Commodity Materials Trading and Risk Management software Dubai

April 5th, 2012 by Stephen Jones Leave a reply »

Physical Commodity Trading organizations buy and sell commodities under predetermined contract terms and are responsible for the shipping and delivery of the commodities. The trading industry can be volatile with conditions outside of the trading organization affecting supply and demand.

The trading company must be agile in its processes and procedures to ensure not only the timely transportation of the commodity but also control of all costs associated with a contract.

A Trading organization has Risk Strategies in place to manage overall exposure to the Market. These strategies can include hedging their physical position on exchange traded futures market and covering their foreign exposure position with forward foreign exchange contracts.

Risk Management is key to providing financial control and driving profitability for a trading organization.

Our Commodity Trading solution provides access to up to date Contract, Logistics and Risk Management information inside Dynamics AX. Allocation and accrual of all additional cost information associated with contracts and shipments improves the flow of information from trading and logistics to the financial department.

Improved access to contract position details contributes to improved efficiency in both Logistics and Risk Management functions. Inquiry and reporting options allow the logistics department to be better informed about contracts due for shipment and the status of those shipments once they have been arranged.

Information required by the treasury department to control FX exposure and details of contracts to be hedged is available in real-time and helps ensure the company’s risk strategy is implemented in a timely manner, contributing to minimising risk and improved overall financial control.

Microsoft Dynamics AX and Commodity Trading

Microsoft  Dynamics  AX  is  a  powerful  and  comprehensive  ERP  solution  and  can  meet  the  financial  ledger,  order  processing  and  processing  requirements  of  many  organizations.  It  leverages the technology and applications from the Microsoft Stack that are so familiar to  many  of  us  in  our  day  to  day  business  lives.   

No package solution will satisfy all business requirements of all organizations.  The ax  architecture  lends  itself  to  the  development  of  industry,  process  or  customer  specific  functionality  that  can  sit  alongside  the  standard  package  solution. 

Synergy implements and  develops   additional  functionality  for  Microsoft  Dynamics . We also work with global Ax isvs  and  offer  highly regarded add‐ons for Microsoft Dynamics AX The developments are done  using  the  same  development  tools  and  standards  that  the  Microsoft  Dynamics  AX and the development  teams  use  and  have  the  same  look  and  feel  as  the  ‘standard’  Microsoft  Dynamics AX software.   It is also possible for your own developers to be trained to further enhance the developments with the provide Source code and Integrated development environment, and Built in Workflow and Notification engine etc.

The  Commodity  Trading  solution  is  one  such  development.  It  leverages  the  existing functionality  of  Microsoft  Dynamics  AX, but is   designed specifically for one type of Commodity Trading Company.

 COMMODITY TRADING SYSTEM OVERVIEW

The  trading  system  consists  of  a  set  of  contracts  that manage  the  purchase  and  sale  of  commodities.  The execution of the contract is done on a per load basis, where a load represents the physical transportation of the commodity.  In  addition  to  the  management  and  control of contracts, the trading system will manage the physical movement of commodities as the contracts are completed and  commodities  are  moved  between  physical  storage locations.

The commodity trading system manages:

■  Purchase contracts

■  Sales contracts

■  Delivery loads

■  Pricing calculations (bonification and other adjustments) relating to the settlement of contracts

■  Washouts

■  Creation  of  sales  orders  and  purchase  orders  for completed loads

■  Creation of vendor recipient created tax invoices (RCTI) where  applicable  and  accounts  payable  vouchers  for levies, brokerage, and miscellaneous fees and charges

■  Creation of accrual journals for levies and fees where a RCTI cannot be automatically generated

Sales and purchase contracts are delivered in loads over the period of the sales contract. Loads are associated with:

■  A purchase contract and a sales contract

■  A purchase contract and storage (a warehouse location in Microsoft Dynamics® AX )

■  A storage and a sales contract

■  A storage and another storage location (stock movement)Settlement  against  a  contract  occurs  on  a  load  by  load basis  within  the  delivery  period  defined  for  the  contract.

If a contract is not completed by the end of the delivery period then there are several possibilities as to how this could be handled:

■  The remaining commodity will be receipted into stock

■  The terms of the contract will be modified by extending its expiration date, and optionally adding storage costs

■  Cancelling the contract and reissuing a new contract

■  Washout the contract

 CONTRACT MANAGEMENT

A contract can be for either the purchase of or sale of commodities. Within Microsoft Dynamics® AX a purchase contract is associated to a vendor and a sales contract is associated to a customer.

