It is estimated that 90% of companies with large commodity exposure do not have an integrated CTRM system that allows them to manage commodity procurement and direct spend along with treasury and risk. Rather than Commodity Procurement Risk Management (CPRM) systems, these businesses have homegrown solutions, multiple and, in some cases, thousands of spreadsheets or an old legacy database. With the globalization of operations, this problem will only become greater without a system in place to manage the complexity created by expanding production chains.
The opportunity for improved profits lies within enhancing transparency across risk, cash and procurement in order to gain a competitive advantage – a single source of data tracking all the operations of the business. By creating a single resource across the enterprise for sharing and viewing data, breaking down silos and applying and sharing deep expertise up and down the enterprise.
Openlink provides a complete solution for margin management on finished goods – from raw materials procurement and forecasting to recipe management, contract management, transportation and logistics, right through to risk management, treasury management, compliance and reporting. This means you can follow the path of materials from origination to finished good for complete visibility into the margin contribution from every process throughout the value chain. With procurement and finance working within the same system, materials purchasing and hedging can be seamless. By adopting total margin management, a company can manage and monitor margin creation (and destruction) from each and every part of the commodity value chain and source all processes into one singular, real-time platform.
Any company that produces food or manufactures finished products needs to fully understand where, exactly, the profits and losses are generated. The challenge is that companies have literally thousands of raw materials contracts each with their own terms and conditions with different characteristics (e.g. priced, forward, long priced). So there is tremendous complexity in the management of physical contracts.
With an Openlink solution, you can follow the path of materials all the way through the value chain – from origin all the way through to finished goods. Customizable features include such factors as price volatility, manufacturing costs, transportation and storage costs, and reformulation – in order to gain a true understanding of where the profits and losses come from in every step of the process. As a result of this transparency, you have the necessary information to take action to improve margins at multiple points in the process. Openlink provides comprehensive pricing analytics capable of valuing commodities inventory based on the current market price (mark to market). In addition, we value the supply chain demand against forward curves improving predictive analytics and forecasting. This helps to better understand P&L and how market volatility is affecting business performance. Examples include hedging price volatility, trade-offs between in-house and third-party origination and consideration of different transport options.
Supplier risk continues to be an issue for a variety of reasons, including general economic conditions and high price volatility for raw materials through every step of the product development and manufacturing value chain.
Openlink's solution can help you devise strategies to mitigate the impact of supplier default using methods such as collateral management and supplier concentration management. This can help mitigate the effect of supplier failure to properly analyze and understand potential future exposure (PFE). You can also model the commercial impact of switching raw materials where this is an option in the manufacturing process.
Prices for commodities continue to be volatile, and fewer long-term purchasing contracts are generally available. For shipments that don't have back-to-back supply and purchase contracts, this can expose commodity management companies to price risk, which may, in turn, need to be hedged. But hedging is typically undertaken by the finance team, using spreadsheets to determine requirements, and is usually completed by procurement.
Openlink's solution supports business processes that parallel the workflow, from planning and procurement to hedging. With a comprehensive overview, purchasing and finance teams get a complete view of company-wide inventory, as well as forward commitments when they are purchasing and hedging outstanding commodities. This enables effective hedging strategies that mitigate the effect of price volatility without adding unnecessarily to hedging costs. Additionally, with Openlink’s Direct Spend Analytics & Forecasting tool, you get an aggregated view of hedged and unhedged positions across multiple divisions and locations, including cross-commodity hedges. You can optimize hedging strategies for better allocations across the business and reduce costs.
The ability to react to market forces and macro events is curtailed by not having a single source of the truth to capture this information. Companies can face lead time of up to 4 to 6 weeks to alter direct spend plans.
By capturing current raw materials positions and inventory, forward commitments and finished good forecasts in a single system, Openlink’s Direct Spend Analytics & Forecasting enables procurement to optimize the supply chain. One can also set up multiple bills of materials for manufacturing each individual product, and model the commercial impact of switching raw materials.
There is a constant challenge understanding P&L impacts to the business and how and where those changes occur.
Openlink provides comprehensive pricing analytics capable of valuing commodities inventory based on the current market price (mark to market) and can explain what the impacts to any P&L change are and where they occur, giving management greater trust in the numbers. In addition, we value the supply chain demand against forward curves, improving predictive analytics and forecasting. This helps to better understand P&L and how market volatility is affecting business performance.
To learn more about how Openlink Solutions can work to improve ROI and streamline operations in your business, contact us for a free consultation or no obligation demo.