This blog takes a closer look at how SAP SE is bringing to market an offering for commodity management for producers, converters, and consumers of commodities.
Commodity Management is an area of increasing focus for strategic sourcing and procurement organizations, as pricing volatility threatens to impact manufacturers' margins and supply interruptions can wreak havoc on output. By some industry measures, pricing for certain commodity categories can fluctuate by as much as 40%, well beyond the typical allowance of 5-10% by many financial planners. Sourcing and procurement leaders within manufacturers are in need of a better way to manage their commodity categories, beyond the traditional spreadsheet approach.
SAP identified the market potential for a commodity management offering and hit the market with the first release of SAP Commodity Management in 2011. The offering received executive-level SAP support for a strategic investment area within SAP Business Suite Applications, resulting in the creation of a dedicated development and solutions team. The concept began in SAP's Treasury and Risk Management domain area because it addresses how manufacturers need to create the best strategy to protect themselves against volatility and risk related to commodities. However, the group within SAP realized that an offering to address this had to be embedded in the transactional flow, across procurement, finance, and logistics, and it set about building an engine to support the bi-directional data flow that is part of these transactions.
The SAP Commodity Management offering is layered on top of existing modules within SAP Business Suite, including procurement, risk management, accounting and controlling. It integrates tightly with SAP Materials Management, SAP Sales and Distribution and SAP Treasury and Risk Management. The SAP Commodity Pricing Engine sits at the heart of the core purchasing and pricing functionality of the offering, and it is a strategic differentiator. The engine is called for any purchase or sale of commodities and allows for the definition of pricing rules for all commodity related pricing elements.
The Pricing Engine supports provisional differential invoicing, which allows companies to create a first invoice without locking in the final price and quantities, and streamlines the multiple changes that can occur until the final pricing and quantities are locked in. This works well for manufacturers that are consumers of commodities as well as those that are producers, or even converters, who have to buy and then sell commodities. Because it is integrated with procurement and accounting, the system allows for sales orders that can mix commodity-dependent and non-commodity-dependent goods, maintaining pricing rules for each. Real-time data is an essential component of commodity purchasing and sales. The SAP Commodity Management offering integrates with market data providers and can load in future price curves from various market sources, including Reuters or Bloomberg. Combined with the Commodity Pricing Engine, this functionality provides manufacturers with a real-time integrated view of commodity management from contract to final settlement.
The SAP Commodity Management solution is best for SAP installed base customers, as it layers on top of existing SAP Business Suite. Existing SAP Business Suite Customers license the additional functionality. Currently, more than 60 customers have licensed SAP Commodity Management, across a number of industries including Energy, Metals and Mining, Chemicals, Automotive, High Tech, and Consumer Products. Average implementation times run nine months, and it can be deployed in the SAP HANA Enterprise Cloud. Customers are seeing business benefits that include significant reductions in reporting times, faster cycles to bring new commodities on board, and sales revenue increases on the producer side from trading revenue. With the current volatility in the commodity market, SAP Commodity Management is delivering much needed visibility and optimization for many manufacturers across the business processes that feed into managing a commodity category.