Effective commodity trading is built on data. From traders accessing market and pricing data, to risk teams and managers understanding exposure at different levels, data protects and powers profitability. And looking to a competitive future, the business’ very survival could well depend on its ability to manage and analyse data better than its competitors.
Commodity traders access, and generate, vast quantities of data every day, but this does not necessarily make the data useful. Accurate and profitable data analysis can only happen when the relevant data is available to those who need it, in the right format, whenever they need it. And for all the progress that has been made in digitalising commodity trading processes over the years, data remains an area for continuous improvement, rather than a goal that can ever be truly completed. Wherever your organisation is on a scale of data maturity, there are always more results to be gained from better software, processes or skills.
Doing better with data automation
Before your organisation can unlock the potential of data analysis, you need to ensure your data management strategy is laying the right foundation. Most of these improvements can be made by either modernising your commodity management software or processes, or by improving data flows between different commodity management systems (such as your CTRM and ERP) so that data can be automatically shared between teams as it is created.
How does commodity management improve data capabilities?
- Saves time
- Reduces errors and omissions
- Improves transparency
- Connects reporting
- Creates a secure data hierarchy
- Decentralises data
Administration is not only frustrating for busy traders, it also diverts their time and energy away from their core activities that create value for your business. Automating data flows between teams means that busy traders and operators do not need to spend time updating reports or retyping information they have already entered elsewhere.
Automating data flows also saves time for the teams who need to receive information. Risk managers know traders’ positions without waiting for a report, and traders can instantly see approval information without interrupting the risk team to ask – saving time and reducing friction between teams.
Reduce errors and omissions
Similar to the time-saving benefits, a good commodity management system can help reduce the errors and omissions that inevitably occur when manually copying data between systems. An effective commodity management system uses the information input to automatically update records elsewhere, such as by using shipment and inspection data to automatically create and send invoices.
Different commodity management systems confer different levels of protection against errors and omissions in how they manage data. Those using spreadsheets are at risk of accidentally using the wrong copy of a document or overwriting formulae, as well as the risk when copying information. And organisations using older CTRM or ETRM systems may still need to copy information into the system before it can be used for risk management, so the risk remains present.
But at the higher level of data maturity, Gen10’s CommOS allows your teams to carry out many of the processes of commodity trading within the system automatically, reducing errors, and includes controls to highlight any missing data too.
Every year, transparency becomes more important in commodities. Pressure to prove compliance with ESG standards is coming from all angles; from internal stakeholders, to clients, banks and legislators. And the operational, legal and reputational risks of poor transparency grow with each new initiative.
Automating data flows in a good commodity management system creates an audit trail across your operations. The system can match purchase and sales contracts so that provenance can be shown, and systems like CommOS also manage certification documents and include workflows that ensure all mandatory documents are attached to a contract or shipment. This data transparency benefits internal auditing, improves processes for regulatory reports and makes it easier to satisfy client demand for traceable products, as well as sharing data faster and more easily between teams.
Connect systems and reports
Good data management means being able to access it in whichever system your people need, whether that’s a commodity management system for completing trading workflows, an ERP, or dedicated BI software. By connecting systems with live information flows, data is available in the format each individual needs it, whether that’s a trader checking a dashboard, a high-level management report or a complex analysis using BI tools.
Connecting disparate systems and reports is possible but can be one of the biggest challenges when trying to get more from your data; formats and fields need to be standardised, data needs to be updated regularly and your people need to be confident that all systems are accurately reconciled.
It is therefore important to ensure your systems can integrate, and that your software partners have flexible tools for these data flows, so that you can connect any future technology investments into your existing software ecosystem. For example, Gen10 use APIs to connect our clients’ data between CommOS and their ERP and BI systems, so that they have real-time access to all data, whichever system they are using, and the flexibility to grow their ecosystem as the business evolves.
Create a data hierarchy
Collating large amounts of data means that information security is even more important. Data from different sources may need to be restricted to certain individuals, whilst still enabling others the access they need to perform their role better. If your commodity management system has the appropriate controls, you can create data hierarchies and role-based access so that everyone has the access they need and management teams can gain an unprecedented view of your entire operation, whilst creating better controls and security around your data.
