Amtrada – Commodity Trading & Risk Management
Cadran supports Amtrada with real-time monitoring and management of its business processes
Commodity Trading & Risk Management (CTRM) for Oracle JD Edwards EnterpriseOne allows you to monitor complex trading (including futures trading) transactions
Amtrada Holding BV is the parent company of the three companies: Continaf, NedCoffee and Daarnhouwer. From its Amsterdam base, the company operates in Africa, Asia and South America, with Continaf specialising in cocoa trading, NedCoffee focusing on coffee trading and Daarnhouwer being engaged in the marketing of speciality coffees, cocoa, and nuts. The three companies source and trade the raw materials and – where necessary – handle logistics and warehousing. Perhaps most importantly, they are responsible for managing the risk associated with raw materials (commodities) trading.
Franka Seijbel, Amtrada’s IT manager: “We trade in countries such as Ghana and Nigeria. Small quantities of products are combined at our local companies so they can eventually be shipped out in bulk. These bulk shipments consist of the output of the countless small farmers who produce these raw materials, and that obviously involves a certain amount of risk. For example, deliveries might be cancelled, or you could be faced with part orders for which we provided a loan to the customer, but where the customer suddenly drops out of the picture, or there might be quality issues involved. These are all risks we assume and which we hedge on behalf of our customers, who are major coffee and cocoa producers.”
One problem Amtrada faced in the past was that the information system it was using – which it had built itself – no longer met the requirements. This system consisted of a large number of disjointed parts and components, which caused inconsistency in the data generated. This was a major disadvantage, and the company eventually decided it was time for a change. It was the Finance department that initiated the request for proposal for a new information system; they wanted a system that could facilitate auditible financial processes and would be able to support users in assessing the accuracy and completeness of data and information. The traders employed at the three companies came up with their own specific request: they wanted to integrate the cocoa, coffee and nut trade into a single system.
Complex trading (including futures trading)
These companies’ business activities are highly complex and dynamic, involving both the physical trade of the commodities and the futures trading, designed to hedge the risk of fluctuations in market prices and currencies. This means that commodities regularly change owners throughout the process, and these regular transfers – combined with the market-price fluctuations and the varying quality of the commodities – present Amtrada with logistical and financial challenges at each turn.
Seijbel: “We began to think about the kind of solution we wanted back in 2006. We ended up hiring a company that supported us in the selection process [for the request for proposal], which resulted in a long list of needs and requirements. To name some examples: we were looking for a package that would allow us to keep track of our purchases and sales in the futures market as well as monitor our positions in real-time. We obviously needed support for our warehousing and logistics processes, but we also wanted to be able to enter details relating to the quality of the raw materials, along with items such as cocoa sampling. Basically, our list of needs and requirements was huge.”
Oracle JD Edwards ERP
Amtrada eventually settled on Oracle JD Edwards EnterpriseOne (JD Edwards E1), version 8.12, which would enable it to support all the organisation’s business activities. Seijbel: “We made up our mind in 2007.” The company commissioned the construction of a new module, designed to accommodate the complexity involved in trading, futures trading, and the logistics process involved in managing raw materials. The name of the module is Commodity Trading & Risk Management (CTRM). Seijbel: “We were looking for a highly flexible module, because, whereas orders are usually delivered at a fixed price and on a scheduled date, our purchasing and sales process is extremely changeable.
The system basically had to be endlessly versatile to meet our requirements. That’s because traders have to be very creative when it comes to delivery terms – after all, you get more out of your business if you make smart deals. In some cases, the goods have already been delivered but the price has not yet been set – this is referred to as “fixing”. Another example would be a trader factoring in weight loss, so as to be able to deliver the product in compliance with the international regulations for cocoa trading. Sometimes you also end up having to send back shipments whose quality is substandard or shipments for which separate terms need to be agreed because they’re damaged. We wanted to be able to record all this different data in our system, and CTRM was custom-built to support us in these processes. We also purchased a Business Intelligence package, which works across JD Edwards E1 and CTRM.”
Real-time management data
In 2010, Continaf went live with JD Edwards E1 after implementing the CTRM module, followed by NedCoffee in 2011. Seijbel: “Our third company, Daarnhouwer, has not yet implemented the system – their business is different from the others, so there are still some tweaks to be made.” “However, we’re already seeing the benefits of the system, which are massive. What has been most valuable about purchasing the JD Edwards E1 system is that we now have a single, integrated package for all our data. For example, we now have access to reports in real-time. We used to have to wait much longer for these reports, or it took a lot more effort to generate them, or the system wasn’t even set up to produce them. We can now monitor all kinds of data any time, including our purchases and sales in the market – including the futures market – and our stocks. In addition, we also have access to detailed information, including our warehousing expenses for cocoa during a particular month or on a particular day – the system provides all that data at the touch of a button. We also have access to large amounts of management data, which has proved invaluable to our management.”
The system also provides many administrative benefits. Seijbel: “An integrated package really reduces the number of operations you have to perform, since you need to enter data only once, and it’s much more user-friendly in other ways as well. All our processes start with our traders: they’re the ones who enter deals in the system once they’re made. Our back office can then use this system data to process the contracts, without needing to re-enter the data. Our Transport department can also retrieve the data from the system in order to make sure everything is shipped correctly. Since we’re working with a single system, we save a lot of time on admin and reduce the likelihood of error. We’ve also noticed that using JD Edwards E1 has brought our companies closer – we’re making more use of each other’s knowledge and expertise now, which is a nice bonus.”
Optimising the system with Cadran
Amtrada has been working on an ongoing basis on improving the system. Seijbel: “Since the beginning of this year we’ve been working with Oracle partner Cadran. They own the CTRM module and support us in the optimisation process we’re currently going through. Although CTRM was custom-built for our company, I do think it could be perfect for other trading (and futures trading) companies as well. Cadran and our company are currently in the process of optimising this module. It’s been going very well and we’re very pleased with the partnership. Cadran is a professional organisation, and their employees are very competent and dedicated. We enjoy working with them, and we’ve found that they’re really committed to further improving the product.”
According to Seijbel, this is essential: “The market for cocoa, coffee and nuts is changing – profit margins are shrinking, while, at the same time, the industry is becoming increasingly demanding. We used to be the ones with all the knowledge, but farmers in the countries in which we do business now check market prices on their smartphones. Also, thetraceability requirement (i.e. the ability to trace a product’s origin) is becoming important for the particular raw materials we work with, and an information system that supports us in this process is essential. This means you have to make improvements in order to keep up with the times.” Cadran and Amtrada set out to create a roadmap for the improvements on the agenda in the immediate future. Seijbel: “The roadmap tells you when the changes will be made and when the new releases are scheduled. We always do an evaluation after each release, where we ask how it went, what we would like to change, and in what ways the process was successful. We’ve been working together very successfully with Cadran in further developing the CTRM module – we couldn’t be more pleased with how things have been going.”