Commodity Trading and Risk Management

Introduction
At Sense we understand that commodity traders place extraordinary demands on their business systems because of the fast changing markets and the fact that traders thrive on data and generate lots of it.  It’s an industry that also needs to control and manage risk.

Understanding the status of positions, contracts and valuations just isn’t possible using spreadsheets alone. Managing trades and achieving a sustainable profit margin requires something more.

Through our work in the agricultural markets we started to explore the potential solutions for other commodity trading clients and in 2008 we became a partner for Microsoft Dynamics AX for Commodity Trading, developed by Scalable Data Systems of Australia.

Sense have worked with Scalable since 2004 through AxPact (Scalable are the AxPact member for Australia) and have a strong working relationship. This has lead to Sense securing the sole distribution rights for the UK and Ireland.

Introducing Microsoft Dynamics AX for Commodity Trading
Microsoft Dynamics AX for Commodity Trading is a software and services solution that addresses every aspect of the commodity traders’ business, from standard business and finance functionality through to trading-specific processes.

Built on the Microsoft Dynamics AX software it gives traders the tools they need to keep on top of the market; delivers finance the control to manage risk; ensures execution is equipped with the information they need to follow through on each trade; and provides IT with the reliability and performance of the worlds best selling, industry standard business management system.

Commodity Trading and Risk Management – Overview

Control Management
The trading of commodities is a complex business. There are many factors that can have a direct impact on the profitability of a trade – some within the control of an organisation but many outside an organisations control.  For example, a hurricane damaging a coffee crop.  It is therefore essential that a company manages and controls those factors that it can directly influence.  One of the key areas is the management of costs which in turn are reflected in the overall profitability of a trade.

A successful trading organisation needs immediate access to accurate and up to date information related to their contracts, logistics and risk positions.  In the fast ever changing world of commodities this means a company can only be more pro-active.

The most effective way of achieving this is to have all information stored centrally in a fully integrated solution that can be used by all departments in an organisation.  Information can flow seamlessly from one department to another – from trading to logistics to finance – improving efficiency and communications.

Supports the Full Life Cycle of Contracts
Commodity Trading fully integrates commodity trading with Microsoft Dynamics AX and financial processes.   The Commodity Trading solution leverages the full business functionality of Microsoft Dynamics AX and complements it to meet the requirements of commodity trading.

Commodity Trading provides an integrated solution for contract administration, shipping/logistics, inventory management, financial integration and reporting.  All trading contract information is available in real-time and the solution supports the full life cycle of commodity contracts.  An innovative Risk Dashboard allows real time information about futures, options contracts, hedging and foreign exchange positions.

Flexibility and Better Communication
Although most companies have common commodity trading requirements, some commodities require specialised functionality.  Commodity Trading offers the flexibility to address special requirements in areas like, documentation, advanced logistics or compliance.  Commodity Trading provides both the flexibility and control to trade successfully and real-time access to contract and logistics information supports better communication between departments and with suppliers.

Advanced Feature Summary

• Track contract through the full life cycle from initial booking to invoicing.
• Time saving contract entry and administration.
• Compare contracts with daily market prices for mark to market valuation.
• Contract spreads across several delivery periods.
• Quality based price adjustments (bonification).
• Workflow rules for the generation of shipping documents.
• Advanced logistics with site scheduling, movement instructions and load management.
• Logistics schedule with an overview of movement of goods, route and cost information for transports.
• Set up and management of customer specific logistics documents.
• Invoicing on behalf of commodity vendor freight companies, self billing invoices or RCTI.
• Full integration with financial routines in Microsoft Dynamics AX.
• Risk Management, futures, options, limits and letters of credit.
• Handling of multiple currencies.
• Integrated to the Transport Management System for full control of inbound and outbound shipments.