optimize commodity procurement pricing with sap commodity_nsq2012
DESCRIPTION
pricingTRANSCRIPT
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Commodity Procurement Solutions from SAPBill Hamilton
Director North America Commodity Management
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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.
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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
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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
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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
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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
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SAPs approach to commodity management
Commodity management is one of the strategic investment areas within SAPs Business Suite application platform
Leveraging SAPs core strengths in procurement, finance and industry solutions
Commodity Management is an umbrella solution which includes Commodity
Procurement, Commodity Sales and Commodity Risk Management
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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
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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
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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
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Comprehensive commodity management solutions from SAP
Commodity Management FinanceLogistics
Procurement , Sales and Finance
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AccountingTransportationCommodity Sales
FX and Interest-rate Risk Mgt
Quality ManagementCommodity Procurement
Commodity Risk Management Cash Management
Bank Communication Management
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Commodity management industries
Commodity producers Commodity consumersCommodity converters
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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
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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
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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
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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,
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Process steps
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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
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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
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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
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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
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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
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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
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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
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SAPs 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
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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 companys 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
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Appendix
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Commodity Risk Management Solution
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Efficiency Gains in Treasury
Real Time Position Reporting
Managing physical risk
exposureAssessing risk
Executing hedging strategy
Deal administration
Accountingand settlement
Hedge accounting
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Real Time Position Reporting
Integrated with Logistics
Full Suite of Commodity Instruments
Detailed Risk Reporting
Fully integrated in hedge and standard accounting
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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
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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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