The Project:
Companies with significant exposure to commodities can experience a substantial negative impact on the bottom line when prices move adversely. When companies can accurately forecast and plan for a fixed or capped cost, it helps alleviate the commodity price risk, reducing the uncertainty of their operating costs and bottom line. These companies “hedge” commodity exposure with derivatives (futures, swaps, and options) to mitigate the risk of price fluctuations.
Annually, our client procures approximately $3.3 billion in commodity inputs as a cost of doing business. A dated version of the Allegro ETRM system in use had not changed with the client’s business, resulting in numerous issues. For our expertise in ETRM systems generally and Allegro specifically, EPAM Commodities was chosen to assist in evaluating options and provide recommendations.
Key tasks included:
- Assessing the current state Allegro software: understand how it was being used to support hedging, settlement, risk reporting, and hedge accounting, and make recommendations for software enhancements. Also, provide cost estimates to potentially upgrade Allegro to the most recent version.
- Facilitating a market assessment of alternative suppliers: define functional and technical requirements, issue a request for proposal (RFP) to shortlisted potential vendors, create scorecards, coordinate vendor presentations and demonstrations, and collect, analyze, and summarize final findings suitable for the client’s decision-making.
For both the above activities, EPAM prepped a 5-year total cost of ownership (TCO) analysis. For Allegro, costs were provided to upgrade, enhance, and run-and-maintain the Allegro software. For the alternative supplier evaluation, similar costs were provided to procure, deploy, and run-and-maintain their platform.
Intrigued by the results the client launched a transformational program to execute in line with the outcomes.
Industry
Transportation
Commodities
Refined Products
Technologies
Allegro
SAP
Market Price Data Providers
Trading Exchanges
Alternative ETRM Vendors: EKA, Enuit, and Hitachi
Solution Offerings
Trading and Risk Management Software Solutions Assessment
Allegro Health Check
Software Selection Process
Final Summary of Findings
EPAM Commodities Provided:
As recognized experts in commodity business processes, as well as technology offerings like Allegro and many other energy trading risk management (ETRM) platforms, EPAM provided our expertise in Strategic Advisory & Planning.
Client Benefits:
A rapid launch of the project, enabled by EPAM’s deep expertise in the implicated business processes, made for minimal impact to client’s work schedules. EPAM provided in advance detailed workshop agendas and discussion plans, with specific questions that needed to be answered.
“In parallel” workstreams allowing both the Allegro analysis and alternative supplier evaluation to continue in tandem, which maximized efficiency and minimized impact on the client.
Final assessment results and multi-year budget provided the client with the business case for change necessary to obtain approvals for the subsequent program phase.