October 2019
TRADESPARENT Palm Oil Business Package
A Contextual Outlook
One of the joys of operating within commodity markets is to find innovative solutions for common industry challenges we face in our day-to-day. Virtually every commodity professional has reached a crossroads when solving the recurring puzzles of how to manage physical and financial books as a single portfolio, how to model different asset classes, contract types and unit of measures to achieve a single reporting standard, or specific to processing businesses, how to model the inherent supply-chain (transformation) net exposure both from a raw material and finished good perspective.
The latter will sound familiar if you have read TRADESPARENT’s latest whitepaper on Dynamic Margin Management (DMM) ™, where we addressed the concept, applicability and added value of extrapolating internal and external data sources to holistically model the exposure and performance of industrial operations.
Given the current context and future outlook of the Palm Oil industry, this topic could not be more relevant. Throughout the years, tighter margins have generated an increased need for more optimization along the full supply chain, an imperative condition to stay competitive and manage/secure margins. To this extent and on a positive note: not only is it possible to observe how palm oil businesses are already running more complex portfolios by using different financial instruments for hedging and risk-diversification purposes, but it has also been great to see how the awareness towards the future role of technology is generating exponential interest on pursuing digital innovation.
Is your Data aligned with your Business Model?
With every digital innovation initiative, we always advise to begin with analyzing the known essentials before entering the vast world of reporting and analytics. Specifically, to the Palm industry, a good place to start is to wrap your mind around three key inter-related areas:
Do you already have your portfolio data available, from upstream to downstream physical forward books, to plantation and inventory information across internal/external storage locations, to your exchange-traded hedge or spec books?
Do you have your yield, blending or BOM (Bill-Of-Material) data organized and aligned with the Master Data of your various front, mid and back-office systems?
Do you have a clear view on your upstream or downstream net exposures after modelling the yield and blending structures, considering that you might be structurally short or long respectively?
For many industry veterans, these topics might seem trivial. Nevertheless, it is common to oversee these areas and at TRADESPARENT, we cannot stress enough that getting these basics right is the key to long-term success and sustainable growth.
It is also important to note that the absence of any of the above points is not necessarily a blocker for your digital transformation efforts! Considering that Rome was not built in one day, it is important to acknowledge that having a clear and ambitious vision on data strategy combined with adequate awareness about the current company data availability – regardless of its completeness - is the actual stepping stone that sets the progress in motion which is required to meet your goals and objectives.
Meeting the Demand for Innovation
Luckily there is no need to start from scratch and reinvent the wheel. TRADESPARENT’s Palm Oil Business Package is a direct answer towards these imminent business and/or data challenges we talk about, and specifically addresses the pivotal concepts within digital innovation that are relevant for the sector:
Connecting as an overlay of your various front, mid and back-office systems and filling their gaps and limitations;
Getting a grip on Positions and Performance across every level of the supply chain;
Modelling processing/industrial operations holistically to ultimately optimize margins.
Through our expertise in global commodity markets and working experience with the world’s largest Palm Oil processing and trading houses, we have created a Business Package combining elements from TRADESPARENT’s Positions & Performance and Dynamic Margin Management modules to achieve an off-the-shelf configurable solution meant for medium and large enterprises operating within the Palm or Lauric complexes looking to take the next step in their technological innovation journey.
Needless to say, different business models and management styles require different approaches to handling and reporting data. This remains one of the main differentiating factors and reasons to opt for TRADESPARENT, as it is a core principle once again upheld by the way the Palm Oil Business Package has been structured: a solid platform containing all the building blocks fit for flexible data and reporting integration along the lines of “configure, not build”.
How Does It Work?
COLLECT
As usual, it all starts with Collecting by properly configuring the different data sources you have available. TRADESPARENT provides different solutions to achieve this: standard connectors, user-friendly API’s and other state-of-the-art technical integration methods that defy the industry standard of limiting companies by enforcing global templates.
In our view, there is no strong argument for “not being ready to start”, in the same way that enforcing usage of a global template is more and more becoming a utopia that distorts creative thinking.
When it comes to data, analytics and the wealth of information that can be extrapolated in the context of today’s pressured markets, the only way forward is to get started and take firm steps towards your long-term goals.
TRUST
Once your data sources are connected, it is time to Trust your data and go through the exercise of data mapping and business logic configuration. This is where your business model comes more prominently into the picture and raw data gets mapped/configured to your different master data hierarchies and yield/blending formulas to achieve an optimal configuration that is perfectly aligned with your business.
By having this end-to-end structuring of data in place, including TRADESPARENT’s standard Data Control and Reconciliation features, the base setup is concluded, making you one step closer to achieve your end-goal!
ENGAGE
The most exciting part of any of our solutions is the way in which TRADESPARENT allows you to Engage with your own data.
Within the Palm Oil Business Package, we have packaged a broad list of comprehensive products that touch on the key areas of attention:
Positions & Performance: Position Reporting
Monitor, report and manage positions both from an outright (balance-sheet) or yield-equivalent (yield-adjusted) perspective;
When looking at yield-equivalent positions, have the flexibility to switch between an upstream (raw materials) or downstream (finished goods) view;
Ability to configure different yield structures per different regions, plants, products and more, to capture the reality of your processing activities.
Positions & Performance: Performance Reporting
Setup as many price-curves as required using TRADESPARENT’s Price Curve Builder and Price Catalogue;
Connect your price curves to your positions effortlessly and transparently;
Achieve multi-currency and multi-asset class Daily Profit and Loss calculation, in line with your managerial or statutory reporting methodologies.
Figure 1: Shows a combined overview of Positions & Performance for a Crude Palm Kernel Oil trading book, as per the forward term structure (execution periods).
CPKO – Trading Position – Figure 1
Dynamic Margin Management: Plant Margin
Extrapolate your enriched Positions & Performance data in TRADESPARENT to holistically view all your margin components and respective fluctuation, allowing you to make better decisions and lock in better margins from an Upstream mill perspective.
Get a better grasp on your procurement and processing requirements, considering both your internal and external raw material inputs.
Dynamic Margin Management: Sales Margin
Understand your supply-chain margins and breakeven levels better;
Comprehend and optimize your daily sales and production planning through AI-driven proprietary engines;
Improve your commercial synergies to improve your margins from a Downstream sales perspective.
Figure 2: Shows a volumetric overview of a Palm and Lauric portfolio, representing month-by-month both the actual (outright) contractual exposure of Main products and the yield-equivalent (implied) exposure deriving from their respective Crude and Refined products contracts.
Position – Yield Equivalent – Figure 2
Why Work Differently?
TRADESPARENT’s Palm Oil Business Package, through its innovative, flexible and quick-to-implement features is providing processing and trading companies with new solutions for old challenges.
This off-the-shelf solution can be implemented within weeks, without major starting requirements nor disrupting your daily operations, and includes all the right tools required for Palm business to be in full control of both their operations and their data.
