SAP Commodity Management
Bill Hamilton
SAP Commodity Management
April 17 2014
Global trends
Their impact on commodity management
Volatility
Regulation

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.
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.
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.
SAP’s approach to commodity management
Leverage SAP’s 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
Commodity management – business building blocks
Analytics
Quality mgt.
Commodity
purchase process
Commodity
trading
Warehousing
Transportation
Manufacturing
Commodity risk management
Accounting
SAP Business Suite
Commodity
sales process
SAP Commodity Management – our integrated solution
SAP BusinessObjects portfolio
Commodity
Procurement
& Sales
Commodity Procurement
Materials
management
Global
Trade
Management
Purchasing
Commodity Sales
Commodity
pricing
engine
Sales and
distribution
Commodity Risk Management
SAP Treasury and Risk Management
Accounting (financials and controlling: FI/CO)
SAP Business Suite
Sales
Global Risk Report
CM Unleaded
GAL
Portfolio Details
CM Unleaded
GAL
2.9495
USD/GAL
Commodity Procurement
and Sales
Commodity procurement and sales
Capture
contract
Savings and
efficiency
gains in
procurement
and sales
Create call-off
Integrated
with
treasury
Transport and
delivery
Flexible
pricing
Provisional
invoice
Update quality
or price
Multiple
invoice
cycles
Differential
invoice
Fully
integrated
in standard
purchase and
sales order
screens
SAP Commodity Procurement and Sales
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.
1
2
Capture
contract
 Maintain quality
requirements
 Link contract to
pricing formulas
and price
calculation rules
including forward
pricing and price
fixation
 Define other terms
and conditions
3
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
4
Transport and
delivery
 Transportation
scheduling
 Transportation
execution and
delivery
 Goods receipt /
issue posting
 Financial posting
5
Provisional
invoice
 Create provisional
invoice based on
provisional period,
quotes and assay
results
 Post to accounts
receivable /
payable
 Payments of
invoices
Final
invoice
Update quality
 Update qualities
and quantities with
latest assay
results from
external parties
Contract Revaluation
 Daily revaluation of all documents based on
forward market prices
 Updated contract values for Risk Management,
Credit Management and Mark-to-Market
6
 Create final
invoice based on
final period,
quotes and assay
results
 Post differential
amounts to
accounts
receivable /
payable
 Payments of
invoices
Month End Revaluation
 Calculate and post accruals
Market Data Handling
 Upload market price data
 Definition and calculation of commodity price curves
Commodity pricing for a typical commodity procurement
and sales process
VP procurement
and sales
Commodity
supplier
Products
 Define quotation sources
Purchase
or sales
contract or
order
 Upload market prices from
multiple sources (London
Metal Exchange, CME,
Reuters, NYMEX
or other reference prices)
 Average both quotation values and currency
conversion values over quotation periods
One-time definition
 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
Commodity price
calculation
Goods
receipt
Provisional
invoice
First assay
Differential
invoice
Final assay
Final
invoice
Simplified Deal Capture Example
Complex Pricing for Commodities
 Commodity pricing engine
 Market price based
 Formula driven
 Quality characteristics
 Formula editor
 Reusable
 Security based roles
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
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
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
Commodity Pricing Engine Functionality
Discussion of Term Values
Price type
Covered Quantity
Formula/Term Keys
 Averages
 Reusable
Pricing Terms for Provisional final
Invoicing/Settlement
Commodity Pricing Engine Functionality
Discussion of Price Fixation
Convert Floating Prices to Fixed Prices per contracts
How to fix price
 Quantity
 Percentage
Buckets or Time
Periods
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
Commodity Pricing Engine Functionality
Discussion of Quotation Periods
The solution offers flexible Quotation Periods which are customer definable
Delivery period based
 Move with changes
in delivery date
 M, M-1 M+1
Further refined using
date offsets & Time UoM
routines
Commodity Pricing Engine Functionality
Discussion of Quotation Periods
Solution provides comprehensive exception management functions
Underlying market
calendars drive date
logic
Customers are free to define how exceptions are
managed
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
Risk Reporting
Risk Breakdown of Purchase Order
Fixed Price Ethanol
exposure
(PO No. 4500018999)
Floating Price Unleaded
Exposure
(PO No. 4500018999)
Commodity Risk
Management
Commodity risk management
Managing
physical risk
exposure
Real-time
position
reporting
Assessing risk
Integrated
with
logistics
Executing
hedging
strategy
Deal
administration
Full suite of
commodity
instruments
Accounting
and settlement
Detailed
risk
reporting
Hedge
accounting
Fully
integrated in
hedge and
standard
accounting
SAP Commodity Risk Management
Process flow
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.
1
2
Exposure
Management
 Automatically created
exposures generated
from physical activity
 Manage exposures
created from Demand
or Supply Planning
(forecasts)
3
Deal
Capture
 Commodity-Based
Financial Instruments
 Futures
 Forwards
 Swaps
 Options
 Exchange
 OTC
4
5
Deal
Administration
Accounting and
Settlement
 Validation of paper
deal (segregation of
duties)
 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)
 Bilateral confirmation
handling
Hedge Accounting
 Define hedge plans
 Maintain hedging
relationships
 Measure effectiveness
 Create hedge
documentation
 Post hedge accounting
results to the general
ledger
Risk Analytics
 Real Time Position Analysis (physical & financial)
 Mark to Market
Market Data Handling
 Upload market price data
Optional
 Definition and calculation of commodity price curves
Exposure management
Keeping track of the physical risk position
Aluminum
Risk management
Clear risk identification and efficient risk mitigation
Financial contracts (derivatives)
Broker/
bank





