Ann SurrattAre you in full compliance with AMIRA P754? The importance of coherent material balance results has long been recognized by mining and metallurgical companies. Due to recent accounting scandals and the resulting tightening corporate governance, companies are becoming increasingly concerned with how the reported numbers are obtained and how much accuracy can be attributed to them.

As a result, The AMIRA P754 project was launched in 2004 to develop a rigorous set of metal accounting guidelines for the mining and metallurgical industres. The guidelines stress the importance of state-of-the-art metal accounting systems, such as Algosys Metallurgical Accountant™, and warn that companies using spreadsheets for metallurgical accounting lack auditability and data accuracy and are not in compliance with AMIRA P754.

The Canadian Institute of Mining, Metallurgy and Petroleum (CIM) recently published an article on Implementing the Ten Best Practices of Metal Accounting at the Strathcona Mill.  It is an excellent case study on how Algosys Metallurgical Accountant helped Xstrata meet all AMIRA P754 guidelines – including the ten principles of best metallurgical accounting practices (BMAP).  It also explains how Xstrata was able to eliminate spreadsheets, gain visibility into key plant performance indicators, and optimize performance and recovery.

You can read the full article here. I hope it provides some valuable insight into AMIRA P754 and fresh ideas on how to automate, standardize, and accelerate your metallurgical accounting cycle.

mining softwareMining companies are no strangers to advanced technology – geological models, dispatch, and plant control systems offer sophisticated databases and solutions for asset optimization. But there’s one exception: supply chain management for tracking assets from mine to customer.

Mining companies often rely on a patchwork of generic spreadsheets to manage the tonnage, quality, and value of their coal or mineral supply chains. This is a very dangerous practice – spreadsheets are not sophisticated enough for handling complex operational processes such as planning, material tracking, and grade control – however, they are often relied upon to do just that.

In addition, studies show that as many as 94% of spreadsheets contain errors, which often go undetected. These errors can spread throughout key corporate processes that control hundreds of millions of dollars of inventory, putting the entire firm at significant operational risk.

To learn more, read “The Hidden Threat,” an article recently published in Mining Magazine. Authored by Steve Maxwell, Triple Point’s resident mining supply chain expert, the piece details the dangers of relying on spreadsheets for mining supply chain management, making the case for advanced supply chain management systems. Read it now.

roller coaster economyNews-grabbing headlines highlighting commodity price increases due to weather-related and other supply issues have completely shifted the dynamics of Commodity Management and broader procurement, sourcing and supply chain management activities.

According to advisory group Spend Matters, organizations are observing radical commodity price fluctuations of up to 40% which are having a massive impact on their P&Ls. However, despite this volatility and its impact, precious investments in technology solutions and skilled resources often go towards other areas of the business rather than being allocated towards efforts to control, mitigate and manage commodity risk. Companies that allocate little or nothing towards Commodity Management head down a very dangerous path towards declining returns and higher risk profiles.

A new white paper from Spend Matters, “Beyond Sourcing and Supply Chain: Commodity Management Solution Fundamentals,” explains that “now is the time for organizations to make the right set of investments in Commodity Management.” It outlines the business case for Commodity Management, including how to build a quantifiable argument to invest in the right team, processes and solutions to take action in the current environment. Read it now and learn how to prepare your organization to manage the dips, twists and turns of today’s roller coaster economy.

Ann SurrattAre you struggling with disparate commodity trading systems, overuse of manual processes and spreadsheets, and underuse of third party solutions?  Have dramatic changes to the energy markets outpaced your technology capabilities?

If you know you need to upgrade your Energy Trading and Risk Management (ETRM) system, but are overwhelmed by the idea of ETRM vendor evaluation, ETRM system selection, and ETRM implementation, you are not alone. Structure’s Baris Ertan recently wrote an article on how to determine ETRM requirements.  He explains that if you ensure the right ETRM requirements, “you’ll be rewarded with a system that meets your needs and prepares the organization to take advantage of the opportunities afforded by today’s complex and ever-changing energy markets.”

A few tips that I found particularly useful include:


1. Create a process review that includes an “as-is” baseline and “to-be” vision
.  Market demand, price volatility, and derivatives legislation continue to drive change in the energy markets. He smartly advises to incorporate planned growth in commodities, instrument types, physical assets, geographies, markets, currencies, etc.


2.  
Engage front, middle, and back offices in requirements gathering. The best solutions for staying ahead of the curve in today’s complex markets are end-to-end solutions. It is critical to involve IT, compliance, legal, procurement, and senior management in this strategic initiative.


