The Low Commodity Price Challenge
A quick peak at our lists of vendors and their clients is enough to see that many top tier firms in commodities such as the big marketers, for example, have at one time, procured many different CTRM solutions or built their own.
The large marketers have complex operations often spanning origination, trading and distribution in a global context. They invariably are involved with many different commodities and even in the transformation of commodity to commodity. Often, they view some aspect(s) of their operation as strategic or proprietary and will have many organizational business units across the enterprise sometimes operating as independent profit centers.
This adds up to almost overwhelming complexity and so it is hardly surprising that these companies have built their own software or utilize multiple CTRM solutions in different divisions and geographies for different commodities. In the past, the costs of managing these complex IT environments, was probably less important than simply being able to operate the business. That, of course, has now changed. Sustained low commodity prices have placed significant cost pressure on these businesses, as is evident in the daily news. Suddenly, companies that were making good profits and expanding have to reassess their debt levels and balance sheets. Optimizing IT and reducing IT costs is an increasing focus.
Over the last 6-months, ComTech has seen evidence to suggest that a period of platform consolidation may be underway in response to the new business environment faced by large marketers in particular. The build v buy survey that we are currently writing up has more than the usual number of responses from this segment and it seems to indicate both a renewed penchant to build or assemble solutions and to simplify and reduce IT costs in the area of CTRM and CM.
The issue is that there is not yet a single solution that can handle this complexity across multiple commodities and geographies. There are a number of platforms that come close but not quite close enough to cover everything. On the other hand, a traditional proprietary CTRM build is an expensive and risky undertaking. There is also the possibility to assemble a solution by continuing with a multi-CTRM approach in which due consideration is paid to an architecture that separates out the transaction environment from the enterprise risk and regulator reporting environment. Vendors who have migrated to a web services model might well benefit from such a trend if it emerges.
Whatever happens, we will likely see many different approaches explored as a solution is sought. The vendors may be challenged more than ever before to deliver componentized solutions and to deliver broader functionality faster. Indeed, it is already evident to us that this is occurring.
While lower commodity prices may not have a medium-term impact on deal flow, we do see them having an impact on architecture, functionality and cost. In the marketer sector, we also see a real battle between ERP and CTRM and the boundaries in between. We may well look back at this period as a major dislocation event in the history of CTRM development as it seems there really is a problem waiting to be solved in delivering cross-commodity, supply chain encompassing, usable software for highly complex commodity businesses.
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