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)
