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Bill Hamilton
SAP Commodity Management
April 17 2014
SAP Commodity Management
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Global trends Their impact on commodity management
Volatility
Customer demands are increasing.
The balance between supply and demand continues to tighten.
Geopolitical instability further fuels uncertainty.
Expansion of financial markets for commodities impacts price
liquidity.
Risk
Risk management demands increased focus by top levels of
executives.
Corporate earnings are impacted by unpredictable margins.
Availability of operating capital is constrained by global
banking liquidity.
Regulation
Regulatory scrutiny is increasing and changing everywhere.
Accounting
Derivative clearing
Hedging
Reporting
Cross-border movements
Taxes
Environmental and safety demands
There is strong demand for business solutions designed to meet
these requirements.
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SAPs approach to commodity management
Leverage SAPs core strengths in
logistics, finance, and industry solutions
Create a strategic investment area
within SAP Business Suite applications,
with a dedicated development and
solutions team
Collaborate with leading customers and
partners to build the solution road map
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Commodity management business building blocks
SAP Business Suite
Commodity
purchase process
Commodity
sales process
Commodity risk management
Commodity trading
Accounting
Analytics
Quality mgt.
Warehousing
Transportation
Manufacturing
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SAP Commodity Management our integrated solution
SAP Business Suite
Materials
management
Purchasing
Sales and
distribution
Sales
SAP Treasury and Risk Management
Commodity pricing engine
Global Trade
Manage-ment
Commodity Sales
Commodity Risk Management
Commodity
Procurement
& Sales
Accounting (financials and controlling: FI/CO)
SAP BusinessObjects portfolio
Commodity Procurement
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Global Risk Report
CM Unleaded
GAL
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Portfolio Details
CM Unleaded
GAL
USD/GAL
2.9495
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Commodity Procurement
and Sales
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Commodity procurement and sales
Capture
contract Create call-off
Transport and
delivery
Provisional
invoice
Update quality
or price
Differential
invoice
Savings and
efficiency
gains in
procurement
and sales
Integrated
with
treasury
Flexible
pricing
Multiple
invoice
cycles
Fully
integrated
in standard
purchase and
sales order
screens
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SAP Commodity Procurement and Sales
Maintain quality
requirements
Link contract to
pricing formulas
and price
calculation rules
including forward
pricing and price
fixation
Define other terms
and conditions
Capture
contract
Create
call-off
Create contract
call-off or spot
order
Specify delivery
day and quantity
Reprice using
quality factors and
formulas from
contract
Capture price
fixation
Transportation
scheduling
Transportation
execution and
delivery
Goods receipt /
issue posting
Financial posting
Transport and
delivery
Provisional
invoice
Create provisional
invoice based on
provisional period,
quotes and assay
results
Post to accounts
receivable /
payable
Payments of
invoices
Update quality
Update qualities
and quantities with
latest assay
results from
external parties
Final
invoice
Create final
invoice based on
final period,
quotes and assay
results
Post differential
amounts to
accounts
receivable /
payable
Payments of
invoices
1 2 3 4 5 6
Contract Revaluation
Month End Revaluation
Calculate and post accruals
Daily revaluation of all documents based on
forward market prices
Updated contract values for Risk Management,
Credit Management and Mark-to-Market
Market Data Handling
The SAP Commodity Procurement and Commodity Sales applications
provide commodity-specific
functionality from capturing commodity contracts through
logistics fulfillment to invoicing and
settlement including full integration with SAP Commodity Risk
Management.
