Manage trading, risk and accounting for commodities
Any enterprise tasked with inventory risk management for exposure to commodity prices and currency fluctuations will uncover opportunity using physical commodities management software like Openlink Agtech – the solution especially tuned for organizations working with physical commodities. Openlink Agtech (formerly GrainSMART and dbcSMARTsoft that includes FlourSMART and HedgeSMART) is a complete trading, risk management, merchandising and accounting solution for any company buying, selling, warehousing, merchandising or transforming commodities into finished products, co-products and by-products for distribution and sale.
This Openlink solution addresses all business requirements, including commodity management, risk management, financial accounting, manufacturing, distribution, multi-language, multi-currency, government compliance and user security.
Openlink Agtech runs daily operations, in addition to monitoring risk, profit and loss, and opportunities across the entire operation. Real-time reporting tools put all of the necessary information in the right hands at the right time.
Whether it’s grain, flour, biofuels, sugar, cocoa, coffee, cotton, rice, pulses, oilseeds, nuts, feed, pet food, fertilizer or livestock, Agtech assembles the tools and solutions needed to handle complex market trading management and hedging, pricing mechanisms, regulation compliance, financial contracts and unforeseen risks.
Optimize inventory management along the supply chainChallenge
Lack of visibility over inventory and commitments
For companies that purchase, sell, store, ship and trade agricultural commodities, keeping track of inventory and commitments across all commodities at multiple locations is complex and takes time using manual spreadsheet or whiteboard-based approaches.Solution
Optimize inventory management along the supply chain
Inventory values require complex calculations that involve grade factor discounts/premiums, carry, accruals, split pricing and contract allocation. Openlink Agtech is unique in the marketplace, addressing the requirements of grain, commodity ingredients and non-commodities – integrating completely into a single software module. Multiple inventory costing methods are also supported.
Openlink Agtech captures deals and tracks movements that impact inventory at each staging point. Movements can be grouped so that each one can be reconciled to third-party statements and/or physical inventory readings. You can also calculate inventory value using these same movements.
With Openlink Agtech, you get real-time visibility into positions and inventory levels across all commodities, in storage or transit, at all locations.
This means you can minimize the risk of supplies not being available at the right place at the right time (e.g., load a vehicle or meet customer demand) – and avoid issues around supply delays, substitutions and penalties.
Measure hedge effectiveness and minimize earnings volatilityChallenge
Regulatory changes impact hedge accounting
In order to avoid earnings volatility, hedges that qualify as “highly effective” can be afforded hedge accounting treatment. However to implement hedge accounting requires a large amount of work documenting the hedge relationship and proving – both prospectively and retrospectively – that the hedge relationship is effective. In addition evolving regulations and accounting standards (e.g. IFRS 9) for measuring hedge effectiveness make it more difficult to keep systems current with the latest rules and methodologies.Solution
Measure hedge effectiveness and minimize earnings volatility
The Openlink Agtech solution analyzes the effectiveness of hedges (under IFRS9, IAS39 or FAS 133) and invokes the appropriate hedge accounting treatment. Our module for hedge effectiveness testing provides complete transparency that enables users to drill into postings to verify all payment, accrual or valuation calculations on the trade.
The solution supports the statutory reporting required for hedge accounting.
So you can automate the application of hedge accounting rules and methodologies to ensure hedges are being correctly treated; giving you the reassurance that earnings statements are being correctly reported and subject to minimal volatility.
Devise more effective strategies to mitigate the impact of supplier defaultChallenge
Supplier risk becomes a key concern
Supplier risk is becoming more of an issue because companies are increasingly defaulting on supply contracts for a variety of reasons – including general economic conditions and high price volatility for agricultural commodities.Solution
Devise more effective strategies to mitigate the impact of supplier default
The Openlink Agtech solution allows you to model the effect of supplier failure to properly analyze and understand potential future exposure (PFE).
You can devise strategies to mitigate the impact of supplier default using methods such as collateral management and supplier concentration management.
Streamline freight logistics and tightening payment controlsChallenge
Risk of errors in freight logistics
For most companies, a significant manual effort is required for the management of freight logistics. One example is the work needed to manually match freight carrier invoices to bill of lading documents.Solution
Streamline freight logistics and tightening payment controls
With Openlink Agtech you can schedule movements, tag freight rates to known movements and the system will then automatically create an accrual in the system based on the freight carrier, cost and weight.
This means when a carrier’s invoice arrives, there will already be an accrual in the system for that delivery ready to match the invoice against. There’s no need to track down the bill of lading and manually enter a payable.
Using Openlink Agtech you get a better understanding of liquidity, credit and market risks under a wider range of circumstances.
Get a complete view across the business for optimal commodities hedgingChallenge
Increasing impact of price risk
Prices for agricultural commodities continue to be volatile but the marketplace for many output products is becoming ever more competitive and this gives manufacturers very little room to pass on price increases at short notice to customers. So they either have to absorb changes in the prices of input commodities in the P&L, or make greater use of hedging contracts. But hedging is typically undertaken by the finance team using spreadsheets to determine requirements; this is separate from the procurement function.Solution
Get a complete view across the business for optimal commodities hedging
Openlink Agtech supports business processes right along the workflow from input commodities planning and procurement to hedging.
This means purchasing and finance teams get a complete view over company-wide inventory and forward commitments when they purchase and hedge outstanding commodities.
This enables the company to create effective hedging strategies that mitigate the effect of commodities price volatility on margin without adding unnecessarily to hedging costs.
One solution from front-to-back officeChallenge
Costs and risks associated with front-to-back office reconciliation
Because many firms use different systems across trading, risk and trade processing that are not well integrated; people performing different functions aren’t using a single, consistent set of information. Errors that arise in transferring data between systems need to be corrected introducing delays for users; for a trader or risk manager who wants to see trading positions in real-time this can be critical.Solution
One solution from front-to-back office
With Openlink Agtech you get one integrated solution for trade capture, valuation, compliance and limits monitoring, right through to position and risk reporting, collateral management, accounting, and cash management. Because a single solution is used across front and back offices, a correction on a deal will automatically generate a correcting accounting entry; eliminating much of the manual reconciliation work typically required in trading operations.
The data transparency delivered right along the trade lifecycle also allows users to click on an accounting entry, for example, and drill down into the underlying trade to quickly investigate issues when they do arise.
As a result, trade processes are streamlined and the business gets more timely and accurate information for decision making.
Understand margin contribution from each process in the value chainChallenge
Lack of transparency over margin contribution through the value chain
A key issue for any company that both produces food and manufactures products is to understand where they generate profits and losses. The challenge is companies have literally thousands of raw materials contracts each with their own terms and conditions with different characteristics (e.g. priced, forward, long priced). So there is tremendous complexity in the management of physical contracts.Solution
Understand margin contribution from each process in the value chain
With the Openlink Agtech solution you can follow the path of materials right through the value chain from origination through to finished good.
You can include factors such as price volatility, manufacturing costs, transportation, storage costs, and reformulation to get a true understanding of the contribution to P&L from each process in that chain.
As a result of this transparency through the value chain, you have the necessary information to take action to improve margins at multiple points in the process. Examples include hedging price volatility, trade-offs between in-house and 3rd party origination, and using different transport options.