ADVISORY Archives - Value Creed

Elevating Trading Operations Excellence Through Strategic Business Process Design

In today’s rapidly evolving commodity landscape, the quest for trading strategy, precision, and having the right tools at your disposal for efficiency is paramount.

Whether your organization is in its infancy, grappling with growth challenges or aiming to diversify into new industry sectors, the strategic design and foundation of your business processes are essential. In this blog, we delve into why business process design is your secret weapon in the world of commodity trading and how it can transform your operations. We will also pinpoint when it’s time for a redesign.

Significance of Business Process Design

Business Process Design is the foundation of success in Commodity Trading and Risk Operations. Its importance can be broken down into key principles that strengthen a company’s competitive position in this complex field.

In summary, a well-designed business process seamlessly integrates with existing systems, and workflows, while also defining how these processes interact with each other. Meticulously crafted processes foster better coordination and synergy across the organization, leading to improved overall efficiency and productivity. Additionally, it enhances visibility, providing near real-time access to information facilitating swift decision-making, and identifying any performance or compliance gaps.

When to Consider Business Process Redesign

Commodity trading organizations progress through distinct phases in their lifecycle. We have used CBOLTM as a guiding framework to gauge whether a company is in its early formation and maturity stages or experiencing significant growth, either through organic expansion into new markets or via inorganic means such as acquisitions. In both scenarios, it is imperative for companies to assess and potentially adapt their business processes, albeit for different reasons.

When a company finds itself in the formation and maturity stages, it often grapples with resource limitations. Consequently, its processes must factor in the expertise gap and the technological challenges inherent in managing complex ETRM systems.

Conversely, in the case of substantial growth, a comprehensive review of business processes becomes essential. This review should aim to establish consistency and scalability across various business segments while accommodating variances that may arise due to differences in commodities traded or the regions in which the company operates.

Navigating the transitions between these stages demands addressing distinct sets of responsibilities, risk variables, and pivotal decisions. Effective management, especially during a period of sustained expansion, is not only crucial but also entails the additional challenge of resource optimization. This is especially pertinent in the current landscape marked by constraints on both capital and human resources.

Strategic Approach to Business Process Design in Commodity Trading: Building for the Future

In the realm of commodity trading risk management, the process of designing business procedures extends beyond merely assessing the current state; it necessitates a keen understanding of the future vision. Your business processes must exhibit the resilience required to seamlessly execute that envisioned future.

Consider, for instance, the case of incorporating a robust risk governance framework into your trading operations as a future imperative. It becomes paramount to integrate these considerations into your current process design efforts. In our approach, we accomplish this by aligning with industry best practices and engaging in in-depth dialogues with pertinent stakeholders. Through this collaborative effort, we pinpoint process gaps and strategically prioritize those aligning with the company’s future vision thereby ensuring long term efficiency, scalability and flexibility in trading operations.

Below is a high level view of our approach to business process design:

Assessment

Review and analysis of current state functions

Prioritization

Target the processes most amenable to optimization

Planning

Interview stakeholders to define process goals

Comparison

Confirm current practices to industry best practices

Execution

Carry out client approved workflow optimization

Future Proof

Plan future-state scalability and functionality

Unlocking Success with Meticulous Business Processes: Building a Strong Foundation

By prioritizing well-crafted processes, commodity trading companies are empowered to secure their competitive edge, enhance scalability, and navigate the ever-evolving landscape. Whether as an organization you are at the inception stage or experiencing rapid growth, it’s essential to recognize that your business processes form the very foundation upon which trading operational excellence is built.

Strategic business process design serves as the key for achieving success, driving efficiency, managing trading risks, and ensuring compliance. It serves as a compass guiding organizations through diverse phases of their lifecycle, adapting to resource constraints or growth challenges.

Strategic business process design serves as the key to success, driving efficiency, managing risks, and ensuring compliance. It is a compass guiding organizations through different phases of their lifecycle, adapting to resource limitations or growth challenges.

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Looking to Manage Inventory Costs for Liquid Commodities Effectively?

Conventional manual methods and third-party systems might not provide the needed real-time accuracy for inventory costs and valuation. Additionally, calculating costs for individual units of inventory, especially within a range of contracts, can be time-consuming. The introduction of RightAngle’s latest version, S21.1, featuring the Daily WACOG by Contract capability, addresses the need for accurate, real-time inventory valuation.

Unlike traditional methods that struggle to reflect daily commodity price fluctuations, the new feature in the latest version of RightAngle closely aligns inventory valuation with market dynamics, benefiting businesses with high daily sales volumes. Implementing inventory valuation methodology of WACOG in an integrated system like RightAngle streamlines inventory management and enhances risk and accounting practices. We recommend that our clients embrace RightAngle’s WACOG method, as it offers a comprehensive remedy for efficient inventory management. This solution capitalizes on industry-specific attributes, tailoring options, and alignment with regulations, all of which combine to enhance effectiveness, accuracy, financial gains, and competitiveness.

