Trade, Commodity Management
Technical Name of the Business Function |
ISR_RET_COMMODITY |
|---|---|
Type of Business Function |
Enterprise Business Function |
Available As Of |
SAP Enhancement Package 2 for SAP ERP 6.0 |
Technical Usage |
Global Trade |
Application Component |
Global Trade (LO-GT) |
Directly Dependent Business Function Requiring Activation in Addition |
Not relevant |
Use
Commodity Management
You can use this business function to link SAP ERP to ISV software in order to enable commodity management scenarios. Specifically, the SAP partner Triple Point Technology offers the product
Commodity SL
that links via this business function in order to enable commodity management scenarios.
A commodity is a product that trades on a commodity exchange; this also includes foreign currencies, financial instruments and indexes. Usually, classes of commodities are distinguished as follows:
Agricultural products
Grain
Soft commodities: coffee, cotton and sugar
Citrus and orange juice
Livestock
Other
Metals
Oil
Gas
Electricity
Coal, emissions and weather
Commodities are traded on exchanged via futures. Commodity Management comprises the activities of purchasing, selling, trading, logistic and financial planning and execution of commodities. Commodity companies, who need a commodity management solution, are companies that have to handle commodities in procurement, are selling commodities, or that are trading commodities as such.
Management of commodities is becoming increasingly important for many companies due to rising commodity prices, rising fluctuations of commodity prices, and new accounting standards.
Use of this business function in connection with suitable partner software provides the customer with a state-of-the-art, integrated commodity and commodity risk management solution.
Compensation Management
You can use this business function to transfer price agreements (condition contracts) between suppliers and wholesalers. This means that a manufacturer or supplier can transfer condition contract data to a wholesaler’s ERP system with the help of an enterprise service.
The condition contract is the first process step in the entire chargeback process, provides the basis for all other process steps. Confinement to an inbound scenario is justified because, in the majority of cases, the manufacturer or supplier is the initiator. An important SAP “internal” context has added to the decision. CRM offers – as industry-specific CRM – a Contract Management for Pharmaceuticals. This is the CP (Consumer Products) counterpart of the cooperative chargeback process, which allows the creation of condition contracts in the manufacturer of supplier system as well as the processing of incoming chargeback requests. One feature of the contract development application is the sending of contract data (CRM term: bid award notification) to approved wholesalers by IDoc (SAP proprietary document format) or as EDI messages (format 845). The latter is a proven industry standard. One objective of the service enablement of the data transfer is to better support this standard with the help of XI data mapping between EDI message and enterprise service for the condition contract.
Additional functional enhancements facilitate the use of Condition Contracts.
Integration
Compensation Management is available within the SAP standard system (SAP ERP core) and can be used together with different industry switches without any restriction. The user has to activate EA-GLTRADE to access the appropriate Customizing settings.
Prerequisites
You have installed the following components as of the version mentioned:
Type of Component |
Component |
Is Needed Only for the Following Features |
Software Component |
EA-GLTRADE, SAP_APPL |
In order for the business process logic to take the new functions of this business function into account, you must carry out additional Customizing activities.
IMG Activities for Commodity Management
Integration Scenario: A2A Enterprise SOA
You can modify the data transfer (mapping) for the A2A Enterprise SOA Services provided in Commodity Management according to your requirements. To do this, you first maintain the context in the trading contract type (IMG activity W_WB2B_0G08), and then the mapping under the menu item
Proxy Mapping for Trading Contract Services
in the Global Trade Management Implementation Guide. If specific fields in the trading contract have been created using services and are protected against changes, then you maintain the replication group (IMG activity W_WB2B_0G87) and assign this to the relevant trading contract type (IMG activity W_WB2B_0G08).
Functional Enhancements
You can also control the functional enhancements for barcode entry and for the SAP Credit Management link using the trading contract type. To do this, you maintain the relevant fields of the trading contract type (IMG activity W_WB2B_0G08).
IMG Activities for Compensation Management
Integration Scenario: B2B Enterprise SOA
You can modify the data transfer (mapping) for the B2B-Enterprise-SOA-Services provided in Compensation Management according to your requirements. To do this, you first maintain the context in the condition contract type (IMG activity W_WCB_CC_PERS_VM03), and then the mapping under the menu item
Proxy Mapping for Condition Contract Services
in the Global Trade Management Implementation Guide (IMG).
Functional Enhancements
You activate the functional enhancements for the condition-contract-independent expenses settlement and for non-exclusive condition contracts using Compensation Management Customizing. To do this, you carry out the IMG activities WCB_CC_PERS_VM68, WCB_CC_PERS_VM50 and WCB_CC_PERS_VM69. For more details, see the IMG documentation.
Features
Commodity Management
The necessary elements for a commodity management solution that need to be included in the application system can be depicted as follows:
The yellow background symbolizes the core of Commodity Management. Most of the activities lie in the “front office” part. In the integrated solution, the front office part is covered by a partner solution, the business function here covers the enablement of the partner software to the SAP ERP backbone.
For more information, see the Enterprise Services WIKI in SDN.
The front office (partner application) comprises those activities that interface to the outside world -- in this case, the activities carried out by the dealer, the normal trading activities. The upper box “situation analysis, decision support and future simulation” is the cockpit that a trader needs to get a view of the internal and external world, simulate possible future scenarios, and come to a decision. In comprises such information as:
External market information (commodity prices, company news, and so on)
Internal demand and supply information (How much of a certain commodity is needed? Do we have enough for production supply?)