Creating effective data management processes using the right technology ensures that data belongs to everyone who needs it. Connecting your commodity management technology with real-time data flows decentralises data so that the people who need a certain piece of information for their role have access to it, in whichever system and format they use.
This decentralisation is underpinned by the fact that the automated data-sharing processes create an ongoing record of all changes to data so that teams have a clear audit trail and can be sure that the information is up to date.
Decentralised systems operating as one ecosystem can also lead to smarter ways of working with data. By connecting data flows across disparate systems, each business unit can operate in the software and manner that is best for them, with data flowing seamlessly to the other teams.
The benefits of data management for commodity trading firms
- Real-time clarity across the trade lifecycle
- Reduced operational risk
- Improved traceability
- Better assurance for partners
- Better financial risk management
- Improved agility
Across the business, every team can make better decisions if they have better access to relevant, timely data. Traders, operators and risk managers are all interdependent on other teams to be truly effective in their roles. If your data management processes can share the data each team generates as they are creating it by carrying out their role, administration and friction is reduced and each team has a better overview of the critical information they need to carry out their own role.
This clarity provides confidence in decisions and means that teams can operate without interrupting others with routine queries, so that communication can focus on unusual cases and new opportunities, whilst your teams have more confidence in the decisions they are making due to pre-approvals and automated approval processes.
Reduced operational risk
As mentioned above, automating data flows reduces the risk of errors and omissions so has a significant impact on your organisation’s operational risk. Depending on the technology you use to manage your data, this reduction in operational risk can be even greater.
For example, CommOS includes a central document store that can automatically attach incoming emails to the correct contract, and shared tasks, calendars and reminders so that all team members are aware of any potential delays. Workflows ensure that information is always passed on to the correct team at the correct stage in the process, which reduces the risk of unauthorised activities as well as making processing faster and smoother.
The increased transparency that comes from effective data management also improves traceability. With systems like CommOS that match purchase and sale contracts, and include inventory and warehouse management at all stages of the commodity management process, all the data you need for traceability is quick and easy to access. And by completing all activities within the commodity management system, your team automatically creates a full digital audit that can also be used to verify traceability data.
For many reasons, trade finance is becoming harder to access, and traders increasingly need better data on their own and their partners’ activities to provide assurance to finance providers. And with an ever-increasing focus on ESG across the supply chain, other partners are beginning to expect better traceability, more sustainability data and better assurance.
Having the commodity management systems in place to manage this data can therefore play an important role in making your business a partner of choice. Once again, it is not enough to simply have the data within your organisation, it needs to be accessible to your people and in a format that allows for the secure sharing of only the relevant information with partners, to avoid introducing risk to the business.
Better financial risk management
Providing real-time data to risk teams allows them to manage risk like never before. When it comes to hedging, effective data sharing allows your team to instantly view any open unhedged positions and quickly take the appropriate actions. Hedges can be adjusted based on granular information, without the need to wait hours or days for manual reports.
And traders can also respond better to market movements if they have all the data to hand and a commodity management system that lets them carry out fast analysis of potential scenarios, generating increased opportunities for profitability as well as protecting against financial risk.
Effective commodity management systems allow you to be more agile in how you manage and use your data. And this data agility is in turn a cornerstone of business agility. In a competitive, volatile commodity trading environment, where disruptive shocks are all too common, the ability to respond to new information and new situations can be a significant advantage, whilst those who are slow to respond are left behind.
However well your organisation is using data right now, there are always improvements to be made as the data landscape continues to evolve, client expectations develop, and your people find more innovative ways to power profitability by using the data they gain access to.
As your data needs evolve, your commodity management technology needs to be continuously evolving too, whether that is in the form of new processes or systems, or finding ways to create better data flows between your current systems. Having the right technology in place makes data management a core competency of a business and allows your people to make better decisions from your proprietary data so that they can protect profitability and act with agility, no matter the challenges they face.
If your commodity management technology is keeping you from unlocking the potential of your data, explore how CommOS can help you do more.
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