Handling of Oil & Gas secondary costs through SAP Global Trade Management
This blog post provides a sneak peek into how SAP Global Trade Management – with a few key enhancements – can be used together with Trader’s and Scheduler’s Workbench to provide an alternative solution for handling secondary costs in SAP S/4HANA for Oil & Gas industry customers.
What is Secondary Cost?
Secondary cost in general refers to cost incurred in moving a product from one location to another. It is important to tag the cost to the movement for many different reasons. Some of the most common use cases are to calculate the profitability of a trade, provide transparency to the costs involved and blend the costs into the moving average / standard price of the product.
Relevance of Secondary Cost in Oil & Gas Industry.
With vessel Demurrage charges ranging from 50,000 to 80,000 USD per day depending on the size of the vessel, secondary costs garner considerable attention from the stake holders of Oil & Gas companies. The industry seeks a solution through which they can effectively manage these costs, reduce freight spend and evaluate risk. Also, it is very important to track the secondary cost to understand if a trade is profitable or not.
Why SAP Global Trade Management?
The Trader’s and Scheduler’s Workbench sub module within SAP’s IS-OIL solution is where schedulers, and movement capture analysts perform the planning, scheduling, and actualization of all planned Bulk movements. The scheduler creates a nomination to schedule a movement, (Nomination is Planning and scheduling document). When a nomination is actualized, it produces a logistics document called Bulk Shipment (also known as Transportation and Distribution shipment) which is later used for creating a shipment cost document. The reason for using the bulk shipment cost document where possible is that it is fully integrated with SAP Trader’s and Scheduler’s Workbench and an out-of-the-box solution for many standard scenarios. However, there are a number of special business scenarios that the traditional shipment cost solution cannot fulfill.
- Rail freight may need to be paid to the transportation company as soon as the rail cars are loaded. Since there is just one bulk shipment for the whole movement, typically you will have to wait until the discharge is complete to create the shipment cost document.
- Most marine and rail movements have an inspection fee. This fee is paid to the inspector who checks the volume and quality of the product loaded into the equipment resource. These fees are some times required to be paid as soon as the inspection is completed. However, they cannot be paid through the shipment cost document as the movement has not yet occurred.
- If there are multiple service vendors involved in a movement, there is no standard way to determine these vendors and assign them to the bulk shipment as partners. Without Partners it is not possible to generate shipment cost document.
- Finally, the bulk shipment document and its corresponding shipment cost documents are being replaced in SAP S/4HANA by Transportation Management (TM) and its corresponding Freight Settlement Documents (FSD). However, there is currently no out-of-the-box integration between SAP Trader’s and Scheduler’s Workbench and SAP TM.
Integrated SAP Global Trade Management & SAP Trader’s and Scheduler’s Workbench Solution for Secondary Cost.
Conceptual Flow Chart & Design
SAP Global Trade Management / SAP Trader’s and Scheduler’s Workbench end to end process flow.
The key activities required to implement this solution are:
- To integrate the SAP Global Trade Management Trading contract with SAP Trader’s and Scheduler’s Workbench, a trading contract has to be created for every nomination document. Commodity pricing in the trading contract needs to be replaced with generic dollar value condition type.
- Determine the relevant secondary cost condition types for the nomination and capture them in a custom table. This provides the freight estimate to the scheduler, feeds the estimated secondary cost to the SAP Treasury and Risk Management module and captures them as planned expenses in the trading contract.
- When the actual movements happens the movement capture analyst creates and actualizes a ticket against the nomination line item, The actualization of ticket will result in posting the goods movement and the material document posted has to be captured in staging table.
- Finally, schedule a batch program to create accrual Vendor Billing Documents against the movement document, based upon the planned expenses stored in the trading contract for the corresponding nomination line item.
Note that the trading contract generated here is only used for creating expenses and not to execute the trade itself. A separate module, Deal Capture, captures the trade, and SAP Trader’s and Scheduler’s Workbench module is used executing the subsequent process.
Advantages of Integrated SAP Global Trade Management & SAP Trader’s and Scheduler’s Workbench Solution
The key value drivers of this solution vs. other potential solution alternatives for capturing secondary costs include:
- Flexibility to create accrual Vendor Billing Documents (VBDs) at the nomination line item level, even before the movement documents are posted.
- Accrual Vendor Billing Document at the cost type level provides flexibility to reverse just the affected cost type.
- Accrual Vendor Billing Document can be created at any point in time once the nomination is created. They are not dependent on the status of the movement.
- Ability to post the secondary cost into the inventory account of the corresponding commodity and plant.
If your SAP Trader’s and Scheduler’s Workbench implementation includes SAP Global Trade Management in the target architecture and you need to capture secondary cost for the SAP Trader’s and Scheduler’s Workbench movements or other non-standard business scenarios, SAP Global Trade Management provides an excellent foundation for providing this key capability.
Thanks for the above article I have one below question can you let me know how we can solution this approach?
As a contract administrator I need to be able to define secondary cost type/names and the calculation for all secondary costings as part of the final settlement value. This setup/configuration would drive the automatic default of secondary costings allowing for less manual intervention.
How can we do this defaulting of Condition types and a specific cost on a GTM contract based on a particular combination or criteria?
Apologies for getting back late, Am very busy with my current project and I was unable take any time out sooner. Your question is more consulting related, However I have attempted to provide some pointers based on my experience. Hope this helps.
If I understand correctly your question is related to automation of condition record determination on the trading contract. I Am for the moment assuming that you are not using TSW and just dealing with GTM, Based on this assumption I have put down my thoughts below, Please discuss with your local GTM consultant on how this can be implemented.
Thanks Madhu, we are already thought of this above condition tech. approach also we are going to use TSW integration in our project. As expense being a new area for me, so I am here to ask for a better approach for same
The reason for asking is as TSW location would come in picture you will have a market and a port zone differentiation and based on those combinations we have to identify expense conditions and appropriate prices for same.
Then this requirement will partly fit into the design methodology explained in my blog, where in you will be creating a separate custom tab under TSW nomination item screen to determine those secondary cost relevant condition records. The rest of the process would remain the same.
Do we have any enhanced solution to support Secondary cost invoice matching to accruals. We have a scenario where the matching of invoice to accruals is too hectic involving huge reconciliations
Apologies for the delayed response, I understand matching of secondary cost invoices to accruals can be an herculean task when done manually, usually the customers automate this process by using software either third-party or inhouse. With machine learning capabilities the software can be taught how to read an incoming invoice and the business usually determines the matching criteria which needs to be used for finding and matching the invoice to an accrual. Hope this helps.