CTRM4JDE – Procure and Hedge

CTRM4JDE – Procure and Hedge

Cadran Consultancy is delighted to announce a new product to its CTRM4JDE product line: CTRM4JDE – Procure and Hedge. This solution becomes available from Q1 2021 onwards.

Why we are developing CTRM4JDE – Procure and Hedge

Where CTRM4JDE aims primarily at companies both purchasing and selling commodities, Cadran develops CTRM4JDE – Procure and Hedge specifically for customers purchasing commodities and transforming them before they sell them. An example would be: a manufacturer of food products that purchases products considered as a commodity such as rice or soy and make them into other products or consumer goods. Instant rice is not normally considered a commodity and is not valued as such. However, the raw material that made into rice certainly is. This product is ideally suited for companies that perform manufacturing processes, especially when using JD Edwards. This solution integrates pre-built with standard JD Edwards.

Managing Risk

Often, both volume and price are not known at the time traders are closing long term contracts. Price is often a determinant of three different factors:

  • time
  • market and
  • quality

All three of these factors can change until the moment of fixation. In addition to this, volumes could change as well. Often, volumes are “called off” from the agreed contract volume. These factors are present in physical goods such as soy, rice, metals, etc, but also in future contracts, currency contracts, and options contracts. If these are valued against a market, the volatility of a market could have significant procurement implications, ensuring or affecting profitability.

Insights in supply and margin

One could attempt to hedge a physical product or attempt different trading strategies. Having this insight could ensure both supply and margin. In order to create insight, a solution should be well integrated with traditional ERP processes like manufacturing, requirements planning, and distribution. In addition, any cost associated with these risks or even accruals should be visible on its general ledger immediately.

CTRM4JDE – Procure and Hedge provides insight into the realized and unrealized profit and loss on a daily basis.

CTRM4JDE – Procure and Hedge provides insight into both, the realized and unrealized profit and loss on a daily basis. A drop in the market price of a physical good or a change in the FX rate of a currency could be assessed immediately.

Part with external administration methods with pre-built integration

Save time and improve accuracy at the same time

With CTRM4JDE – Procure and Hedge you can finally forget tedious administration, such as managing the position in an Excel spreadsheet. By recording your contract commitments in our solution built into J.D. Edwards, you will save a considerable amount of time when compiling your position overview, improving accuracy at the same time.

Pre-built integration with standard JD Edwards components

CTRM4JDE – Procure and Hedge has a pre-built integration with standard JD Edwards components. This allows for an auditable and controlled process of managing these key processes. While implementing CTRM4JDE – Procure and Hedge ensures that an existing JD Edwards configuration is only minimally affected and normal business processes can continue, allowing implementations to be quicker and less intrusive, but also one that focuses on adding value.

Connecting to standard JD Edwards concepts

Making a CTRM system integrate with JD Edwards has never been easier. CTRM4JDE Procure and Hedge connects to standard JD Edwards concepts where possible and makes use of the strength of JD Edwards. This allows for making your CTRM system action driven by means of watch lists very easy.

Commodities and Pricing

In a previous blog Use case: Characteristics vs Items – Using the Soy Market as an example we described how we make use of an item and its characteristics to allow a connection to a market while enabling a large number of quality characteristics to be tracked. CTRM4JDE – Procure and Hedge makes use of this same practice while creating a connection between your existing articles (SKU’s) and the associated commodities. This allows the creation of Purchase Orders at ease while showing insight into price fluctuations of commodities.

Price based rules

Contracts in CTRM4JDE – Procure and Hedge can be priced by setting up price rules based on three components: time, market, and quality. By defining an offset price for the above-described characteristic, the commodity can be priced against a market. Based on a fixation moment, the system can use this information to calculate its current theoretical value. This is used in mark2market calculations as well. 

Position and Mark2Market

Creating overviews like your borrowing base at ease is possible when you have insight into your risk. On inventory, this is often easy to do as the valuation at the moment is simple. If one is to include also open contracts, FX, futures, and options, including its premiums, this becomes more complex. Especially with more complex pricing structures, this can be difficult to provide. 

Immediate entry into the position

CTRM4JDE – Procure and Hedge allow you for immediate entry into the position while marking to a market on a nightly basis. The following functionalities available in CTRM4JDE now become available in CTRM4JDE – Procure and Hedge as well: 

  • Mark-to-Market: One of the core functionalities added includes mark-to-market functionality. This automatic processing allows for marking your physical inventory, futures, options, and FX contracts against a defined market. This can be done automatically and overnight.
  • OTC traded futures and options are now supported and can be chosen in conjunction with exchange-traded futures.
  • Hedging: The new release provides functionality to maintain hedges using all different types of contracts. So any combination is possible: hedging Sales with Purchase contracts, FX hedges but also hedging options with inventory or contracts to support multiple trading strategies.
  • Options: Entering both European and American style options has been added. Functionality to exercise the American style option has now been added.
  • Automatic settlement of both Futures and Options has now been added. This allows for automatic and overnight processing of futures and options while allowing for a “proof” mode before the final run is done. Physical contracts can now be automatically priced overnight. Pricing rules are based on derived markets, allows for partial pricing, can be offset, and can be done at multiple times during logistical execution. The system also allows for re-pricing the moment the title transfer has taken place.
  • Multiple Greeks calculations: Traders use different Greek values using Blacks and Scholes, such as delta, theta, and others, to assess options risk and manage option portfolios. Multiple Greeks calculations have now been added into support. With this functionality, many of our clients will be able to integrate their trading position in a more holistic view with their physical position.

Data Model

Cadran has in recent years expanded on its data model for JD Edwards ERP and CTRM in the Tableau Analytics software, making it available to many customers using JD Edwards. Via the Tableau dashboards, reports and self-service capabilities all information and insights, like the Value at Risk model, are at the fingertips of the users. This will be available to CTRM4JDE Procure to Hedge module as well. For more information on how we approach a Value at Risk model please read our blog Value at Risk for Commodity Trading, using Tableau and R

Interested in this release?

Available from Q1 2021, but Cadran is able to demo this to you now! Are you interested in a demo ? Contact Mark Kamphuis or Daniela Jimenez Arvelaez for any of your questions! You can also fill in our contact form via the button below.