For more than a decade now, new and powerful digital approaches to commodity trading as well as life, in general, have come to the fore. The world is entering into an even more rapid period of digital change. Three powerful forces are driving this phenomenon to an inflection point: consumer demand, prospects of huge benefits, and the push for new technologies. To achieve growth, beat the competition, and for companies to remain relevant in a digital world; CEOs and managers will have to take the lead in building the right digital capabilities for their companies.
Unlike the 1990s and 2000s technology revolutions, competitive edges will this time round be based on the companies that embrace digitalization and deploy it strategically in the right places and at the right timings. The risks of making wrong choices will be ripe, and even trade-offs will have to be taken; managers will have to look before they leap.
How digitalization is affecting commodity trading
When you think of how digitalization is affecting commodity trading, it all depends on where the different locations are. Markets in developed countries will be affected much faster than those in developing countries. But one thing is for sure, digitalization of commodity trading will happen eventually across all commodity asset classes, from chemicals to steel.
So here are some of the ways digitalization is already transforming the commodity trading scene.
Digitalization offers data analytics on customer information and insights that will enable a 3600 view of a customer’s needs and preferences. Digitalization will offer benefits of real-time as well as high-resolution business insights to the commodity trading industry. Data on consumer shopping habits, finances, location, search history, commodity trading, social activities, travel and advocacy among others, can be captured routinely, analysed, processed and stored. While consumers digitalize their lifestyles with more sensors and information gathering devices, commodity trading companies will gain unprecedented fresh insights into their consumer bases – this will be true if traders would have built capabilities for the same. For instance, retailers will have to adjust their store keeping units (SKUs) to allow for capturing of real-time ultra-local tastes and preferences. This will enhance store segmentation and optimization, social shopping, benefits of augmented reality, digital marketing and commerce, digital maps and digital distribution, and digital business process documentation (ticketing, receipting, invoicing, etc.) among others.
The impact of digitalization on labour productivity levels will be profound. Productivity levels will increase due to a more targeted management of labour force and automation of business processes. Data analytics leads to enhanced research and development of products. Algorithm-based trading systems are being widely used, and this enables information to be analysed in a much faster yet accurate way. Companies are also using real production lines as well as real-time supply chains. These have sensors (track and trace) for determining the precise location of commodities and the pain points in the distribution channels so as to eliminate them for an optimized customer experience. Another instance is whereby fuel retailers are installing sensors at fuel pumps so as to better understand demand patterns.
There is automatic stock deployment, smart or self-guided cars, as well as smart buildings; these will reduce the cost of human capital/intervention and increase efficiency. There will be virtual branches more or less like self-service and end-to-end trading process digitalization. Augmented reality will enable for customer’s participation in prototyping as they are able to design in 3D up to a finished product without the marketer or production manager having to travel to whatever destination the consumer or client is.
New value pools
Digitalization will allow for more precise and focused capital investments when it comes to commodity trading. It is enabling digital prototyping as well as testing unlike testing on real products which is costly, on-demand cloud, digital consulting, made-to-order, virtual stores and goods, sensor signal processing, high-speed trading, analytics based forecasting, digital savings/wallets/credits, and digital identity among others.
Given digitalization is inevitable for the commodity trading industry, but the truth is that it does not come easily and cheaply. The larger the legacy of digitalization the more disruptive it will be. The CEO and the executive team will have to make real hard and strategic decisions with regards to the following questions:
- How will digitalization affect their commodity trading business model as well as the company’s positioning within the industry’s distribution and value chain?
- How can their company best identify areas where value is being created and will they penetrate to such areas within and without the industry?
- What areas of their business model would give new entrants into the commodity trading industry ease of disrupting their business model and how can they fight such off?
- Which digitalization capabilities will they need to build if they will be the leader in the commodity trading industry?