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• Consumer Goods

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  with Risk Management
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Commodity Procurement for Manufacturing

In Manufacturing Companies, the Purchase Order may not be the first phase of the Supply Chain, but the acquisition of Raw Materials by negotiated contract. The availability of the commodities from these contracts has a direct impact on production, but in many cases are not visible to Production Scheduling. These commodities typically have a high value and high cost with volatile pricing on open markets. Many manufacturing organizations buy raw materials under predetermined contract terms and are responsible for the shipping of those commodities. The manufacturing company must be agile in its processes and procedures to ensure not only the timely transportation of the commodity to their production plants but also control of all costs associated with a contract.

Larger manufacturing organizations may have 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. In the current economic climate manufacturers need access to as many tools as possible to help them mitigate risk.

Unlike stand-alone Commodity Trading systems, or in-house systems using dozens of spread sheets, Scalable's Commodity Procurement for Manufacturing solution is tightly integrated with the Dynamics AX manufacturing process through the MRP modules to ensure Raw Material/Commodities are resourced and delivered on time. This helps prevent delays in the production schedule and allows Manufacturers to adopt just-in-time production strategies that strive to improve cash flow by reducing inventory levels and the costs associated with higher inventory holdings.

Allocation and accrual of all additional cost information associated with the acquisition of raw materials and shipments improves the flow of information from trading, logistics and production to the financial department. Improved access to contract position details contributes to improved efficiency in logistics, production and risk management functions. In addition manufacturers can hedge futures and foreign exchange contracts to minimize the effect of volatility of raw materials pricing. Details of these hedged contracts are also available inside of Dynamics AX and help improve overall financial reporting.

The procurement of physical commodities directly effects the operations of many manufacturers. Sourcing the right quantities and qualities of a given commodity immediately impacts the costs and profitability of subsequent products and not having the readily available information can be a risk factor. Due to the unpredictable nature of commodity markets, many manufacturers face difficulties with the efficient administration of contracts, shipments and associated risks. Often this information is captured in separate systems or spread sheets within separate departments. This inhibits efficient data flow and therefore communication between the procurement, trading, logistics, manufacturing and finance departments.