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Author's profile photo Marko Lange

4 Issues with current commodity management systems

Commodity management is an integral part of the chemical industry.  Probably it is the only industry which buys and sells commodities while other industries are doing the one or the other only. As the commodity converter between producers and consumers chemical companies must ensure they accurately plan, forecast and purchase commodities. This blog will explore four issues that are present in most of today’s commodity management systems.

1. No integration with Physical and Financial systems.

Due to the lack of integration of physical and financial systems with the commodity management systems companies risk storing inaccurate or redundant data. Storing redundant data leads to time consuming activities sorting the appropriate data (keeping risk managers from doing their actual job) and inaccurate data leads to potential financial risks.

2. Daily or weekly extraction of physical commodity management system data

In today’s volatile global market commodity prices are constantly changing. By only extracting prices daily or weekly companies could be at risk for inaccurately identifying profits and forecasting revenues. This could be detrimental to companies who rely on these commodities for profits. 

3. Spreadsheet based risk management solutions

Many problems arise when using spreadsheet based risk management. First of all, one must question the integrity and quality of data. As specified earlier global commodity prices are constantly changing and unless someone is updating these spreadsheets 24/7 they are storing inaccurate data. In addition, they more times than not fail to record commodity price history which allows companies to view trends to better forecast future prices.

4. Physical pricing rules & calculations manually performed outside system 

If calculations are manually performed outside of the commodity management system the final reporting done by the company will be inaccurate. These calculations will not take into account the contstantly changing prices and therefore will be innacurate as soon as this information changes. By performing the calculations in a system that takes into account the constantly changing prices managers will be able to have accurate information to present to management and make business decisions

These 4 problems are seen all too often in the broader chemical community. Some may think a commodity management system is too expensive or not worth the investment. However, quite the contrary a commodity management system in the chemical industry can propel a company to make intelligent business decisions and increase revenues and profits.

Have you experienced these issues before? What other problems can you see with current commodity management systems?

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