Are you living with unnecessary complexity as a result of the disparate systems you use? Indeed, are your software solutions letting you down when it comes to presenting a clear view of your commodity trading operations? All too often business complexity is compounded by systems and data complexity reducing agility and effectiveness – and increasing risks. Read on to find out how you can readily address this serious issue.
One of the things that makes commodity trading exciting, and the reason why it is profitable, is its complexity. Keeping all the plates spinning, moving fast when opportunities present themselves, and dealing with an ever-shifting commercial environment are all part of this complexity, and provide your organisation with its competitive advantage when done well.
However, the problem with complexity comes in when your internal systems add unnecessary complexity on top. When your teams are all using different systems with no way to connect the dots, responsibility for data is confusing, and reporting is slow or inaccurate, strategic decision-making suffers. And when you have been used to working with fragmented systems for a long time, it can feel normal, making it harder to see what this fragmentation is actually costing you.
When technology fails to connect
A common set-up for commodity traders is that trading teams are working in inboxes, contract management systems, and the CTRM, finance in an accounting platform, and operations across multiple systems and spreadsheets. But common doesn’t mean ideal. Although each system was chosen for a good reason to solve the challenges of the individual team, organisations are increasingly finding that this model creates friction, unnecessary complexity, and risk.
The development of these siloed ecosystems is a natural evolution as businesses grow, but if nobody owns the connections between the systems, data lives in silos and insights live in individual heads. This means that opportunities are more likely to be missed and strategic thinking is limited. Teams are not performing at their best and it isn’t a question of competence – they are being held back by systems and architecture.
The cost of poor communication
Trading and logistics require fast decisions based on information from many different sources. When data needs to be manually gathered from multiple systems or requested from multiple colleagues, decisions slow down and are often made without the full picture. Or, by the time all the information has been received, the opportunity has already moved – even when the information was all held internally.
It isn’t uncommon for commodity merchants to be working to a distorted view as they never have a full understanding of the live situation, but that doesn’t mean it should be the case. And as well as meaning that your decisions are never as strategic as you may assume, if your systems are holding you back, your competitors with unified systems are moving faster.
Risk visibility
Risk managers are not the only people affected by slow data processes and poor risk visibility. The C-Suite need to understand exposure across the entire business, and increasingly need this understanding in real time, not in a report that is already out of date as soon as it is created. And if your trading and operations teams don’t have real-time risk reports, they cannot make the best decisions in their roles either.
Traders may be able to make decisions based on positions and financial information, but if they don’t have connected systems and live data, they may not have a full understanding of allocated/unallocated positions, or the current MtM and Open P&L. And they are unlikely to be using information such as live shipment and warehousing information to understand concentration, market and geopolitical risks. Traders can also be stalled and miss opportunities due to lengthy approval processes whilst risk managers investigate and pull together a more complete picture.
And if operators do not have a single source of truth for shipments and contracts, they cannot act quickly and decisively. During normal operations this means a steady stream of wasted man-hours and inefficiency, but when disruption occurs it can be catastrophic.
Fragmented systems mean fragmented risk visibility. But bringing your systems together and connecting your data means you have a better understanding of the various risk factors and a better basis for strategic decisions than ever before.
Compounding systems limitations
If your systems are unable to communicate, then adding new software can make the complexity issue worse. Each new system, whilst solving a pressing business need, creates new problems in enforcing data silos or adding more manual steps to the reporting and data-sharing process.
Technology should be an enabler of business growth, not a barrier to it. If you find yourself asking whether your systems can handle a new commodity or geography, you are already limiting your strategic agility.
The Commodity Management Systems with the greatest interconnectivity tend to be the more modern, flexible systems that are designed to grow alongside your business and integrate new ways of working and new software as you grow. This technological agility means that your systems become an enabler of growth rather than a constraint.
The power of systems integration
When all data flows automatically into one system, decision-makers see the complete picture immediately. They have a 360° view of all operations and risks across the business, with the modelling to understand how a decision or disruption in one area affects the entire operation. With this strategic visibility risk management shifts from being reactive to proactive.
Integrating technology systems to provide simple data flows across the organisation also simplifies risk modelling. Teams can understand the live view and any what-if analysis they carry out, meaning that traders and risk managers have the confidence to say “yes” to opportunities because they have a real insight into what the decision truly involves.
When teams are all using the same live data, coordination becomes much more automatic. Information flows naturally between teams without the interruptions of meetings and email chains, meaning more time for strategic thinking and less time wasted managing information handoffs. Creating simplicity in your data flows therefore creates a level of strategic agility that becomes a competitive advantage.
Moving from complexity to clarity
When you are used to complex, fragmented systems, new software can feel like a big undertaking, even when the advantage of bringing everything into a unified system is clear. But the good news is that modern Commodity Management Systems are not only fast to implement, they are also designed to integrate with your existing systems. You can therefore work with your technology provider to explore which systems you would like to keep and how you can get more from them by incorporating them into your one connected platform.
Many mid-size commodity traders are making this shift right, now, recognising that simplifying and integrating their technology presents a real strategic advantage, not just operational efficiency. And as the pace of technological change accelerates, with an increasing number of AI tools specifically for commodity traders, the gap between those whose technology powers innovation and those held back by their systems is only likely to grow.
Conclusion: Creating simplicity is less complex than you expect
Commodity trading is complex, but your systems don’t need to add to that complexity. Indeed, connected Commodity Management Systems can remove unnecessary friction, improve communication, and simplify your workflows. All leading to faster, more agile operations, and improved strategic alignment across your organisation.
A connected Commodity Management System allows you and your team to understand your true exposure, your true capabilities, and your true opportunities in one single source of truth. Creating a real competitive advantage for those who can see clearly and move quickly.
To explore how Gen10 are helping other commodity traders simplify this complexity, download our whitepaper now.
