points where they could have been introduced, so it can be a difficult process to track them.
Conclusion: Simplify your coffee trading systems now!
From the time spent on manual tasks, to the effort of seeking out information, creating manual reports and fixing errors, disconnected systems and spreadsheet workarounds cost more time and productivity than many would like to admit. And this is before we consider the direct cost of any errors that occur because of these manual processes.
There is a place for spreadsheets in almost every business, including in coffee. And with the complexity of coffee trading constantly increasing, the industry does need to make the most of point solutions that expand the capabilities or improve the efficiency of specific teams – especially when legislative changes mean their data needs to be verifiable.
But the problem comes in when spreadsheets are used operationally, to fill the gaps that these disconnected systems are not addressing, and when the systems lead to more manual processing to communicate the data across teams. This is when disconnected systems and processes involving spreadsheets introduce risk, lead to poor decision making, and create an invisible cost-centre slowing down your entire business.
If this picture looks uncomfortably familiar, know that it is one we see time and again across all commodities. This is why we’ve created a whitepaper specifically for commodity traders looking to unify their systems and create simplicity amongst their complexity.
