Commodity Procurement Solutions from SAPdocshare02.docshare.tips/files/26044/260442429.pdf ·...

Commodity Procurement Solutions from SAPBill Hamilton

Director North America Commodity Management

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The information in this presentation is confidential and proprietary to SAP and may not be disclosed without the permission of SAP. This presentation is not subject to your license agreement or any other service or subscription agreement with SAP. SAP has no obligation to pursue any course of business outlined in this document or any related presentation, or to develop or release any functionality mentioned therein. This document, or any related presentation and SAP's strategy and possible future developments, products and/or platforms directions and functionality are all subject to change and may be changed by SAP at any time for any reason without notice. The information on this document is not a commitment, promise or legal obligation to deliver any material, code or functionality. This document is provided without a warranty of any kind, either express or implied,

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functionality. This document is provided without a warranty of any kind, either express or implied, including but not limited to, the implied warranties of merchantability, fitness for a particular purpose, or non-infringement. This document is for informational purposes and may not be incorporated into a contract. SAP assumes no responsibility for errors or omissions in this document, and shall have no liability for damages of any kind including without limitation direct, special, indirect, or consequential damages that may result from the use of this document. This limitation shall not apply in cases of intent or gross negligence.

All forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates, and they should not be relied upon in making purchasing decisions.

Global trends and their impact on commodity procurement

Volatility fueled by market dynamics

� Increasing demand in emerging markets is creating a tight balance between supply and demand

� Geopolitical uncertainties

� Rising influence of hedge funds and financial

Increasing focus on risk management

� Increased focus on risk management driven by the need to protect earnings and keep company operations running

� Hedging is increasingly used to smooth price spikes over time and secure raw material costs


institutions costs

Compliance with government regulations

like the Sarbanes-Oxley Act

� Companies struggle to keep up and comply with regulations like hedge accounting laws

� Strong demand for business solutions designed to meet these requirements

Commodity prices are volatile

� Commodity Price Volatility is

constantly increasing for

commodities like Oil, Copper, Lead,

Zinc, Sugar and Wheat.

� Volatility is significantly higher than

for currencies or interest rates

� Volatility has a high impact on the

profit of many companies


Source: Commerzbank /Wirtschaftswoche – Commodity radar screen for March 2012

profit of many companies

� Calculating and managing the

material cost for end products is

difficult

� Liquidity and cash planning becomes

challenging

� Hedging with financial derivatives can

be a strategy to manage the

challenges of volatility

SAP’s approach to commodity management

� Commodity management is one of the strategic investment areas within SAP‘s Business Suite application platform

� Leveraging SAP‘s core strengths in procurement, finance and industry solutions

Commodity Management is an umbrella solution which includes Commodity

Procurement, Commodity Sales and Commodity Risk Management


procurement, finance and industry solutions

� New cross industry organizational unit for Commodity management

� Dedicated development team for Commodity management

� Collaboration with customers, partners and customer councils to build solution roadmap and to develop best in class solutions

Commodity management – our solution platform

Materials management (MM)

Sales anddistribution (SD)

Commodity pricing and invoicing

(CPE)Global

Commodity management specificsCommodity

management

specifics

SAP BusinessObjects portfolio

Commodity management specifics


SAP Treasury and Risk Management application

invoicing (CPE)Global

Trade manage-

ment (GTM)

Commodity management specifics

Quality

management

Production

planning

Supply chain

management

Transportation

management

Global trade

services

Accounting (financials and controlling: FI/CO)

More

Comprehensive commodity management solutions from SAP

Commodity Management FinanceLogistics

Procurement , Sales and Finance


AccountingTransportationCommodity Sales

FX and Interest-rate Risk Mgt

Quality ManagementCommodity Procurement

Commodity Risk Management Cash Management

Bank Communication Management

Commodity management industries

Commodity producers Commodity consumersCommodity converters


Industry examples� Oil� Mining� Agriculture

Industry examples� Automotive� Consumer products� High tech� Aerospace� Industrial machinery and

components� Defense and security; public

administration� Travel and logistics

Industry examples� Chemicals� Metals and mill products� Oil and gas (refining)� Utilities

Efficiency Gains in Commodity Procurement

Capture contract

Create call-off

Transport and delivery

Provisional invoice

Update quality or

price

Differential invoice

Savings and efficiency gains in procurement

Manage pricing with integrated price conditions

Flexible contract pricing

Able to handle multiple commodity and pricing conditions


Integrated with treasury

Automatic transfer of commodity risk

Able to handle multiple commodity and pricing conditions

Multiple invoice cycles

Handle quantity and quality adjustments

Fully integrated in standard purchase order

screens

SAP Commodity Procurement Process flow

� Create quantity contract for defined periods

� Maintain

Capture contract

Create call-off

� Create call-off order with reference to contract

� Create a spot

� Transportation scheduling

� Transportation execution and delivery

Transport and delivery

Provisional invoice

� Create provisional invoice based on provisional period,

Update quality or

price

� Update quality characteristics with latest assay results from external

Differential invoice

� Create differential invoice based on updated batch,

1 2 3 4 5 6

Process steps


� Maintain quality requirements

� Link pricing formulas including price calculation rules to contract

� Define other terms and conditions

� Create a spot purchase or sales order

� Specify detailed delivery day and quantity

� Reprice using quality factors and formulas from contract

delivery

� Goods receipt posting

� Financial posting

period, provisional quotes, and quality results

� Payments or invoices based on provisional amounts

� Post to financials and accounts payable

from external parties

� Update prices and quantities based on quality changes

� Update for market price changes

batch, quotation period, and market prices

� Payments or invoices based on differential amounts

� Post to financials and accounts and payable

� SOLUTION TODAY

Solution Enhancements Key benefits

SAP Commodity ProcurementCommodity pricing engine

� Commodity pricing allows for definition of price calculation rules for multiple commodities and provides for flexible quotation periods