Addressing Inventory Cost Challenges

Challenges in managing inventory costs accurately are widespread. Manual methods can lead to inefficiencies, errors, and compliance risks that affect decision-making. The absence of real-time inventory data visibility can hamper competitiveness, and the complexities of calculating costs for liquid products are a recognized concern.

Current complexities involve disjointed systems, manual calculations, lack of integration with workflows, and the inability to capture frequent price fluctuations inherent in liquid commodities, which ultimately leads to inaccurate cost estimates. Additionally, the continuous flow nature of liquid commodities makes precise inventory tracking difficult, as factors like shrinkage, blending, and measurement inaccuracies can lead to discrepancies in quantity and cost assessments. Managing inventory across various storage facilities, determining appropriate pricing points for cost allocation, and adhering to regulatory standards further contribute to the complexity of the process.

Absence of real- time inventory data
Disjointed systems
Manual Calculations
Lack of integrated workflows
Inability to capture price fluctuations
Difficult inventory tacking

Commodity companies will employ specialized ETRM software and other peripheral systems to address some of these challenges however even then other issues like maintaining data integrity, resource-intensive inventory data updates, error-prone reconciliation processes, and the manual marking of transactions are prevalent in accurately tracking inventory costs and value.

Benefit from Real-Time Insights, Customization, and Precise Reporting

Selecting RightAngle for implementing WACOG inventory valuation for liquids commodities offers several advantages over other ETRM solution alternatives. The integration of WACOG modeling into RightAngle is customized to suit the business’s needs, utilizing the platform’s robust reporting capabilities. This encompasses features like contract-based cost tracking, flexible pool-based cost calculations, and daily WACOG reports for precise cost insights.

To maximize the utility of RightAngle’s inventory valuation capabilities, we recommend crafting bespoke reports within the platform that consolidate diverse inventory data points. By doing so, businesses can streamline their inventory management processes effectively. A notable case involves our creation of tailored reports for a client within RightAngle, where we amalgamated data from various sources. For instance, this approach integrated information from multiple reports, yielding insights into tank-level inventory through the Physical Inventory Interface. This encompassed valuable details, including estimates of daily end-of-day inventory. Furthermore, our solution seamlessly incorporates the Terminal Data Staging Interface, which validates terminal data to facilitate reconciliation. Moreover, the Search Terminal Inventory Recon Interface was utilized to meticulously compare terminal net quantity against transaction records, ensuring the continual updating of reconciliation statuses to promote a well-balanced inventory control system.

Additionally, RightAngle solution provides risk assessment via daily WACOG risk mark-to-market reports. Notably, the “Use Zero Values to Market for WACOG” function refines inventory valuation accuracy. Additional advantages include prior period adjustments, efficient accounting, seamless system integration, tailored reporting, and real-time data access for adaptive decision-making. This tailored implementation ensures accurate cost management, risk assessment, and reporting while catering to the client’s distinct operational requirements.

We advise clients to focus on unique business contexts and leverage RightAngle’s specialized capabilities in WACOG by contract, WACOG by pool, and Daily WACOG calculations. This tailored approach, aligned with industry best practices, sets our recommended implementation of RightAngle features apart from other available options and ensures that it precisely meets the client’s current situation and needs.

Strategic Edge: Enabling WACOG Implementation

The utilization of RightAngle for WACOG implementation for an organization brings a multitude of advantages, specifically tailored to meet the unique needs of the liquid energy industry:

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Enhancing NGL Management with RightAngle

In today’s ever-evolving business landscape, the imperative for streamlined, interconnected solutions to effectively manage the multifaceted intricacies of Natural Gas Liquids (NGLs) has intensified. Within the dynamic energy sector, NGLs have evolved into widely traded commodities, their significance underscored by their ecological benefits and remarkable versatility throughout the refining process. However, the intricate process of refining Y-grade products into an array of diverse sub-products introduces a labyrinthine challenge. A web of spreadsheets and documents struggles to navigate the intricate logistics spanning the entire lifecycle, right up to the end consumer.

In this blog we will talk about how we bring in together NGLs complexity and RightAngle’s out-of-the-box functionalities together through Value Creed’s expertise. We strongly advise choosing RightAngle for managing NGLs due to its specialized focus on energy and commodity trading, seamless integration capabilities, high level of customizability, efficient refining and distribution tracking, enhanced risk management features, proven track record in the industry, ease of integration, and dedicated support services.