Futures
Listed options
Forwards
Swaps
OTC options
Treasurer
Financial Contracts
Commodity price risk
Aluminum
Managed price risk
Aluminum
Transaction management
Deal management and integration to accounting
Maintain master data
Maintain price curves
Month-end processing and integration
to accounting
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
Risk Reporting
Example Position report – After Hedge
Net
30,000 of
Floating
risk
Unleaded NYMEX Future to partially
hedge Unleaded Floating Exposure
(Transaction Number 1000000000609)
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
Solution Integration
Business Process Integration – Overall
Logistic
Planning /
Forecast
Contract
Order &
Call-Off
Delivery &
Transport
Invoice &
Billing
Inventory
Quality
Invoice &
Billing
Procurement
**
Requirement
Purchase
Contract
(MM-PUR)
Purchase
Order
(MM-PUR)
CP
*
Delivery &
Transport
(LE-TRA)
Goods
Receipt
(MM-IM)
CP
Provisional /
Differential
Invoicing
CP
Batch
Management
(LO-BM)
Final
Invoicing
CP
CP
Stock
Trade
Trade
Contract
(GTM Pre TC)
Vendor Billing
Document
(GTM
Expenses)
Trade
Order
(GTM TC)
CP
CP
CP
Sales
Stock
**
Demand
Sales
Contract
(SD-SLS)
*
Delivery &
Transport
(LE-TRA)
Sales Order
(SD-SLS)
CP
Goods
Issue
(MM-IM)
Provisional /
Differential
Billing
CP
Batch
Management
(LO-BM)
Final Billing
CP
TRM
CP
Optional
Hedge Plan
Raw
Exposure
Exposure
Position
Reporting
Financial
Instrument
Hedge
Management
Exposure
Identify Risks
CP
Commodity Pricing
Measure & Monitor Risks
Mitigate Risks
Hedging
Relationship
Hedge Management
(Hedge Accounting)
*** Does not necessarily be reflected by a SAP business object - any kind of demand / requirement
Optimize Commodity Management
Commodity Risk Management
 SAP ERP
Operations SD, MM
or GTM
 Exposure Manager
 Integrate Physical Transactions
 Hedge Manager
 Review Hedges
 Excel
Spreadsheets
 Transaction Manager
 Forecasts
 Reporting
 Other sources
SAP ERP Financials
 Enter Financial Transactions
 Risk Reporting
Value Proposition
Learnings from a customers - the SAP value
proposition
Pricing rules
 Challenge: Commodity buyers need industry-standard pricing rules around prices and qualities along with companyspecific 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.
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.
One solution reducing
overall software and
support cost
Reporting through existing analytics
applications and tools
SAP Commodity Management
leverages SAP’s proven solutions
in logistics, finance, and industries
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
Thank you
 Contact information:
 Contact information:



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
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Bill Hamilton
Director Commodity Management
Bill.hamilton@sap.com
Chicago
309.989.0609
Rich Weiss
Commodity Management Sales
Richard.Weiss@sap.com
New York
(516) 263-9515
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