� Automated bonus and penalty calculation based on delivered qualities and contract terms

� Technology and suite renovation: from Java to ABAP for formula evaluation and formula

� Reduced total cost of ownership through stable architecture

� Increased people efficiency through fully automated price calculation rather than complex manual calculation

� No overpayment of vendor invoices due to miscalculations


ABAP for formula evaluation and formula assembly; customer-specific routines (user exits) can be programmed in ABAP

� CPE in commodity procurement (SAP ERP)

� Second-level pricing analysis, explaining price calculation to end users

miscalculations

� Complete audit support

� Basis for hedge and risk management

� Fully integrated with pricing functions in SAP ERP, available for all industries

� Applicable to purchasing (materials management) and sales and distribution functions in SAP ERP and to SAP Global Trade Management

� SOLUTION TODAY


SAP Commodity ProcurementDifferential invoicing

� Contract-to-cash provisional, differential ,and final invoicing

� Calculation and display of the full amount for each condition type as well as the differential amount in differential invoice

� Re-pricing using batch characteristics during final invoicing – based on final batch

� Invoicing as early as possible to reduce days sales outstanding

� Full visibility of changes to billed amount

� Increased people efficiency through fully automated price calculation, rather than complex, nonintegrated manual calculation



invoicing – based on final batch

� Posting of differential amount in sales and distribution and financials functions in SAP ERP

� Integration with commodity pricing engine


� Fully integrated with sales and distribution, pricing, and financials functions in SAP ERP

� SOLUTION TODAY


SAP Commodity Risk ManagementEnhanced position management and logistics to treasury integration

� Transfer physical commodity deals and follow-on documents (sales and distribution and materials management functionality in SAP ERP) into raw exposures (SAP Treasury and Risk Management)

� Sales and purchase orders, deliveries, goods issues and receipts, quality management and batches, and invoices supported: create, update,

� Proactively managed commodity price risk

� Real-time view of the current status of physical exposures and positions – integrated with paper deals

� No slippage of new, changed, or deleted physical documents

� One version of the truth


batches, and invoices supported: create, update, and delete, to avoid double-counting

� Update of positions driven by batch and quality changes

� Enhancements in fixed and floating exposure management

� Enhanced Mark to Market calculation of fixed and floating exposures

� Support of composite products with multiple commodities

� Initial load of exposures

� One version of the truth

� Efficient, streamlined, and integrated risk management and hedging


� Leverages SAP ERP (sales and distribution and procurement (materials management)), SAP Global Trade Management, and SAP Treasury Management

SAP’s Approach to Commodity Management

� Identify and measure commodity price and currency exposure to effectively mitigate risk

� Create price certainty of materials in uncertain business environments

� Realize cost certainties efficiencies in purchasing and selling of commodities and commodity dependent goods

� Benefit from competitive pricing and accurate sales prices for

Business Challenges Business Benefits


� Protect margins when buying or selling commodity price dependent products in competitive markets

� Combine logistical and financial data on a real time basis to manage commodity and currency risk

� Align business operations, risk management and hedge accounting

� Properly implement corporate risk policies based on the company’s risk appetite

and accurate sales prices for commodity dependent products

� Improve compliance with corporate risk, accounting and performance policies

� Increase transparency across multiple and diverse business units

� Manage and measure Key Performance Indicators (KPIs) based on cross functional activities

Appendix


Commodity Risk Management Solution

Efficiency Gains in Treasury

Real Time Position Reporting

Managing physical risk

exposureAssessing risk

Executing hedging strategy

Deal administration

Accountingand 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

SAP Commodity Risk ManagementProcess flow

Process steps

� Capture exposures automatically or manually

� Compile risk

Managing physical risk

exposure

Assessing risk

� Compile and analyze combined physical and paper

� Execute deal

� Capture deal

� Update consolidated risk position

Executing hedging strategy

Deal administration

� Import market price data

� Confirm and counter confirmation

Accountingand

settlement

� Report financial position –assets and liabilities

Hedge accounting

� Define hedge plans

� Maintain hedging relationships

1 2 3 4 5 6


� SOLUTION TODAY

� Compile risk positions from physical transactions

paper risk positions

� Execute Mark to Market reporting

� Review and manage commodity risk limits

� Make hedging strategy decisions

risk position confirmation handling

� Ensure segregation of duties

� Maintain master data for prices and counterparties

and liabilities

� Manage margins

� Perform month-end processing or valuation

� Post profit and losses

� Settle paper deals and create payments or invoices

relationships

� Measure effectiveness

� Create hedge documentation

� Post hedge accounting results to the general ledger

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