Managing risk and regulatory compliance in your CPG manufacturing supply chain

Markets are volatile, risk-prone, and complex even in the best of times. The pandemic has, however, pushed risk management to top of mind status for all organizations, especially those engaged in producing and consuming commodities, such as the CPG industry. While the pandemic will likely subside eventually, the myriad of risks – whether internal, external or environments – will continue to persist.

Companies need to find new ways to deal with risk management, not only through better processes and increased vigilance, but by making the necessary technology investments.

According to a recent McKinsey survey, over 73 % of organizations encountered problems in their supplier base, and 75 % faced problems with production and distribution due to supply chain disruptions caused by COVID-19. These numbers are as high as 91% and 100% in the case of food and consumer goods industries as they struggled with international border closures, factory shutdowns, labor shortage, and food wastage/losses.

In general, environmental risks posed by large-scale climate events such as flood or drought or locust attacks are always challenging. In addition, there are market related risks influenced by abnormal changes or perceived rapid changes in supply and demand in the short-term. While these risks are often beyond the control of organizations, gaining required visibility and insights into their operations allows them to respond better to these risks.

The pandemic simply exposed the vulnerabilities when it came to addressing supply chain disruptions.

Dated and disparate data systems, cumbersome spreadsheets for reporting, and legacy technologies and manual workflows make it difficult for most organizations to manage risk and compliance. Some of the challenges are:

• Scattered systems with data spread across multiple systems to manage demand forecasts, and associated physical and derivative contracts
• Complexity of managing derivative life cycle in legacy systems with a number of manual touchpoints and spreadsheets
• Multiple stakeholders and specific asks from different business owners with differing KPIs
• Manual and complex reconciliation of derivative deals and accounting entries as well as manual/MS Excel-based risk measurement and monitoring
• Complex and manual procurement since workflows are managed through multiple siloed databases for a large set of suppliers and materials

Consolidation and automation of risk and compliance workflows play a key role in facilitating informed risk assessments, better management of derivative trade risks, PnL ,valuations and regulatory reporting. It also helps ensure better risk management with advanced VaR and hedge accounting applications, what-if scenario-based trade simulations, and extended analytics capabilities.

Automating risk and compliance workflows is key to enabling useful and actionable insights on the consolidated data. Sophisticated APIs on cloud driven solutions help consolidate data into a single platform. This means consolidating physical and derivative data from disparate data sources through integrations with ERP, legacy systems, banks, brokers etc. provides you a holistic view of physical and derivative contracts.

With advanced VaR analytics and near real time position and P&L data views, organizations can monitor risk exposure and assess the impact of derivative mark-to-market on their portfolios. In turn, this enables them to make informed decisions and changes based on market dynamics to optimize operations and maximize profits.

Making the shift away from manual processing in spreadsheets to a digital platform is key to enabling automation. By automating the derivative life cycle, accounting, risk management and regulatory reporting processes, organizations can benefit from unprecedented speed and accuracy.

Take the case of a leading British multinational consumer goods company that we worked with recently. With legacy and disparate systems operating in silos, teams were spending over six hours every day to reconcile statements on spreadsheets for future ETD trades. This was because the data was trapped in disparate systems, which made hedging decisions and reporting complicated.

The company implemented a set of platform-driven solutions including Hedge Accounting, Derivatives, Reconciliation and Risk & Monitoring, all designed to provide complete visibility into a business’ overall exposure. The solution helped the CPG company improve accuracy, while ensuring speed with automation. This not only resulted in 15 – 20 days’ worth of effort saved each month, but also helped accomplish accurate reconciliation in minutes.

With data from disparate sources centralized into one place, the company could operate instantly on a foundation of connected data. In doing so, the company eliminated concurrency and visibility issues, giving users more control over their operations and to manage risk. Overall, the company found itself better equipped to analyze hedge relationships and increase visibility, efficiency, and control in risk management.

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Identifying potential threats early aided by proper risk controls and procedures plays a pivotal role in guarding companies against every kind of threat – whether internal failures or external catastrophic event.

Commodity-centric companies will particularly benefit through technology-driven solutions that can unify their data systems, provide a holistic view and a single source of truth into their enterprise risks at every node of the supply chain – from production to delivery to end-consumer.

Click here to know more about Eka’s Risk and Compliance solutions and sign up for a free trial.