Managing contract risk management in commodity businesses

18 August 2021 | BLOGS

Managing contract risk management in commodity businesses

18 August 2021 | BLOGS

In recent times, risk management has become critical for enterprises. They face significant risks from market influences that impact prices and supply and demand;  internal factors such as a breakdown in processes, systems, or ethics;  or other external factors related to weather. Over the last year, the unprecedented disruption brought about by the Covid-19 pandemic coupled with high ESG (Environment, Social, and Governance) pressure has heightened the risk perception.

Given the volatility of the current environment, the ability to manage contracts such that they are flexible through the product’s life and equipped to address and account for the changing risk profile is critical. A study by world commerce and contracting found that good contract development and management could save a massive 9% average of a company’s annual revenue.

As awareness of enterprise risk grows, enterprises are changing their focus in software procurement to include contract management, CTRM/CM, and risk analytics. While companies have several methods to monitor, predict and prepare themselves to manage risks, automating their processes provides a systemic way to ensure transparency and deliver optics for executives.

For contract risk management, specifically, there are three important considerations that enterprises must note:

Volume management

During the settlement phase of any contract, the presence of a  robust platform that supports various contract rules comes in handy. This helps manage large volumes of transactions and their contractual dependencies at each stage, including payments and receivables, tax compliance, while ensuring high system performance.

Supply chain tracking

The availability of up-to-date, relevant data gathered from as far back in the supply chain as possible can help pre-empt risks and monitor contractual compliance. Smart commodity management software solutions using 3D technologies for inventory management and material tracking can track cost components throughout the entire supply chain to better manage settlements.

Technology integration

Since multiple processes impact contractual compliance, a fully integrated technology platform can effectively deploy risk controls that automate dependencies on various departments. This integration is necessary within a company, external applications, technologies from partners, vendors, and ecosystem players that bear enterprise risk. This means integrating external systems to post the accounting entries like material/service invoices, general ledgers, and cashflows via outbound APIs. Also, inbound APIs can enable the tracking of payment receipts from external systems against accounting entries.

With the analytic possibilities offered by unified data across streams, tools such as contract risk dashboards can be created for management optics. Data-driven insights can enable not only risk management but also increase productivity.

A platform approach to CTRM/CM allows for adaptability and resilience, creating a future-proof solution where new components can be added, as well as a robust system to manage the contractual risks of daily operations.

To learn more about how Eka can deliver contract risk management effectively while ensuring high system performance and comprehensive supply chain tracking, click here.

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