optimize commodity procurement pricing with sap commodity_nsq2012

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


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


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

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


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


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


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


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


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


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


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


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



invoicing based on final batch

Posting of differential amount in sales and distribution and financials functions in SAP ERP

Integration with commodity pricing engine


Fully integrated with sales and distribution, pricing, and financials functions in SAP ERP

SOLUTION TODAY


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


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


Leverages SAP ERP (sales and distribution and procurement (materials management)), SAP Global Trade Management, and SAP Treasury Management

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


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

Appendix


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


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


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

No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed without prior notice.

Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors.

Microsoft, Windows, Excel, Outlook, and PowerPoint are registered trademarks of Microsoft Corporation.

IBM, DB2, DB2 Universal Database, System i, System i5, System p, System p5, System x, System z, System z10, System z9, z10, z9, iSeries, pSeries, xSeries, zSeries, eServer, z/VM, z/OS, i5/OS, S/390, OS/390, OS/400, AS/400, S/390 Parallel Enterprise Server, PowerVM, Power Architecture, POWER6+, POWER6, POWER5+, POWER5, POWER, OpenPower, PowerPC, BatchPipes, BladeCenter, System Storage, GPFS, HACMP, RETAIN, DB2 Connect, RACF, Redbooks, OS/2, Parallel Sysplex, MVS/ESA, AIX, Intelligent Miner, WebSphere, Netfinity, Tivoli and Informix are trademarks or registered

2012 SAP AG. All rights reserved

Business Objects and the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius, and other Business Objects products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Business Objects Software Ltd. Business Objects is an SAP company.

Sybase and Adaptive Server, iAnywhere, Sybase 365, SQL Anywhere, and other Sybase products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of Sybase, Inc. Sybase is an SAP company.

All other product and service names mentioned are the trademarks of their respective companies. Data contained in this document serves informational purposes only. National product specifications may vary.

The information in this document is proprietary to SAP. No part of this document may be reproduced, copied, or transmitted in any form or for any purpose without the express prior written permission of SAP AG.

This document is a preliminary version and not subject to your license agreement or any


Intelligent Miner, WebSphere, Netfinity, Tivoli and Informix are trademarks or registered trademarks of IBM Corporation.

Linux is the registered trademark of Linus Torvalds in the U.S. and other countries.

Adobe, the Adobe logo, Acrobat, PostScript, and Reader are either trademarks or registered trademarks of Adobe Systems Incorporated in the United States and/or other countries.

Oracle is a registered trademark of Oracle Corporation.

UNIX, X/Open, OSF/1, and Motif are registered trademarks of the Open Group.

Citrix, ICA, Program Neighborhood, MetaFrame, WinFrame, VideoFrame, and MultiWin are trademarks or registered trademarks of Citrix Systems, Inc.

HTML, XML, XHTML and W3C are trademarks or registered trademarks of W3C, World Wide Web Consortium, Massachusetts Institute of Technology.

Java is a registered trademark of Sun Microsystems, Inc.

JavaScript is a registered trademark of Sun Microsystems, Inc., used under license for technology invented and implemented by Netscape.

SAP, R/3, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP BusinessObjects Explorer, StreamWork, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and other countries.

This document is a preliminary version and not subject to your license agreement or any other agreement with SAP. This document contains only intended strategies, developments, and functionalities of the SAP product and is not intended to be binding upon SAP to any particular course of business, product strategy, and/or development. Please note that this document is subject to change and may be changed by SAP at any time without notice.

SAP assumes no responsibility for errors or omissions in this document. SAP does not warrant the accuracy or completeness of the information, text, graphics, links, or other items contained within this material. 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.

SAP 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 these materials. This limitation shall not apply in cases of intent or gross negligence.

The statutory liability for personal injury and defective products is not affected. SAP has no control over the information that you may access through the use of hot links contained in these materials and does not endorse your use of third-party Web pages nor provide any warranty whatsoever relating to third-party Web pages.

optimize commodity procurement pricing with sap commodity_nsq2012

Documents

sap ag

permission of sap

related presentation

rates volatility

business solutions

financial increasing

forwardlooking statements

companies calculat