3.
 Consider integration strategy early
. Does a best-of-breed or a single system approach best fit your resources and capabilities? Baris explains that “an early investment in time on this process pays dividends. It is a key input into a requirements matrix that feeds vendor evaluation, implementation planning and estimations, solution design, testing, and ultimately deployment.”


4.
 Conduct scenario
based demonstrations.  Your business requirements are unique.  Baris advises, “it’s crucial to translate business requirements into detailed business scenarios that each vendor can model and use to showcase its solution.”  I couldn’t agree more.


Determining your ETRM requirements is vital in conducting a rigorous vendor evaluation that renders the best functional and technical fit for your organization. A company can’t underestimate the importance of doing
it right – taking shortcuts or rushing the process can have severe long-term financial and operational ramifications that are difficult if not impossible to rectify.    

For more ideas on how to determine ETRM requirements, view on-demand Triple Point’s recent Commodity Trading, Procurement, and Risk 101 webinar.  It highlights the latest must-have requirements for ETRM success.

Freight-Risk-ManagementIf your answer to the above question is anything less than ‘very,’ your company’s future may be at risk.

In the turbulent seas of the shipping industry, understanding the true market value of your fleet is the difference between sinking and swimming. Performing frequent mark-to-market (MTM) valuations is an integral part of doing business. However, due to the volatile nature of the industry, the complexity of calculating freight rates, and flaws inherent in popular valuation methods and tools, companies often end up with inaccurate numbers. This provides an erroneous picture of financial standing that can result in lost profits, faulty decision-making, and ultimately the demise of an entire business.

To understand the challenges associated with calculating accurate MTM valuations and how to address them, I encourage you to read a new article in The Baltic by Javier Navarro, Triple Point’s Freight Risk Solutions Manager. It offers a detailed look into this subject that is intended to help companies gain a competitive edge and stay afloat in the rough waters of the cutthroat shipping industry. Read it now

Accenture LogoIs your commodity trading and risk management system adequate for the “new normal?” New regulations in the US and Europe, extreme price volatility, capital constraints and shorter cycle times demand new risk management strategies.

Triple Point recently hosted a webinar with Accenture’s commodity trading and risk management expert, Alex Chandy, on the latest trading and risk management best practices. Triple Point’s own risk expert, Greg Leck, also discussed how Triple Point’s leading CTRM solution delivers up-to-the-minute risk intelligence to manage portfolio risk exposure, set limits, and control risk.

The webinar highlighted valuable tips on how to deal with today’s market chaos and uncertain regulatory environment. Key takeaways included:

1.     How to optimize risk and create opportunity in the face of
high frequency trading

2.     Tips on how to avoid losses and identify hidden risk with
broader scenario analysis

3.     A clear understanding of the Commodity Super Cycle and
what it means to your business

4.     Why it is NOT and Excel world anymore

Ann Surratt
The Commodity Management Blog has been closely following the top Commodity Management issues throughout the year. Not surprisingly, posts discussing Dodd-Frank top the list.  Below is a complete list of the 10 most popular posts over the past 12 months based on views and shares.  We thank you for following us and hope these posts have provided valuable tips on how to manage commodities smarter.

We have some really great things in store for 2012, so here’s to a year of fresh ideas for Commodity Management!

Michael SchwartzA December Financial Times article that reported oil price volatility in 2012 could swing between $50 and $150 a barrel might prove quite prescient.  The story, “Fat-tail fears catch oil traders between $50 and $150 bets,” noted that investors are concerned about events that could cause large swings in oil prices.

On the one hand, eurozone debt issues could drive oil prices much lower, but on the other hand, a crisis with Iran (or elsewhere in the Middle East) could send prices much higher.  In the last few days, we’ve seen the saber-rattling between Iran and the US send Brent crude rising by more than $4 in a day to $111.

At the risk of stating the obvious, the commodity volatility trend of recent years will continue in 2012. Rapid and large price swings are not going away – if anything, volatility is getting more extreme.  How commodity volatility is managed will be an incredibly important factor in determining company profitability moving forward.

The key phrase for organizations doing business in these volatile markets is “risk management.”  With the proper processes and systems in place, risk can be turned to competitive advantage.

Here’s to a profitable 2012 for all!

Michael SchwartzFord Motor Company reported 3rd quarter earnings and noted how commodity volatility hurt margins during its earnings’ call.

