Integration of Logistics with Treasury and Risk Management

The automatic integration of Logistics with Treasury and Risk Management (TRM) supports you with your commodity risk management and enables the straight-through processing of your sales and purchases of commodities in Logistics through to Exposure Management 2.0 of Financial Risk Management for Commodities in TRM. In Exposure Management 2.0, raw exposures are created and sub raw exposures corresponding to the risks associated with those raw exposures (commodity price risks and currency risks) are generated. Once the sub raw exposures have been released successfully, exposure positions are created from them. You can now use the financial instruments in Financial Risk Management for Commodities to hedge the risks of exposure positions. With the integration of exposure positions with the Risk Analyzer, you can determine the mark-to-market values of exposure positions.

Prerequisites

Before you can use the automatic integration of Logistics with Treasury and Risk Management (TRM), the following prerequisites must be met:

Logistics and Treasury and Risk Management must be installed on the same system (one-system landscape).
The following business functions need to be activated:
- Logistics to Treasury Integration for Commodities 2 (reversible) (LOG_TRM_INT_2)
- TRM, Financial Risk Management for Commodities 3 (reversible) (FIN_TRM_COMM_RM_3)
- Either one or both of the following: Contract-to-Cash for Commodities 2 (LOG_SD_COMMODITY_02) or Procure-to-Pay for Commodities 2 (LOG_MM_COMMODITY_02)

After activating the business functions, you need to make Customizing settings in TRM as well as in Logistics. Make the settings in the following order:

Process

This graphic is explained in the accompanying text.

Overview: Integration of Logistics with Treasury and Risk Management

The flow of information between the two applications is unidirectional: from Logistics to Treasury and Risk Management. TRM does not send any return messages to Logistics.

A relevant position (for a purchase order (PORD) or a sales order (SORD)) always corresponds to a raw exposure in Exposure Management 2.0 in TRM, whereby a raw exposure memo record corresponds to a condition category. (Raw exposures created from relevant positions are only held persistently in TRM, not in Logistics.)

If a part of a purchase order or sales order is transferred to a goods receipt (MMGR) or a delivery (SDGI), Logistics sends an exposure notification for the purchase order with the new quantity and an exposure notification for the goods receipt or delivery. If a purchase order, sales order, delivery or goods receipt changes in some way (for example, if the quantity or delivery contained within it changes), the system sends the current status to Exposure Management 2.0.

In Exposure Management 2.0, the raw exposures for the incoming exposure notifications are created or changed on the basis of the settings in Customizing. The split engine analyzes the memo records with regard to the associated commodity prices and currency risks, and creates the sub raw exposures. Once the sub raw exposures have been released, the system creates or updates from them the exposure positions to be hedged.

In Financial Risk Management for Commodities, you can use, for example, the following financial instruments to hedge risks:

Commodity Forwards
Commodity Futures
Option on Commodity Futures
Commodity Swaps
Commodity OTC Option
Forward Exchange Transaction
Caps/Floors

With the integration of exposure positions in the Market Risk Analyzer, Financial Risk Management for Commodities enables you to calculate mark-to-market values for exposure positions.

Result

You have a permanent overview of the current risks originating from your commodity transactions, which enables you to implement the corresponding hedging transactions immediately. The risk positions are updated in a timely and transparent manner and without any manual steps outside the system, often the cause of errors.