Risk management solutions: ERP vs. ETRM

In the volatile world of energy, companies face multiple challenges in managing supply in a timely manner, from new regulations to the growing use of intermittent renewable sources. To keep ahead, the appropriate risk management solutions are integral.

Many companies still rely on loosely patched-together spreadsheets to manage their front, middle and back-office processes. This cumbersome system just doesn’t cut it anymore.

A competitive edge is gained in energy trading when companies can view and process data in real time, giving them the agility to make quicker decisions in trading and supply management. Enterprise resource planning (ERP) and energy trading and risk management (ETRM) solutions are two leading options for handling these processes.

Enterprise resource planning (ERP)

ERP systems are made up of enterprise resource planning applications. The different modules share a database, which allows data collection and storage from various applications on a centralized platform. ERP systems help reduce costs by automating processes and exposing where improvements can be made to maximize profitability. This can help companies make better and faster decisions, and to work more efficiently across departments.

With an ERP system, “businesses can better monitor inventory replenishment, sales demands, parts replacement — they can improve virtually any business process to reduce operational and maintenance costs,” Jeff Carr, CEO of Ultra Consultants, an independent ERP consultancy, wrote in Manufacturing Business Technology.

An ERP system is a powerful management tool, but falls short when it comes to the needs of complex energy organizations. While an ERP system can help link core business functions for many industries, it simply doesn’t provide sufficient tools for the front-to-back office activities central to energy and commodities trading.

Energy trading and risk management (ETRM)

An ETRM solution is a more advanced and sophisticated software that allows firms to manage all of the business processes involved in the trading of energy commodities by consolidating data from accounting, contract management, operations, logistics, inventory management, order processing, regulatory tax reporting and settlement on a single platform.

With an ETRM solution, companies can identify trends, new markets and potential risks across all of the business’ financial and physical assets, as well as set strategies and find opportunities to grow trade volumes or add commodities — all in real-time.

For instance, if an energy company sees a sudden loss or surge in revenue, they’ll be able to analyze what happened and take steps to better manage supply and trading operations. With an ETRM solution, companies can improve decision-making and remain competitive by managing long-term forecasts of energy prices and economic growth.

Streamlining operations

ETRM solutions also improve efficiency by consolidating different tasks on a single platform, from trade capture to reporting, scheduling, inventory management, rack order management, invoicing and settlements. This can reduce the cost and time of processing trades from the deal to invoicing, logistics and accounting, and minimize the chance of human error, as data is only entered into one system, not multiple.

Companies can’t afford to take days or weeks to understand market changes — or to correct data errors. “In digital scrums, it is first movers and very fast followers that gain a huge advantage over their competitors,” reports McKinsey & Company. “We found that the three-year revenue growth (of over 12 percent) for the fleetest was nearly twice that of companies playing it safe with average reactions to digital competition.”