Using SAP S/4HANA Settlement Management for Oil and Gas downstream Retail fuel Commissions, Royalties, Fixed Payouts & Charges
This white paper highlights the use of SAP S/4HANA Settlement management functionality for Retail fuel downstream business process specifically for calculating and processing rebates in the form of commissions, royalties and other fixed payouts and charges to the service station operators in CODO scenario.
In oil and gas downstream retail fuel sales business process, specifically the CODO (Company Owned Dealer Operated) scenario, wherein, the Dealer or the Service Station Operator, operates the fuel service stations owned by the company, it is important for the company to ensure the dealer is in business and making good revenue at the Company’s service stations.
To incentivize the dealer or the service station operator, companies come up with various incentive or rebate programs like Volume based commissions on Fuel sales at the pump, commissions on Car washes, fixed payouts as operating cost subsidies, advance payments and other fixed incentives,
Service station Operator can sell merchandize (non-fuel products) from convenience store that is attached to the service station. These Merchandise are typically purchased by the Company from preferred Vendors and sold to Operator for specific price. However, the operator could sell these products with a pricing strategy that would fetch the operator the expected profitability on the products. Companies could monitor these convenience stores sales that operator reports on daily basis, and then charge a Royalty to the Operator based on the shop margin that is reported from the daily shop sales.
Furthermore, companies can charge other fixed costs like rent, utilities charges, liability insurances and other fixed monthly charges to the operator.
SAP S/4HANA Settlement Management Solution:
The functionality in SAP S/4HANA (and also in the earlier versions of SAP), to address and process these types of requirements is the Condition Contract management and settlement process. CCM is part of the Settlement Management Module. Condition Contract management provides a centralized standard solution for Customer and Supplier conditions that accompany an invoice and subsequent settlement. The process involves Conditions that take part in the accrual process over a period and Conditions that involve in the settlement process that results in to either giving a Credit to the customer (e.g. commissions/rebates to SSO etc.,) as payouts or Debit the customer (e.g. Royalty/fixed Rent etc., to SSO) as charges. In this document the focus is on the Order to cash or the Customer side of the condition contract management and settlement process.
The volume-based commission and royalties could be tracked transaction by transaction in the form of accrual process and then settled to the SSO (service station operators) on periodic basis. The basis of accrual for fuel commission is the daily fuel sales at the retail fuel service stations. The daily fuel sales transactions at each pump of a retail station can be collected from corresponding POS system that tracks these transactions and can be interfaced to SAP S/4HANA through SAP S/4HANA RFNO (Retail Fuel network operations) solution.
Daily sales transactions are processed through SAP S/4HANA RFNO to generate Sales documents in SAP S/4HANA (i.e. Sales order/outbound delivery and Billing document). The accrual of fuel commission is based on Condition contract process. A Condition contract maser is maintained for each service station whose daily transactions are tracked for commission accrual and payout. In this process the first step is to ensure each service station location is setup as a business partner in systems and valid for condition contract process. if one service station operator manages multiple locations and needs a consolidated commission accrual and settlement process, then there is the feature of assigning multiple partner in the condition contract. Fuel commissions can be tracked and accrued for each location or the business partner within the same condition contract and then settled to the main operator.
The accrual conditions are determined on the corresponding billing documents of fuel sales and shop sales, either on the total volume ($ Value) or on the total Quantity (e.g., Liters, Gallons etc..) of the products. These accruals can be posted to GL accounts as required. The associated business volume from these billing documents are tracked into designated database tables, through corresponding Condition contract. Subsequently through the Condition contract settlement process, the commissions are paid out as credit memo to the SSO. The accruals are also reversed. Similarly any royalties that are charged are created as Invoice to the SSO.
Fixed contractual payments to the Service station operators like Operating subsidies or Advance payments, can either be manually accrued and settled or directly settled without accrual on a periodic basis. Similarly fixed contractual charges to the service station operators, such as monthly rent, fixed royalties, monthly utility charges etc., can be either be manually accrued and settled or directly settled without accrual, on a periodic basis.
Additionally we can have both Fixed amount settlement conditions and Volume based accrual + settlement conditions on the same condition contract document, if the business expects to have them grouped in to one condition contract document. Along with Pro-rata settlement in case of a foreclosure of the contract.
High level Process flow
SAP S/4HANA Settlement Management functionality can be used to incentivize retail operators in downstream oil and gas – retail business to motivate, improve and keep them running their business.
Very informative. Thanks Prasad for creating/sharing this blog.
Nice Blog Prasad. Thank you.