Metals trade finance needs better inventory management

Commodity trading is not simple and does not fit within the tidy space that ERPs are designed to fill. Traceability, managing workflows from contracts to payment, and trade finance are all tasks that traders are used to carrying out but that an ERP just isn’t built for. Even before adding in the assays and pricing structures for concentrates, metals trading is complex, full of exceptions, and if you get it wrong, can be very expensive.

Traders have become experts in creating processes and workflows to manage these complex requirements outside of the ERP, often carefully using spreadsheets, calendars, post-it notes and collaboration tools to manually progress the digital representation of their physical inventory’s movements. And rather than being supported by a CTRM or commodity management system, they are also often hampered by a repository-style CTRM. These older systems add more tasks since they need to be updated manually, increasing the risk of something going wrong and data errors.

Trade finance is changing

Gen10 recently explored the factors changing trade finance, and how the industry is reacting to them, but the overarching theme is that traders will need to be able to provide greater assurance to trade finance providers; both through better inventory data including traceability, and through having demonstrably robust risk management processes.

How commodity management technology improves inventory management and trade finance

The first thing to understand is the distinction between older repository-style CTRMs (that were designed to manage risk and relied on traders updating the system after they had performed actions in the real world), and modern CTRM systems that help trading teams manage their physical processes, such as by automating workflows and pricing calculations. Commodity management technology takes this automation and support further, by extending it beyond the purview of the typical CTRM, to include areas such as shipping and logistics alongside contract, CRM, risk and pricing management.

The inventory management features of Gen10’s CommOS commodity management system provide exactly the visibility, traceability and shareability of data that are so vital for organisations looking to engage in trade finance agreements in future.

This inventory management starts with the capacity to manage both large and small lots. Granular data management is becoming more important than ever in trade finance, and with CommOS, stock can be assigned down to the level of an individual coil or pallet. And of course, large bulk shipments can be easily managed too, such as through the ability to add multiple assays to a lot within the system and automatically calculate its new pricing if this lot is split or combined with others in future. From whole vessels to individual units, gain a complete view of your inventory quality data and trace inventory through your processing and operations with a full digital audit – automatically created without any additional input from your team.

Improving the processes – not just the data

The data to perform tasks and secure trade finance is important, but it is enhanced by even more useful functionality; the ability to actively manage inventory in the one cloud system. Real-time visual inventory controls include client credit lines and KPIs, live location data and facility capacity. And because contracts and inventory are managed within the system, rather than using it for after-the-fact reporting, there are also controls on actions, such as alerting system users if they assign too much stock to a shipment or contract, or if they assign an incorrect grade.

Weight management includes the ability to easily add inspections into your workflows and update stock records as a result. And quality data can even be automatically updated by integrating your technology with laboratory systems. Losses & gains are simple to manage as a result, and include the ability to write off stock when required so that your systems reconcile and reflect your real positions at all times, whilst maintaining a complete audit trail. As well as making inventory management easier than ever, these controls create a complete digital audit of each action against a contract, giving your partners the insights they need too.

All of the above controls and automations allow your team to make better pricing and allocation decisions by limiting the potential for error and automating time-consuming manual tasks so that your team can run quick what-if analyses and focus on getting the best results. This not only provides better opportunities for profitability, it also demonstrates the high level of checks and controls that reassure finance providers that your organisation is managing your assets and risk to a superior degree.

Managing physical inventory

Managing physical commodities in the real-world is also much easier with a commodity management system. CommOS reconciles with your storage facility, or compares storage reports with your system data, at the lot-by-lot level so you know exactly where your assets are at all times and your available storage at each location. This gives you the foresight to plan and pre-allocate shipments, and change them as needed. CommOS can support LIFO or FIFO allocation strategies, and gives your team at-a-glance data that allows them to make the most profitable allocations. Vessel tracking integrations continue these granular details of your cargoes’ locations even when at sea.

CommOS also allows you to manage materials as they are processed – both your own and any tolling you carry out. It is also easier to handle errors when they do occur when you have a commodity management system, such as handling damaged goods, returns, and when the wrong units are accidentally packaged at the depot.

Ultimately, commodity management technology provides your people with a better understanding of your physical risks, trade finance and operations, leading to better management of your physical cargoes. Commodity management on this scale likely spans several teams within your organisation, which is why collaborative commodity management is so important. All individuals can see the information relevant to them in real-time as colleagues make changes and can be notified when contracts or shipments enter the phase of the workflow they are responsible for. These collaborative tools are even more important in the remote workplaces of today where businesses need to act and think on a global scale, and staff no longer work from fixed office locations.

Inventory management supports your organisation in a wide range of ways, all of which contribute to a more efficient trade finance process and better assurance for trade finance providers. And commodity management technology can also integrate with banks’ technology to provide clear and auditable data on trade finance obligations, restrictions and controls.

Inventory management using commodity management technology has many benefits for metal and concentrates traders; improved collaboration, control and even profitability are just some of them. In the past, inventory management has not necessarily been seen as a competitive advantage when it comes to trade finance, but views are rapidly changing and this is an area you need to get right.