In fact, reported earnings were harmed both coming and going; as commodities rose in price and again as they came down.  Ford’s operating margin was down 1.4% from a year ago, and this “margin decline can be more than explained by higher commodity costs,” stated Lewis Booth, Ford’s Chief Financial Officer.  “Contribution costs, which include material cost, warranty expense and freight and duty, increased.  About 2/3 of the increase is due to commodities.”

Okay… margins hurt by rising commodity prices is a familiar story we see these days with manufacturing companies that haven’t yet adopted advanced commodity risk management techniques and processes.  But, in Ford’s case, their earnings were also hit as commodity prices came down.

“In addition to higher commodity cost compared to a year ago, we recognize the unfavorable mark-to-market adjustments of about $350 million on commodity hedges, driven by a sharp decline in commodity prices.”

Ford is not applying hedge accounting treatment so they recognize the loss on the financial instrument in the current period.  “These changes in market value do not have an immediate cash impact, although the change in value is reflected in current earnings.”

The exact problems noted in Ford’s earning conference call are the issues that Triple Point is solving for its clients. Commodity volatility has risen dramatically in the past few years and manufacturing companies need to adopt new techniques to manage commodity risk.  Triple Point introduced its Strategic Planning and Procurement (SPP) module to help manufacturing companies better track, measure, and control commodity risk.  In addition, Triple Point provides the most robust commodity hedge accounting solution.   As we’ve said on many occasion, this is not a wait and see problem.  Those that tackle commodity risk now will gain competitive advantage.

Read earnings call transcript – http://seekingalpha.com/article/302387-ford-motor-s-ceo-discusses-q3-2011-results-earnings-call-transcript

OracleOracle’s annual OpenWorld conference was held in San Francisco last week, and Triple Point’s chief technology officer, Doug Daugherty, took center stage to unveil the results of Triple Point’s Oracle Exadata benchmark study. The study took place over a two-week period in Oracle’s Exastack Lab and demonstrated Triple Point’s record performance levels for the near real-time valuation of massively large and complex commodity trade portfolios.

The Q&A session that Daugherty took part in was mediated by Judson Althoff, SVP of worldwide alliances & channels and embedded sales, Oracle. As one of three featured Oracle Exastack Ready partners, Daugherty described Triple Point’s two-week performance trial with Exadata to an audience of over 4,500 Oracle stakeholders.

Doug reports that there was a lot of buzz at the conference about the newly launched Oracle Exastack Program. Triple Point is excited to be one of the key inaugural members of the program.

• The Oracle Exastack Program helps enable ISVs and other OPN members to rapidly build and deliver faster, more reliable applications.

• Since the Oracle Exastack Program was launched just over three months ago, partners have achieved over 150 Oracle Exastack Ready milestones for Oracle Solaris, Oracle Linux, Oracle Database or Oracle WebLogic Server. This rapid adoption of the program is a testament to the importance and value both partners and Oracle place on these kinds of enablement resources.

• Partners include ADP, Beijing Teamsun, cVydia, Essatto, F5, GoldenSource, INFOPRO, IBIS, Informatica™, I-ON, Lingotek, Neusoft, PhinCon, Smart Developer, Solix, Teleran and Triple Point, among others.

• By deploying their applications on Oracle Exadata Database Machine and Oracle Exalogic Elastic Cloud, ISVs can reduce the cost, time and support complexities typically associated with building and maintaining a disparate application infrastructure – enabling them to focus more on their core competencies, accelerating

By achieving Oracle Exastack Ready status, Triple Point can use available Oracle Partner Network (OPN) resources to optimize its applications to run faster and more efficiently — providing increased performance and value to its customers.

The charge to achieve Exastack Ready status was lead by Triple Point’s Emerging Technolgies Group. The ETG is responsbile with staying abreast of the fast-moving and dynamic technology markets to guarantee that Triple Point maintains its significant leadership position in the use of technology to solve critical business problems. They conceive, design, and prove — with lab-based experiments and scenario simulation — next generation advancements to Triple Point’s Commodity XL™ technology architecture for continued excellence in scalability, high concurrency, and processing performance.

As Doug recently said in a press release regarding the conference, “Triple Point has always prided itself on having the most advanced technical architecture and delivering the best performance and reliability. Achieving Oracle Exastack Ready status is another example of Triple Point’s commitment to maintaining its technological leadership.”

I look forward to seeing how the Oracle Exastack program grows. If the response it received at OpenWorld is any indicator, it looks like it is going to be huge success. Triple Point is proud to be a part of the program and looks forward to OracleWorld 2012.

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