Definition and calculation of commodity price curves Upload
market price data
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Commodity pricing for a typical commodity procurement
and sales process
VP procurement
and sales
Commodity
supplier
Products
Final
invoice
Define quotation sources
Average both quotation values and currency conversion values
over quotation periods
Perform quality-based pricing on multiple minerals and metals
content
Agree on estimated quality with bonus, penalty definition, and
calculation rules
Define treatment charges
Define rebates and discounts
Purchase
or sales
contract or
order
One-time definition
Provisional
invoice Goods
receipt
Differential
invoice
Final assay First assay
Upload market prices from multiple sources (London
Metal Exchange, CME,
Reuters, NYMEX
or other reference prices)
Commodity price
calculation
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Simplified Deal Capture Example
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Complex Pricing for Commodities
Commodity pricing engine
Market price based
Formula driven
Quality characteristics
Formula editor
Reusable
Security based roles
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Commodity Pricing Functionality Order & Pricing Summary
Material a combination of commodity and non commodity pricing
conditions
Commodity Pricing Conditions
Tied to Market Curve
Futures or Basis Pricing
Customer Defined
Reusable
Physical Revaluation
Contract Price
Market Price
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Commodity Pricing Functionality Pricing Elements Table
Material a combination of commodity and non commodity pricing
conditions
Standard Pricing Conditions
Quality
Freight
Brokers
Purity
All can be included
in formulas with
Commodity prices
and formulas
Tiers
Tables
Discounts
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Commodity Pricing Functionality 4 Categories of Pricing
Conditions
1. Term Values - Maintains term status, priced
volume, market price & term definition
2. Price Fixation - Allows for portions of the
contract to be fixed at a price, whilst
remaining volume floats against the market
3. Term Settings - refines the Term Values with
the definition of Term and Calculation rules.
4. Quotations - Captures the Quotation Period,
Quotation Source and the individual
quotations themselves
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Commodity Pricing Engine Functionality Discussion of Term
Values
Covered Quantity
Price type
Pricing Terms for Provisional final
Invoicing/Settlement
Formula/Term Keys
Averages
Reusable
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Commodity Pricing Engine Functionality Discussion of Price
Fixation
Convert Floating Prices to Fixed Prices per contracts
Buckets or Time
Periods
How to fix price
Quantity
Percentage
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Commodity Pricing Engine Functionality Discussion of Term
Settings
Define which
business/contract
data will drive pricing
Specify price calculation is used
over the term e.g. average, maximum, minimum
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Commodity Pricing Engine Functionality Discussion of Quotation
Periods
Delivery period based
Move with changes in delivery date
M, M-1 M+1
The solution offers flexible Quotation Periods which are
customer definable
Further refined using
date offsets & Time UoM
routines
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Commodity Pricing Engine Functionality Discussion of Quotation
Periods
Solution provides comprehensive exception management
functions
Customers are free to define how exceptions are
managed
Underlying market
calendars drive date
logic
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Commodity Pricing Engine Functionality Quotations
functionality
Period over which
quotations are
recorded
Quotation source and
type of price to be
recorded
Market quotations stored against the
contract and status of each quotation
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Fixed Price Ethanol
exposure
(PO No. 4500018999)
Floating Price Unleaded
Exposure
(PO No. 4500018999)
Risk Reporting Risk Breakdown of Purchase Order
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Commodity Risk
Management
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Commodity risk management
Managing
physical risk
exposure
Assessing risk
Executing
hedging
strategy
Deal
administration
Accounting
and settlement
Hedge
accounting
Real-time
position
reporting
Integrated
with
logistics
Full suite of
commodity
instruments
Detailed
risk
reporting
Fully
integrated in
hedge and
standard
accounting
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SAP Commodity Risk Management Process flow
Automatically created exposures generated
from physical activity
Manage exposures created from Demand
or Supply Planning
(forecasts)
Exposure
Management
Deal
Capture
Deal
Administration
Validation of paper
deal (segregation of
duties)
Bilateral confirmation
handling
Accounting and
Settlement
Determine financial
positions
Manage margins
Perform month-end
valuation: fair value
calculation and
balance sheet and
income statement
postings
Settle financial deals
and create payments
(AR/AP)
Hedge Accounting
Define hedge plans
Maintain hedging
relationships
Measure effectiveness
Create hedge
documentation
Post hedge accounting
results to the general
ledger
1 2 3 4 5
The SAP Commodity Risk Management application provides robust
functionality enabling companies to
identify and quantify their exposure to commodity price and
foreign exchange risks on a real time basis
leading to effective risk management decisions.
