Commodities Lectures Series - Understanding the difference between Sourcing, Origination and Merchandising in commodities trading

Sourcing, Origination and Merchandising have to do with deal flow in a Physical Commodities Trading House.

Sourcing has to do with buying commodities already loaded onto a vessel in a port (Free on Board or FOB). FOB markets are very competitive and timing the purchase is a matter of sheer diligence, network of contacts and often good luck on the part of the Sourcer. Sourcing is very often not a client facing activity but does need extensive networking with carriers and with commodity traders in other geographies. A Sourcer will seek arbitrage opportunities based on their geographic location and the supply/demand in that area (location arbitrage) or time delay between when a particular commodity is bought and the time when it is delivered (time arbitrage) to trade FOB commodities with counterparties.
Origination on the other hand is a strictly client facing activity involving vast knowledge of the trading house's client's markets expanding the trading desk's reach. An Originator engages clients of the trading house and to propose or provide strategic solutions for their particular commodity commercial need through the products and services his trading house provides. Solutions can take the form of mediating a forward delivery of crude to complex, multi year engagement of developing, producing, marketing and selling of an energy producing asset (e.g. natural gas field). Origination often involves purchasing commodities directly from industrial farms, oil drillers or mines, coordinating with other functions of the trading house (trading, structuring, operations, quants, credit, legal, compliance, IT among others) to handle everthing from the logistics to get that commodity from the farm, oil well or mine to a port and shipping it to a client's warehouse, foundry or refinery.
Merchandising is essentially the process of purchasing, transporting and wholesale distributing commodities to end customers over deferred time periods or demand markets. A Merchandiser is often the counterparty from a client's side to an Originator from a trading house. Merchandisers work with Sourcers ad Originators from a trading house in locating, purchasing and customer account management as it relates to a particular commodity. Sourcers and Originators are the supply side of trade, essentially bringing commodities to market where as Merchandising often has to do with demand fulfillment. The full trade cycle can be thought of as Sourcing, Origination and Merchandising.