What is CTRM software?

CTRM (Commodity Trading and Risk Management) software is specialized trading and risk management software designed for companies involved in commodity trading. Commodity trading is the buying and selling of commodities, the movement and delivery of those commodities, and the associated risk management activities for those commodities.

Commodity traders, processors and purchasers use CTRM software to manage physical trades, accounting, derivative trades, position, mark to market, origination, logistics, risk management, procurement, planning and scheduling. CTRM softs can be used for all asset classes, including agriculture (coffee, cocoa, grains, oilseeds, sugar, rubber, palm, etc.), energy (crude and refined products, natural gas, natural gas liquids, liquefied natural gas, power, coal, renewables), and metals (base metals, refined, steel, scraps, and concentrates).

CTRM solutions vary depending on which commodities are traded, which assets are employed in the business, where those assets are located and what the company’s business strategy and associated business processes are.

Watch Patrick Reames of ComTech Advisory explain the evolution of CTRM/ETRM in this video.

Many ERP vendors are large, well-established companies (SAP, Oracle, etc.) and have been around for a long time. They provide coverage across the business with lots of implementation experience, and if you are a commodities company already using an ERP to manage accounting or other functions, extending its use sounds logical.

Many companies try to adopt an ERP system for commodity management, but very few of these customized solutions are successful. They spend significantly more money than needed and end up with a highly customized system that is impossible to upgrade, expensive to maintain, and difficult to enhance. CTRM systems were developed specifically to address the needs of commodity management.

Commodity management is complicated, and using a system designed for generic business purposes to accommodate all the nuances of commodity management just doesn’t work. While CTRM software and ERP have many common ingredients, they are fundamentally different. The architecture of commodity trading risk management software has been built with the specific needs of commodities companies in mind. ERP systems cannot handle all the unique situations that can occur in commodity management, like, for example, pricing.

Unlike most manufacturing businesses where the price of goods is known throughout the supply chain, unpriced and partially priced positions cause core differences in the way a commodity is bought, sold, shipped, stored, invoiced, accounted for, and valued throughout the supply chain. The way commodities are priced and valued sits at the architectural centerpiece of what a commodity management system needs, and this impacts practically everything throughout the commodity supply chain.

With no defined price, creating a contract in an ERP system is challenging. And, there are so many price types (unpriced, index, NPE, etc.) as well as exchange types that provide creative market prices (hourly, daily, monthly, etc.). ERP cannot handle provisional, prepayment, and final invoices or deal with mark-to-market valuations and constantly changing market prices.

Spreadsheets remain the solution of choice for a lot of commodity trading companies because they are convenient, easy to use and inexpensive. In five minutes you can download a copy of Microsoft Excel for $159.99 – if you don’t already have it installed on your computer. Everyone knows how to use it.

CTRM software is viewed as expensive and inconvenient, requiring months to install with a lot of work from the IT department (while this is not true with a platform approach like Eka, the reputation persists). Also, users need training on the new CTRM system, which takes more time, interrupts work, and makes people uncomfortable.

Spreadsheets may seem like a cheap and easy option for commodity management, but they have major disadvantages :

• Spreadsheets do not capture the all-in costs of a deal. When deals are captured in spreadsheets, the associated costs – including fees for transportation, brokerage, and inspection – are often added separately to ERP or financial systems. Because the information is not integrated, users cannot analyze all-in costs to ensure a proposed transaction is as profitable as first appears.
• Spreadsheets create silos of information. Multiple versions of a spreadsheet often exist, with different people updating and manipulating documents and different parts of the business running and reporting on incomplete or inaccurate data sets.
• Spreadsheets are prone to errors because data is input and manipulated manually. Commodity traders record a lot of information, so there are a lot of opportunities for mistakes.
• Spreadsheets take a lot of time. Someone must manually aggregate and manipulate data to create reports and that time could result in missed opportunities.
• Spreadsheets require advanced programming to create meaningful insights. Spreadsheets were developed to manipulate data, not create comprehensive reports interpreting it.

CTRM software was designed specifically for commodity trading and risk management, so it captures all the nuances of commodity trading. With the right CTRM software, you can manage physical trades, accounting, derivative trades, position, mark to market, origination, logistics, risk management, procurement, planning and scheduling in one system, in real-time, and on-demand. No time is wasted, data is accurate, and reports are timely.