Navigating the Complexity of NGL Management

The intricate market dynamics of NGLs arise from the distinct behaviors, demand drivers, and price correlations among ethane, propane, butanes, and pentanes, coupled with their ties to crude oil and natural gas prices. Managing NGL portfolios requires delicate balance due to these interconnected fluctuations. Seasonal demand variations, driven by factors such as heating needs and summer driving, further compound the complexity.

Blending and regrading requirements also add to the intricacy. NGLs often require blending to meet specific product specifications and market demands. Each sub-products may consist of specific blends of various hydrocarbons, including ethane, propane, butanes, and pentanes, each with its distinct chemical properties. These components are blended in varying ratios to create different sub-products with desired characteristics for different applications. Proper management and tracking of these NGL components are essential to ensure the quality and suitability of the resulting sub-products. Inaccuracies or gaps in tracking these compositions can lead to inefficiencies, sub-optimal product quality, and difficulties in meeting market demands.

Moreover, the storage types required for NGLs are diverse and specialized, ranging from underground storage facilities to pressurized vessels. The need for proper storage adds complexity to the logistics, especially considering safety regulations, volume considerations, and compatibility of stored components.

RightAngle stands out as the optimal solution, offering specialized features for NGL storage, blending, and monitoring. It ensures seamless accessibility to a wide array of sub-products, meeting diverse customer needs. Its strengths lie in integration, customization, risk management, and a solid industry track record. However, prevalent use of third-party tools like Excel introduces inefficiencies, data disparities, and operational obstacles, impeding scalability and precise decision-making.

Elevating NGL Management with Value Creed’s Customized Solutions

Fusing our expertise with the intricacies of NGL complexity seamlessly integrates with RightAngle’s out-of-the-box functionalities. We have advised a client to implement a solution designed to elevate the management of Natural Gas Liquids (NGLs) through the utilization of the RightAngle system. Our efforts entailed product setup, integration of blending/storage deal options, and modeling of the bespoke transactions, movement tracking and invoice management within the RightAngle framework. These bespoke enhancements complement RightAngle’s core features and reports, orchestrating a cohesive & integrated NGL lifecycle management that eliminates dependency on 3rd party tools and manual data interfacing.

Integrated Inventory Reconciliation Tools

Optimizes inventory management.

Enhanced Visibility

Amplified insights into sub-product refinement and distribution for informed decision-making and risk management.

Reduced Operational Costs

Enhances efficiency by eliminating dependency on 3rd party tools.

Tailored to the client’s unique trading needs and challenges, our solutions provide an all-encompassing perspective of NGL operations within RightAngle. Furthermore, streamlined business scenario mapping is achieved through seamless integration of the core application, resulting in reduced costs and complexities. This integration includes customizable deal templates featuring integrated chemical tables, ensuring accurate sub-product tracking. Additionally, movement document templates provide meticulous oversight over refining and distribution processes. Through workflow optimization, heightened precision, and advanced risk calculations, our solution consistently delivers optimal results for the client’s NGL asset management needs.

Employing RightAngle Functionalities to Advise and Deliver Tailored Solutions

RightAngle stands out as the preferred platform due to its capacity for multifaceted customization. While these tailor-made enhancements necessitates careful upfront design, and development, QA testing – they are pivotal to align the solution with the client’s business demand and system prerequisites. These personalized enhancements have yielded a favorable impact on the overall business performance, enhancing data accuracy, streamlining processes, increased user adaptability and fortifying the overall risk management capabilities.

By gaining a comprehensive understanding of NGL operations within RightAngle, the client is empowered to make well-informed decisions confidently, thereby enhancing operational efficiency and driving profitability. Through the convergence of intricate market dynamics, seasonal fluctuations, blending complexities and a tailored technological solution, businesses such as yours can effectively navigate the complex NGL landscape and position for sustainable success.

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Leveraging ETRM Solutions for Effective Risk Management

In the ever-evolving landscape of the energy industry – navigating market volatility, regulatory shifts, credit risks, and operational challenges demands a robust set of enterprise risk management capabilities to effectively monitor and address relevant risk factors. Effective risk mitigation is vital for safeguarding financial positions, maintaining compliance and driving well-informed trading strategies.

Depending on the business segment that you transact in, ETRM Solutions such as RightAngle provide the ability to generate insights and manage trading risks specific to an organization’s needs and requirements via risk reports and analytics, businesses identify, measure, and monitor risks according to their requirements. Integrating with external systems and real-time monitoring is often required to develop a holistic view of the risks. With modern technologies, workflow automation, effective risk mitigation, and decision-making can be managed in near real-time.

Enhancing RightAngle's Functionality: Unlocking Customizations

RightAngle utilizes standard risk management reports including default Mark-to-Market, risk exposure, and current exposure reports. These reports offer limited customization options resulting in a generalized perspective of risk exposures.

