Commodity Management

Commodity Management

What Is Commodities Management

commodity-management

A commodity is a basic good or raw material which is bought and sold by individuals and/or institutions. Commodities are often extracted, produced and sold in such quantities as to support liquid, global trade markets which allow producers, consumers and financial traders to transact business. Commodity management are essentially used as building blocks for more complex goods and services. They are standardized and interchangeable with other goods of the same type and can be divided into four categories:

  • Agricultural:food crops (e.g., corn, cotton and soybeans), livestock (e.g., cattle, poultry) and industrial crops (e.g., lumber, rubber and wool) are included in this category.
  • Energy:petroleum products such as crude oil, natural gas, coal, uranium (used to produce nuclear energy), ethanol (used as a gasoline additive) and electricity are included in this category.
  • Metals:Precious metals and base metals are in this category (e.g., gold, silver, nickel, steel, iron ore, tin and zinc)
  • Environmental: This category includes products such as carbon emissions, renewable energy certificates and white certificates

All these commodities need to be properly managed if they are to be optimized. What then is commodities management?

Commodities Management

The commodity market is prone to volatile commodity pricing, which has the potential to wreck trade investments. This is why proper management is key. This is because commodity management offers traders the opportunity to

Management refers to the process of developing a methodical approach to the entire usage cycle for a group of commodities. It is regularly used interchangeably with Strategic Procurement, Merchant Management and Category Management. The aim is to manage the operational risks that attend the production and trade of commodities.

Although commodities management is generally considered as one aspect of the Procurement Management toolkit and is frequently used in other contexts like managing the availability of scarce resources, it is meant to incorporate all the strategic activities and responsibilities that are involved in the production, procurement and trade of commodities.

Some of the responsibilities that covers include relationship management, supplier sourcing, terms and conditions, market analysis and trendsetting, quotations, negotiation strategy, and business awards. Others include logistics of commodities, inventory and cash cycle management. It requires strategic planning to ensure that market forces do not negatively impact trade investments.

With digitization and other technological advancements, the task of managing commodities just got easier. How? There is a horde of software out there that makes the task of commodities – integration of processes and facilitation of collaboration-much easier. This enables traders to make better decisions and reduces the risks associated with commodity trading.

commodity-management

Takeaway

Commodities management is highly important in the commodities market, especially with the increased volatility of commodity pricing and needs to stay ahead of the competition in the commodities market. It is a complex process that requires a measure of expertise and know-how. Fortunately, traders do not need to fret over the management of their commodities as there are lots of software and seasoned professionals that are in the business of handling commodities management.

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