Position reporting (Overview of the open buying and selling positions -- physical and on paper -- in quantity and value)
Value at risk reporting (How big is the risk of loss?) including calculations based on mathematical models
Exposure management and hedge accounting (How big is the trader’s risk, or “exposure”? Which part of this exposure is hedged, and is that hedge sufficiently effective?)
The two boxes “physical dealing” and “paper dealing” represent the handling of physical and paper contracts. Physical and paper contracts influence each other, because every opening of a physical contract (position) creates an “exposure” (risk exposure). The trader can decide to hedge this risk completely, partially, or not at all. Every opening of a paper contract without an underlying physical deal exposure creates an exposure as well.
Typically, there are four possible categories of exposure risk:
Commodity price risk
Currency risk (if the contract is in a foreign currency the rate may change)
Credit risk (the creditor might not pay the bill)
Freight risk (All futures worldwide quote FOB prices. Therefore, if a trade is settled for delivery 12 months later with the CIF price as a reference, the seller needs to hedge the position against changes in the shipping cost as well.)
The following building elements are in the mid- and back office, handled by SAP ERP:
Logistic planning and execution: Other than non-material commodities such as electricity, all goods have to be transported. Customers have to be invoiced and bills have to be paid. Although this is true for any kind of selling or purchasing process, there are certain special circumstances that need special care attention in a commodity management solution:
Transportation:
Vessel reservation and organization
Transport optimization
Fluid handling (for example, temperature dependence)
Expense handling
Invoicing:
Delta invoice handling: Often, an invoice is sent to a customer before the price is finally fixed. When the price is finally fixed (based on the underlying index), a delta invoice is needed to take into account the invoices already sent.
Margin processing and settlement: For exchange-traded derivatives, the solution must handle the initial and the variation margin. For all derivatives, the solution must handle broker and similar fees. Finally, contracts have to be matched and settled.
Exposure management and hedge accounting are very important topics on the financial side. Strict rules exist under which financial derivatives can be kept off the profit and loss sheet.
Although very special handling requirements exist, depending on the commodity, the above-described elements are the necessary basis for any commodity management solution.
For more information, see the documentation on
Commodity Management
in SAP Library at
SAP ERP
SAP ERP Central Component
Logistics
Global Trade
.
Pains/Drivers
Management of commodities is becoming increasingly important for many companies, due to rising commodity prices, rising fluctuations of commodity prices, and new accounting standards.
Target groups
Companies that need a commodity management solution are all companies that have to handle commodities in procurement, sell commodities, or trade commodities as such.
Influence groups within these companies are the following:
Target |
Interest |
Value of the solution (Messaging) |
|---|---|---|
CEO, COO |
Cope with rising and fluctuating market prices and risk, and hence profitability |
Additional value compared with best of breed solutions, because of the tight integration with SAP |
CFO |
Stay compliant with accounting standards Keep commodity price fluctuations off the balance sheet |
Additional value compared with other solutions, because the architecture guarantees integration to the ERP backbone and therefore the compliance. The backbone delivers transparency |
CIO |
Keep maintenance and integration costs down (TCO) |
Huge additional value compared with other solutions, because of the architecture and hence, the low integration cost |
End-user |
Get easy-to-use and state-of-the-art interface |
Best of breed interface delivered by partner |
Compensation Management
New features of Compensation Management incorporate the use of the condition contract:
Condition contracts are no longer exclusive, which means more than one condition contract can be determined and selected for each item in the sales order. More than one chargeback request per item can be settled for the supplier.
Expenses can be settled without price agreement (condition contract). This is relevant in cases where suppliers take over customer-specific marketing expenses of wholesaler distributors for their own products.
Condition contracts can be redetermined in chargeback requests. If new price agreements available during the billing process, these condition contracts have to be considered.
New services are available for Sales Contract Processing Operations:
Cancel Condition Contracts
: You can use this asynchronous operation to deactivate condition contracts.Maintain Condition Contracts
: You can use this asynchronous operation to create or maintain condition contracts.
Pains/Drivers
The management of price agreements is essential for many wholesale distributors because the settlement of remunerations is a significant portion of year-end revenue.
Target groups
The target group is wholesale distributors who remunerate their suppliers based on special price agreements between suppliers and customers.
Influence groups within these companies are the following:
Target |
Interest |
Value of the solution (Messaging) |
|---|---|---|
CEO, COO |
Profitability |
Additional value because of unique selling proposition of Compensation Management against competitors. |
CIO |
Keep maintenance and integration cost down (TCO) |
Huge additional value compared with other solutions, because of the architecture and therefore the low integration cost. |
End user |
Facilitate agreement handling and revenue tracking |
Unique business processes and integration of BI content within SAP’s Portal roles |
Example
Compensation Management
The Enterprise SOA Services of the condition contract are relevant for the Chargeback Process.
In some industry segments, suppliers negotiate special price agreements directly with customers. These agreements lower the wholesaler’s margins significantly – sometimes it would approach zero without compensation by the supplier. In the chargeback (ship and debit) process, the wholesaler receives compensation for lower purchase or sales prices, andmay charge the price difference to the supplier.
Details Use Case
Either the supplier or wholesaler negotiates a special price agreement with their customers. It might be valid for one or more customers. This agreement has to be considered for new incoming quotes or sales orders during price determination. It can also be considered during billing, when sales orders and deliveries already exist. During billing, a chargeback request is created automatically to receive the compensation by the supplier. These chargeback requests can be bundled and settled periodically.