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Commodity Procurement Solutions from SAPBill Hamilton
Director North America Commodity Management
Legal Disclaimer
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,
© 2012 SAP AG. All rights reserved. 2
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
© 2012 SAP AG. All rights reserved. 3
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
© 2012 SAP AG. All rights reserved. 4
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
© 2012 SAP AG. All rights reserved. 5
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
© 2012 SAP AG. All rights reserved. 6
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
© 2012 SAP AG. All rights reserved. 7
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
© 2012 SAP AG. All rights reserved. 8
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
© 2012 SAP AG. All rights reserved. 9
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
© 2012 SAP AG. All rights reserved. 10
� 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
© 2012 SAP AG. All rights reserved. 11
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
Solution Enhancements Key benefits
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
� Complete audit support
© 2012 SAP AG. All rights reserved. 12
invoicing – based on final batch
� Posting of differential amount in sales and distribution and financials functions in SAP ERP
� Integration with commodity pricing engine
� Complete audit support
� Fully integrated with sales and distribution, pricing, and financials functions in SAP ERP
� SOLUTION TODAY
Solution Enhancements Key benefits
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
© 2012 SAP AG. All rights reserved. 13
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
� Complete audit support
� 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
© 2012 SAP AG. All rights reserved. 14
� 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
© 2012 SAP AG. All rights reserved. 15
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
© 2012 SAP AG. All rights reserved. 16
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
© 2012 SAP AG. All rights reserved. 17
� 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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