Commodity-Based
Financial Instruments
Futures
Forwards
Swaps
Options
Exchange
OTC
Risk Analytics
Real Time Position Analysis (physical & financial)
Mark to Market
Definition and calculation of commodity price curves
Market Data Handling
Upload market price data
Optional
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Exposure management Keeping track of the physical risk
position
Aluminum
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Risk management Clear risk identification and efficient risk
mitigation
Financial Contracts
Commodity price risk Managed price risk
Futures Listed options Forwards Swaps OTC options
Financial contracts (derivatives)
Aluminum Aluminum
Broker/
bank Treasurer
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Transaction management Deal management and integration to
accounting
Maintain price curves
Maintain master data Month-end processing and integration
to accounting
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Risk Management Financial Instruments Example of a Future
Buy a Future to lock in price
Our solution supports the capture
and management of the following
financial instruments:
Futures
Listed options
Forwards
Swaps
OTC options
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Risk Reporting Example Position report After Hedge
Unleaded NYMEX Future to partially
hedge Unleaded Floating Exposure
(Transaction Number 1000000000609)
Net
30,000 of
Floating
risk
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Risk Reporting Mark to Market Report
Contract Value - Current contract Price times
Contract Quantity
Market Value - Current Market Price times
Contract Quantity
Mark to Market market Value less Contract Value
Undiscounted and Discounted
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Solution Integration
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Business Process Integration Overall
Contract Order &
Call-Off
Delivery &
Transport Inventory Quality
Invoice &
Billing
Commodity Pricing
Invoice &
Billing
Planning /
Forecast
Procurement
Sales
CP Does not necessarily be reflected by a SAP business object -
any kind of demand / requirement
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Exposure
Position Financial
Instrument
Raw
Exposure Reporting
Identify Risks Measure & Monitor Risks Mitigate Risks Hedge
Management
(Hedge Accounting)
Hedge Plan
TRM
Logistic
Purchase
Order
(MM-PUR)
Delivery &
Transport
(LE-TRA)
Goods
Receipt
(MM-IM)
Batch
Management
(LO-BM)
Final
Invoicing Requirement
Delivery &
Transport
(LE-TRA)
Batch
Management
(LO-BM)
Final Billing
Trade
Trade
Order
(GTM TC)
Vendor Billing
Document
(GTM
Expenses)
Goods
Issue
(MM-IM)
CP CP CP
CP
CP
CP
Sales
Contract
(SD-SLS)
Trade
Contract
(GTM Pre TC)
Purchase
Contract
(MM-PUR) CP
CP
CP
Sales Order
(SD-SLS)
CP
Demand
Stock
Stock
**
*
**
*
Provisional /
Differential
Invoicing
Provisional /
Differential
Billing
CP
CP
Hedge
Management
Exposure
Hedging
Relationship
Optional
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Optimize Commodity Management
Commodity Risk Management
SAP ERP Financials
SAP ERP Operations -
SD, MM
or GTM
Excel Spreadsheets
Forecasts
Other sources
Exposure Manager
Integrate Physical Transactions
Hedge Manager
Review Hedges
Transaction Manager
Enter Financial Transactions
Reporting
Risk Reporting
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Value Proposition
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Learnings from a customers - the SAP value
proposition
Pricing rules
Challenge: Commodity buyers need industry-standard pricing rules
around prices and qualities along with company-
specific pricing rules to maintain their competitive
advantage.
SAP solution: SAP's commodity pricing functionalities provide
buyers with out-of-the-box industry rules but also allow
definition of customer-specific rules without software
modifications.
Governance for pricing
Challenge: In the move to centralized procurement organizations,
companies need the ability to govern from afar while
providing local facilities flexibility within set
parameters.
SAP solution: SAP Commodity Management allows organizations to
set up auditable governance paths between
different units of the organization through specific
authorization and control concepts.
Integrated supply chain procurement hedging
Challenge: In the move to imbed commodity procurement and
hedging as part of an integrated supply chain planning
and optimization process, companies need the ability to see the
impact of commodities on all aspects of their
operations.
SAP solution: SAP Commodity Management is fully integrated into
supply chain planning, procurement, finance, risk,
and accounting.
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TCO benefits: SAP Commodity Management
One solution eliminating
the need for multiple
interfaces
Direct integration with other critical
business processes such as materials
management, production, materials
requirement planning, and so on.
Reporting through existing analytics
applications and tools
One solution reducing
overall software and
support cost
SAP Commodity Management
leverages SAPs proven solutions in logistics, finance, and
industries
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SAP Commodity Management delivers best-in-class
functionalities
Efficient procurement, conversion, and sales
Flexible costing and pricing
Real-time position and risk reporting
Integrated logistics, risk management, and finance
Compliant hedging and accounting
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Thank you
Contact information:
Bill Hamilton Director Commodity Management
[email protected] Chicago 309.989.0609
Contact information:
Rich Weiss Commodity Management Sales [email protected] New
York (516) 263-9515
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