Recently we had a briefing from Eka on its solution for Industrial Customers perhaps otherwise known as solutions for commodity procurement, supply chain planning and hedging.
Commodity processors such as food and beverage, CPG and industrial metal processor companies face on the one hand, volatile raw material prices and on the other, constraints on the ‘retail’ price they offer their customers. In effect, these companies may find themselves squeezed between unpredictable but generally more expensive raw materials and customers who don’t and won’t pay higher prices for the finished goods. More of these companies are seeking to hedge their wholesale raw material price exposure and, in some instances, looking to squeeze costs out of the supply chain. By some estimates, the market for CTRM-related software in the supply chain management area could be as much as four times+ the size of the CTRM software market. It is an attractive market and one that has already attracted a number of existing and start-up vendors to develop and deliver solutions.
Eka has rightly taken the view that there is a universe of requirements out there ranging from a rather simple need for hedging fixed price risk via derivatives all the way through to extremely complex multi-commodity supply chain optimization and management and hedging. By developing a model of this universe and grouping the requirements in terms of growing complexity, it has configured a series of solutions that offer an affordable and pragmatic solution in each instance. It is able to achieve this by making use of its modular solution stack/set creating solutions by bringing together the right modules in preconfigured arrangement to build a specific solution footprint. In fact, Eka seems quite good at building targeted solutions using its modules in certain configured combinations and has already done this in the risk side of its product set for example.
For potential customers who may like to simply hedge out fixed price risk, Eka has configured a solution that includes functionality like the ability to import exposures from the ERP system, identify hedges, enter and manage the commodity derivatives, and handle FX exposure, perform hedge accounting and the regulatory reporting aspects of this activity as well as monitor and manage market risks. The solution can be offered via the internet to keep costs down. At the other end of the scale, Eka has included modules around procurement planning, analytics, optimization and even integrated planning and analytics, to craft a fully featured solution.
This approach brings significant benefits in terms of the footprint and total cost of ownership equation. It also provides scalability in the sense that if the business evolves and becomes more complex, additional modules can easily be added.
By example of the above, let’s consider a metal fabricator with production facilities around the world. It buys metals priced against LME and/or Comex. Sales are typically fixed price and there is a lead-time of 15-30 days for production. It already has a leading ERP system in place but it has to calculate its commodity exposures manually using spreadsheets and all of its derivative transactions are also captured in spreadsheets. Eka’s proposed solution provides integration with the ERP systems for physical exposures, complete derivative management and integrated hedge accounting all in the Cloud allowing all locations of the company to work off a single system.
At the other end of the scale may be a large multi-plant processor of alcoholic beverages. It produces those beverages in bottles and cans and it controls both the commodity procurement for the beverage as well as the aluminum for the cans. On top of that, it hedges its energy needs. It too has a top tier ERP system along with a custom in house solution for derivative handling. All of the commodity procurement planning, actuals, exposure, effectiveness and monitoring is however performed on spreadsheets. It has to manage its hedge accounting compliance on spreadsheets, monitor the impact of derivatives spreadsheets and do its procurement planning outside of the ERP due to variable pricing. Eka’s proposed solution incorporates functionality delivered via its modules to support all the requirements from the integration with ERP through to procurement planning and optimization.
While these solutions are only in the process of being taken to market, Eka does appear to be keen to innovate specific industry solutions based on the use of its modular architecture and selective use of functional modules. If successful, this will provide end users with tailored solutions on a common platform at a reasonable cost.
