Is Commodity Management Edging Out CTRM?
Commodity Management is essentially CTRM plus ERP functionalities to support the physical supply chain involved in moving and managing the commodity and we defined these terms a few years ago in our groundbreaking white paper – CTRM as an Architecture (available as a free download here). CTRM, on the other hand, if strictly defined, is more about managing the trade, risks created by the trade, and the settlement and invoicing of that trade – essentially trade and risk management with a focus on market or price risk. These definitions also actually support the historical development of solutions and technologies to support commodity trading and that is why ComTech sees historical development of solutions as a key criteria when evaluating them. Indeed, as commodity trading and markets have evolved, the management of the physical side has become increasingly important and that trend is set to continue with regulations around traceability, carbon footprints and so on coming into force in the EU and other areas. Furthermore, over the last few years, geopolitical risks, drivers and events have been a large factor in markets meaning that operational risks also need to be better managed and operational risks often require more of a Commodity Management solution that CTRM to effectively manage them.
In looking at the market, many CTRM solutions have added significant ERP-type functionalities while many ERP vendors have added one way or another CTRM capabilities in order to adapt and thrive under these market drivers. An example might be SAP, which has sought to add commodity-specific functionality even into trading and risk (via the Lacima partnership) and termed that product Commodity Management. Other vendors have begun to thrive by adding commodity-specific functions/modules to third-party ERPs like DycoTrade, Tegos, Arantys (Cadran), RoboSoft and Qbil. Other vendors have also built out commodity management solutions such as Quor with FinTrade, iRely, Enuit, Gen10 and Phlo Systems – the latter on top of an ERP solution as well. Others like Fendahl and ION Aspect, for example, also support the supply chain in some detail. In fact, almost all CTRM vendors and products now incorporate some extra CM aspect to it. We expect this trend to continue as increasingly, firms using legacy CTRMs are realising the need to add significant functionalities for various operational risks and in order to digitalize and streamline, or optimize their supply chains.
For those with legacy solutions, supplementation and building out of ecosystems is becoming one to satisfy new requirements without throwing away a substantial investment. Vendors like Phlo, Gen10 and others who offer SaaS, in the cloud solutions offer a way forward in building out an ecosystem of solutions that covers multiple commodities and their supply chains but in this case, add-ons are likely needed in areas like risk aggregation so as to be able to gain an enterprise view of exposures and performance.
There are also specific niches of course where a different set of solutions find fertile ground like European power, North American power and gas and so on. In the former market, Brady, Energy One, FIS , Previse, and others are all working to supply solutions that cover the supply chain for (increasingly renewable) power and similarly in North America there is another set of vendors servicing that space including FIS, increasingly Fendahl, OATI and so on. While power remains somewhat of an outlier due to its real-time nature, even here it is the supply chain and its digitalization and optimization, as opposed to trade management, that is increasingly important.
It does seem that Commodity Management is slowly edging out CTRM except in the case of more financial commodity trading specialist.
Do you agree?
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