To explain the importance of platform-ready commodity management (including CTRM) systems, we need to begin with what platforms are. In technology terms, a platform is simply the group of technologies that other apps and processes run on.
Today, we are specifically discussing the growing number of platforms that aim to enable commodity traders to share data and documents between organisations more readily. The most well-known platforms at the moment are the different blockchain solutions, with several Proofs of Concept making headlines, but there are other options too.
There are currently many blockchain initiatives in the commodities space. Each is usually run by a consortium of companies with a shared interest, usually in improving the flow of information and documents between organisations in a specific process. For example, in 2019 Gen10 joined a consortium specifically to streamline repo deals in metals trade finance. This solution reduced a process that frequently takes days down to 5-minutes and was carried out on a mobile phone.
Other consortia are looking to solve different commodity trading challenges using blockchain platforms. The specific activities carried out on each platform can vary, as can the commodities involved, but most are currently focused on the activities that cause the biggest delays in turnaround times for a particular commodity and have a large impact on working capital and employee time.
Collaboration is key
Platform solutions are ultimately attempting to improve collaboration between organisations. There are many benefits to this collaboration; to processes (such as improved document management), and to the business itself through more efficient transactions, decreased person days and reduced operational risk. Removing duplication and manual effort from any stage of the trading workflow reduces the risk of errors and omissions, also reducing the risk of penalties, the costs of delays and the time spent correcting the error.
Improving collaboration across partner organisations has many other benefits too. It improves transparency and traceability, such as through a blockchain providing an unchangeable record of past transactions. This transparency is one of the major selling points of blockchain in particular, as it reduces the need for trust between counterparties; there is an audit trail of all changes so organisations can identify unusual activity with ease and are less susceptible to fraud.
Sharing data with an immutable digital audit trail, no matter the platform, may help to further reduce manual paperwork and can help provide trade finance partners the information they need to quickly finance deals. By reducing risk, processing times and friction between organisations, collaboration can even improve profitability.
Blockchain might not be the answer
Despite the benefits of collaboration, and a slow but steady growth in organisations accepting the need for standardisation, blockchain platforms may not be the answer. There are several reasons why blockchains are yet to take off, including their high power demand and limits on how frequently transactions can occur. And as with any new technology that relies on standardised processes and collaboration, generating consensus within the industry will be vital – a challenge that has proved insurmountable in numerous past standardisation initiatives.
Organisations that have not already joined a blockchain consortium have many options available to them but may prefer to wait and see whether one platform becomes the industry standard, or indeed whether any become commercially viable.
Another reason why blockchain platforms in particular may not be successful is that many data flows are bilateral, with only two parties involved, such as between a trading company and its insurance provider. An entire chain-of-custody blockchain, with its intensive demands, is not needed in these cases, and other platforms may be a better fit.
If a platform does gain traction with a significant number of organisations, and does solve a particular problem for them, there will still be many other challenges within commodity trading that it does not yet address. It could take years for platform providers to build functionality to address these other challenges, or they may decide not to cover every use case that arises.
And even if a future platform does cover every transaction between organisations, there will still be many business processes that will need to be carried out off-platform for organisations to actually run their business; inventory management, logistics, shipping and other core processes will be sources of competitive advantage for those who have the best commodity management software.
Platform-ready commodity management means you are prepared
Although we do not know which platforms will be successful, the industry is certainly moving in a more collaborative direction. If platforms become the technology of the future in commodity trading, platform-ready commodity management software will be essential for the day-to-day activities of running your business. Without an integrated CTRM, the platform becomes another website where team members need to log in and fill in more forms to get their work done. This would not only take valuable time, but also reintroduce the operational risks that arise from manually copying information between systems.
Because platforms are still in the early phase of development, and we don’t know when/if one or a small number will become an industry standard, when considering CTRM and commodity management systems, future-proof your technology by ensuring it is platform-ready. By selecting a flexible system that is designed to integrate with other technologies and platforms, you can ensure that this system will remain relevant and continue to support your business as you bring new platforms online.
Whether the future of commodities is blockchain technology or not remains to be seen. But what is clear is that transparency, traceability and smooth inter-organisation data flows are becoming more important than ever. Organisations looking to maintain their position in the future competitive landscape need to prepare for greater collaboration now. Collaborative core CTRM systems with flexible integrations to internal and external software mean you are ready to adapt to the technology needs of the future as they arise.
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