Furthermore, the prevailing approach to risk analysis and report interpretation heavily relies on manual efforts by risk analysts. Consequently, potential drawbacks arise, including errors in analysis, delays in identifying risks or not identifying relevant risks, and hindered decision-making due to the lag in obtaining and processing information. These limitations collectively emphasize the need for enhanced customization and automation capabilities within the RightAngle system.

Value Creed has helped extend the software functionality to bolster the out-of-the-box functionalities and optimize the system to deliver customized results and generate relevant analysis aligned with the company’s risk tolerance. We’ve successfully leveraged various 3rd party reporting tools for advanced risk management that can extract data from the system into the data warehouse and run through various digital reporting tools.

Comprehensive Advanced Risk Management Solutions

We focus on the intricacies of market volatilities, credit risk, regulatory compliance, and other complex factors that can significantly impact an organization’s financial performance and stability. It also encompasses comprehensive stress testing, scenario analysis, and enhanced risk quantification methods, such as Value at Risk (VaR) and Conditional Value at Risk (CVaR) by using 3rd party tools like Lacima, as mentioned it can extract data from RightAngle and move it into data warehouse where the data is analyzed and reported via with advanced reporting & analytical tools like Power Bi or Tableau.

Our range of solutions encompasses enhanced Mark-to-Market reports, both with and without Real-Time FX Conversion, along with comprehensive risk exposure reports and customized search reports. The enhanced Mark-to-Market (MTM) reporting offers comprehensive trade position insights, displaying risk distribution across parameters such as strategy, product, and location. Custom MTM report views incorporate calculated columns for profitability assessment, while the options view incorporates sensitivity metrics for better evaluation of options risks. Real-time FX conversion eliminates manual conversions, ensuring transparent P&L reporting in local currency. Enhanced risk exposure reports offer in-depth views of various aspects, and custom search reports streamline risk adjustment tracking, limit setting, and alert generation.

Use case: Integrated Market Risk Management and Analysis Report

Our customized Market Risk Management (MRM) and analytical solution is integrated with RightAngle. This integration allows the extraction of essential risk data from primary reports and enhances analysis for liquid and NGL product traders, generating detailed sub-reports based on refined information. While the analysis and reporting are seamlessly executed within RightAngle, an external tool developed by our team undertakes the specialized task of Value at Risk (VaR) computation using the Variance-Covariance method. This tool, although separate, efficiently integrates data from our custom Integrated Market Risk Management and Analysis Report to generate a robust statistical representation of potential financial setbacks during unfavorable market conditions, enriching the comprehension of market risk.

The report efficiently assessed risks by consolidating primary data, providing a holistic risk overview for real-time monitoring and mitigation. It aided decision-making with daily risk insights, enabling analysts and traders to optimize strategies. VaR (Value at Risk) calculation was streamlined using an external tool, projecting potential losses based on historical data. Back-testing was enhanced by comparing projections with historical outcomes, ensuring accuracy. The report offered customizable market risk insights within the RightAngle platform, promoting transparency, compliance, and improved risk management.

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Robust Program Management

We believe in “no-surprises” when it comes to project delivery and the number one way to achieve this is through program management. A collaborative project culture is established that encourages transparency and adherence to the communication protocols outlined in the program management procedures.

Guiding Principles

Success Drivers

Transparency along the way
Honest with feedback and outcomes
Utilization of SME expertise and industry standards along the way
No surprises – ensure detailed communication beyond surface-level metric tracking

Establishment of a Steering Committee with regular touchpoints
Access to key resources
Acceptable level of access to relevant documentation, systems, and reports
Strong stakeholder communication throughout the process

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Training Approach

Training is integrated from inception to the end of the project. We engage the users in training during phases 1 and 2 of the upgrade process. Our team will work side by side with the users to validate the system, and provide informal one-on-one training as well as knowledge-sharing sessions, essentially helping the users “learn by doing”.

Just as testing does not begin with UAT, training does not begin with UAT. During the Upgrade Assessment phase, we establish a collaborative culture with the message, “Endur expertise is on site, feel free to engage with your questions about Endur.” We engage the users during phases 1 and 2 of the upgrade process. In addition to the training embedded in our methodology, formal training at the start of UAT is provided. We edit our training materials to use actual examples to provide a meaningful training experience. The training experience does not end at go-live.

The training approach has four elements to execute training. The first element is Training Plan & Documentation. During this, a training plan is developed based on the impact assessment and changes. The second element is testing the training material and identifying individual training needs and deficiencies. The third element focuses on training delivery, where the training participation is tracked. The last element is about refreshing and reinforcing training which details additional training if required.

Our Hyper Care team will ensure that your users are trained in any new functionality or changes to the system. It’s a support phase that follows immediately after the Upgrade Go-Live to ensure seamless adoption.

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