The contract will be editable up until the time it is locked. Once  the  contact  is  locked  it  can  not  be  modified  or deleted. Any adjustments to the contract will be done by creating a new version of the contract, which will be a copy of the original contract. This will ensure that a history of all  contractual  adjustments  is  maintained,  and  that  the original contract can be reprinted at any time. Contracts may be spread across several delivery periods, whereby  the  parameters  of  the  contract  -  such  as  price -  may  vary.  Each  spread  would  be  considered  as  a  sub-contract  within  the  primary  contract.  A  default  delivery spread is automatically created for the contract commodity based on the even distribution of the metric tonnes to be delivered over the period of the sales contract. The default spread can then be adjusted manually.

LOAD MANAGEMENT

Loads  are  used  to  manage  the  pickup  and  delivery  of the  traded  commodities.  A  load  forms  a  link  between;two contracts, one contract and one storage location, or two  storage  locations.  Typically  the  load  will  be  the  link between a sales contract and a purchase contract.

  • Purchase  Contract  and  Sales  Contract:  The  commodity will be picked up from the supplier and delivered directly to the customer.
  • Purchase  Contract  and  Storage:  The  commodity  will  be picked  up  from  the  supplier  and  delivered  to  a  storage location.
  • Storage and Sales Contract: The commodity will be picked from a storage location and delivered to the customer.
  • Storage  and  Storage:  The  commodity  will  be  transferred from one storage location to another.

VENDOR LEVIES

Management Levies are collected from some vendors on behalf of certain government agencies. A levy could either be a fixed amount per tonne or a percentage per tonne.

The levies that are applicable to a load may be overridden at the time of creating the load. Levies are paid on the net load value and are exempt of GST.

CONTRACT WASHOUTS

A contract washout can occur when there are sales and purchase  contracts  between  parties  which  loop  back  to a  party  involved  in  an  earlier  trade.  Thus,  the  series  of trades  (sales  and  purchase  contracts)  have  netted  out the requirement for a physical delivery for a portion of the contract.

For  example: 

  • Company  A  sells  to  Company  B, 
  •  who  sells to  Company  C, 
  • who  sells  to  Company  D, 
  • who  sells  back to Company A.

This loop means that no physical delivery need occur , and the trading contracts are netted out with the individual parties realising a financial gain or loss on the trade. The gain or loss on the trade will have a financial impact only,  and  generates  an  invoice  or  payment  to  all the parties involved in the washout. Furthermore, as this is recognised by the tax office as a financial transaction, it does not attract any GST.

The  washout  could  finalise  either a  portion  of,  or  the  entire originating contract. If the whole contract is washed out then there will be no loads. If only a portion of the contact is washed out, then the remaining quantity of the contract would be processed via loads.

BONIFICATION

Bonification   is   a   system   of   rewarding   or   penalising suppliers  for  the  quality  of  their  produce.  The bonification  system  is  centred  on  a  series  of  standard measures  –  such  as;  oil  content,  protein,  moisture,  etc – that could either increase or decrease the value of the produce.

Each load of produce transported from the supplier is run through a series tests to determine such measures as oil content and protein. These test results are then compared to  a  set  of  standards  tables  prepared  by  industry  peak bodies to determine if the tested results are below or above the set standards. If the results are above the standards then a bonus may be applied increasing the value of the load.  Conversely,  if  the  results  are  below  standard  the value may be reduced.

The Commodity Trading system provides the following reports:

■  Contracts

■  Commodity Storage Reporting for Loads

■  Summary Position Reporting

■  Detailed Contract Position Reporting

■  Loads per Contract

■  Levies Reporting

■  Load Financial Summary

■  Credit Limit Reporting

■  12 Month Spread Position Reporting 

■  Commodity – Mark-to-Market Reporting

■  Tax Invoice

■  Remittance Advice

 The Commodity Trading module can also manage :

    ■ Futures

    ■ Options

    ■ Forex

    ■ Limits / Risk Management

    ■ Letters of Credit

    ■ Trading Cockpit

    ■ Integration to Logistics

    ■ Importing, Costing and Transporting    (Inbound and outbound logistics)

Advertisement

Leave a Reply

You must be logged in to post a comment.