ACM capabilities in a nutshell – Inventory Management Part 2 of 3
The process of managing third party inventory in the company’s own facility or the inventory the company owns in an externally owned storage facility is in ACM described as “Co-mingled”.
It is common that farmers or other business partners either do not have the storage capacity or enough capacity in a specific region to store all their commodities in their own facility. Two common business examples supported by SAP Agricultural Contract Management include (but are not limited to):
Example #1: A farmer stores his harvested grain in a company’s facility without selling the crop yet as he is expecting the market price to go up and therefore to receive a better price within a few days. His crop is physically unloaded in the grain company’s storage facility, but the farmer keeps ownership / title of it. After a few days the farmer decides to sell his crop to the company and the title of the already stored gain is transferred from the farmer to the buying company without the commodity being physical moved. The farmer will get paid for his crop, but might get charged for storage and other service. This storage invoice amount may get deducted from the purchase price or send as a separate invoice to the farmer.
Alternatively, the farmer has also the ability to not sell his crop to the grain company, but to pick it up and sell it to another buyer. In this case, the company who was storing his grain needs to ensure that the by the farmer picked up commodity is of equal or better quality. The farmer may also get charged for storage and any other storage related services; like cleaning or drying fees.
Example #2: Grain on storage is sold to a customer but kept in own storage for several days until transportation is organized, and the grain is physically shipped out. The customer may get charged for storage for this period of time.
When a third party stores their commodities in the company’s own storage location, the company may be required to issue a warehouse receipt, which is a document to proof the ownership.
In ACM negotiable and non-negotiable warehouse receipts are supported. Negotiable warehouse receipts allow the transfer of the title of the stored commodity to another party. The negotiable warehouse receipt can therefore be used by ie. farmers as collateral to secure loans with a bank.
Based on federal or regional requirements a storage facility may be required to be licensed in order to store inventory which is owned by another entity. SAP Agricultural Contract Management supports the ability to capture these license information and provides according reporting capability to monitor, if the total utilized storage space is within the licensed capacity.
In scenario’s as described when counterparties store commodities they own in the company’s facility, the SAP ACM solution provides Storage Agreements as a type of contract or agreement that defines:
- Type of material being stored
- In which exact location(s) can the counterparty store their commodities
- Storage rates
- Number of free storage days
- Associated fees
ACM storage agreements can be specific to defined counterparties or can be generic and apply all business partners.
SAP ACM supports multiple ways to calculate storage rates; these include:
- Flat amount calculation. Example: $0.25 / Day / BU
- Scale amount:
- First 2 days free
- From day #2 to day #5: $0.25 / Day / BU
- From day #6 to day #12: $0.22 / Day / BU
- From day #13 to day #20: $0.20 / Day / BU
The invoicing of the provided storage itself is enabled in ACM through the dedicated storage settlement solution. It allows to invoice the counterparty for the storage of the commodities along with any other fees that might apply, like cleaning or drying fees. Depending on the company’s invoice schedule and accounting requirements the invoice amount can also be financially accrued prior to creation of the invoice itself.
If the company buys the 3rd party grain which they have on storage, the storage fees can also be incorporated into the commodity purchase settlement and for example be deducted from the purchase price. This is optional and can be enabled as per business requirements and legal restrictions.