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Software essential features of a modern green coffee procurement software system: exploring the ways in which selecting the right software system can ease the green coffee trade.

Allocating an 800-bag green coffee ale contract to a 1,000-bag purchase contract would not, at first, appear to be a significant business problem. However, consider the "real" scenario in a typical green coffee trading enterprise:

* Hundreds, or thousands of open physical purchase and sale contracts, in varying stages of price fixation and logistics.

* Any sale contract capable of being allocated, or applied, to any purchase contract(s), with the allocation quantity varying with each application.

* Each open purchase and sale contract differing in specific details, including price, quantity, coffee type, delivery date, origin, destination, etc.

* If a contract is price-to-be fixed, the contract's "effective" price (i.e., option month's market price plus contract differential) will be varying constantly.

* Each contract contributes to realized and unrealized profit-and-loss, in an environment of changing market prices.

* Futures contracts, on various exchanges, may be hedging these physical contracts, and making their own contributions to profit-and-loss.

* Contracts may be in various currencies, and thus subject to the additional effect of exchanges rates, and may themselves be hedged by currency futures.

* Dozens of coffee grades, in varying weights per bag, and with unique marks, bills-of-lading, units-of-measure, etc., are stored at, or moved between, numerous inventory locations across the globe.

* Invoices going to customers, in response to shipments, must be accurately and promptly generated.

To meet the challenges of profitably managing these activities with manual procedures, is obviously a formidable and error-prone task.

Fortunately, this process has been largely automated with modern information technology, and integrated into useful and economical systems that take advantage of the latest advances in computers, multi-user networks, and Internet communication.

The ideal modern system, regardless of how it is customized for the user's special requirements, should meet two objectives:

* The rapid and accurate reporting of realized and unrealized (i.e.," mark-to-market") profit-and-loss.

* The computing of traffic and logistics inventory positions, to confirm that the is sufficient supply, as represented by purchase contracts' total on-hand balances plus un-received quantities, to meet demand, as represented by sale contracts total unshipped quantities, for a given coffee grade and physical location.

Ultimately, as supply meets demand, and as sales are allocated to purchases, unrealized profit dollars flow through to realized profit dollars.

In an effective software system, comprised of many linked modules, there is a logical flow of green coffee from the physical purchase to the physical sale, starting with the original contract execution in trading, and the eventual entry of the actual receipts against the purchase, when the user company takes possession of the coffee, and then any movement (or transfer) of the coffee between various inventory locations, still against the purchase contract and during which the company maintains ownership. That is followed by the shipment of the coffee to the customer, against the sale contract, at which point the user company relinquishes title.

Accompanying these many transactions, of course, are the myriad required traffic documents, along with the resulting changes in balances-on-hand for all coffees and physical inventory locations.

Finally, the system permits the entry of all accounting data, including final pricing, freight costs, warehousing and insurance costs, etc., and pro-forma and final invoicing to the customer.

It should always be stressed that the system is a management reporting tool. It does not advise how to trade, but rather computes the results of the trade, enabling the user to make adjustments and decisions as appropriate.

Trading

This broad system function should allow the entry, and subsequent updating, of all physical purchase and sale contracts, including coffee type, quantity, price, unit-of-measurement, delivery/shipment date, origin and destination, basis (immediate, spot, etc.), position (ex-dock, FOB, etc.), conditions, payment terms, etc.

Contract prices may be fixed, price-to-be-fixed, or partially fixed. If price-to-be-fixed, the differential will refer to the proper futures exchange and option month. Partial price-fixations are computed by automatic pro-rating by the underlying hedges, or by specific fixations.

Price-fixing letters are generated automatically. Sales may be applied to purchases in any combination, but their total application cannot exceed the sale contract quantity itself.

Unrealized profit should be calculated based upon the unallocated quantity of the individual purchase and sale, its contract price (fixed and/or unfixed), and the market differential pertaining to the delivery/shipment date of the contract, or else a specified market price. Realized profit should be calculated based upon the allocation quantity of the sale to the purchase, and the difference between their effective contract prices.

[ILLUSTRATION OMITTED]

Futures contracts may also be processed, in terms of number of lots (or partial lots), contract price, option month, and broker, A futures contract may hedge any physical contract. Based upon closing exchange prices, the system will calculate both their unrealized profit as hedges, and realized profit after liquidation. Futures may be "switched" to different months, and options and margin reporting are included.

Complete position reports should show all purchases with their applied sales, as well as the unapplied portions of both. Hedges are also shown, properly pro-rated across applications.

Both summarized and detailed profit reports may be tabulated, in two ways: 1) by the individual coffee grade, and 2) by the purchase contract, with all its allocated sales and underlying hedges, followed by all unallocated purchase and sale quantities. Also included should be brokers' commissions, shipping expenses, etc.

An effective prompting capability will ask for just the market prices and differentials required for calculations. And all purchases and sales contracts should be printable in various formats to comprise a legal document to be transmitted to suppliers and customers. Hypothetical "what-if" scenarios can also be entered, to compute their potential effect on profit-and-loss.

Traffic

This system function should allow the entry of actual receipts into a location, and movements between 2 locations, pertaining to the purchase, and actual shipments from a location, pertaining to the sale. Traffic, or logistics, permits the feedback of the actual inventory situation, so that trading can make adjustments as necessary.

[ILLUSTRATION OMITTED]

Complete inventory monitoring is provided, including balance-on-hand, for all coffees at all locations and in-transit (e.g., warehouse, pier, ship, spot, etc.). Un-received purchase quantities, as well as un-shipped sale quantities, are also computed. Inventory balances at a specific location may not be allowed to go negative. Hence, a purchase contract movement, or a sale contract shipment, from a location may never equal more than the current quantity-on-hand.

Traffic transactions are automatically reported back to their "parent" purchase/sale contract, to show the contract's percent fulfillment, early/late deliveries, etc. Sampling orders and delivery orders are also printed.

Accounting

All shipments result in pro-forma and final invoices. All line items are included, as well as special charges, discounts, and credits. An accounts/receivable aging report is produced. Contracts are finalized with actual expenses, and all data can be exported to the company-wide accounting system.

Leslie White is a registered professional engineer and consultant, and has over 10 years' experience in the design and implementation of green coffee trading systems. He is currently director of sales Engineering at Interface Associates, Inc., Suite 176, 54 Danbury Road, Ridgefield, CT 06877. Tel: +1 203-438-7120, Email: lwhite@agrisoftware.com, Web:www.agrisoftware.com

(Leslie White, P.E.)
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Title Annotation:Software Solutions
Comment:Software essential features of a modern green coffee procurement software system: exploring the ways in which selecting the right software system can ease the green coffee trade.(Software Solutions)
Author:White, Leslie
Publication:Tea & Coffee Trade Journal
Geographic Code:4EUFR
Date:Nov 1, 2009
Words:1186
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