Demonstrating the Main Components of SAP Agricultural Contract Management

This section will provide an overview of the components of the Agricultural Contract Management System (SAP Agricultural Contract Management) solution, which encompasses contracts, load data capture, contract application, contract settlement, and revenue recognition.

To better understand the SAP Agricultural Contract Management solution, we can break it down into four main areas.

The first area revolves around negotiations and contract creation with your counterparties. It involves managing contracts throughout their lifecycle, including any necessary amendments or updates that fall under contract maintenance. This ensures that contracts are accurately documented and reflect the agreed-upon terms and conditions.

The second area focuses on processing loads and conducting analysis. Load data capture plays a crucial role in capturing all relevant information associated with each load, such as weights, measurements, quality assessments, and other important data points. This data is then analyzed to provide insights and facilitate decision-making related to the load. This area encompasses the analysis and processing of the load data.

The third area is related to the application of load data and analysis. When the necessary information and analysis valuations have been captured, they need to be seamlessly integrated into the SAP Agricultural Contract Management application. This integration ensures that the captured data and analysis can be effectively utilized in the subsequent steps of the contract management process. Next, based on the captured analysis and load data, the loads need to be accurately applied against the relevant contracts. This refers to the process of aligning and associating the loads with the appropriate contracts based on the analysis conducted, ensuring that contractual obligations and commitments are properly accounted for and executed.

Lastly, the revenue recognition process plays a vital role in determining the financial outcomes of the contracts. On the sales side, revenue and cost of goods sold are recognized based on the completed sales transactions. This involves accounting for revenue generated and associated costs incurred in the sales process. On the procurement side, there is a section known as purchase realization, which represents the final step in the contract settlement process, ensuring that the procurement activities are accurately accounted for and finalized.

Let's explore these sections in more detail, starting with contract maintenance.

SAP Agricultural Contract Management offers a range of contract types that are tailored to different business areas, and take into account important criteria created in master data. Business rules play a significant role in influencing contract processing and the requirements that need to be supported. Let's explore the key components of contracts in SAP Agricultural Contract Management.

1. Contract Entry: SAP Agricultural Contract Management provides the capability to create new contracts, allowing users to input all the necessary details and parameters associated with the agreement.
2. Contract Maintenance: Contracts in SAP Agricultural Contract Management are dynamic, and users have the ability to make changes to terms or prices as needed. This flexibility allows contracts to be adjusted at any point in time to accommodate evolving business needs.
3. Contract Confirmations: In some cases, contract changes may require additional information or a signature from the counterparty. SAP Agricultural Contract Management supports the generation of contract outputs, including amendments, which can be presented to the counterparty for review and confirmation.
4. Contract Outputs: SAP Agricultural Contract Management follows standard output determination processes, but also allows for enhancements that enable customers to capture amendments and transfer changes in the form of documents, such as emails, which can be used for obtaining the counterparty's signature.

GTM contracts in SAP Agricultural Contract Management are time-dependent and typically have a defined timeline. Contract end dates are often set on a yearly basis to align with the crop season. Since frequent call-offs are common in the agricultural industry, it is not practical to have indefinite contracts. While farmers commonly work with the same companies, spot contracts also exist for more immediate transactions. While SAP Agricultural Contract Management does not support the standard practice of bundling contracts or creating umbrella contracts, the system allows for related trades to be linked for reporting purposes.

Agricultural contracts provide a flexible framework that accommodates the evolving needs of industry partners, necessitating the capture of diverse information over time. SAP Agricultural Contract Management is designed to support this dynamic nature of contracts and streamline the entire contract lifecycle through highly automated processing.

Let's delve into the key aspects of agricultural contracts in SAP Agricultural Contract Management:

• Flexibility and Information Capture: Agricultural contracts offer flexibility, allowing for the inclusion of various details as they become available. Pricing negotiations can be deferred, ensuring contracts remain adaptable throughout their lifecycle. SAP Agricultural Contract Management emphasizes the collection of specific information necessary for processing contracts and subsequent steps, enabling efficient and accurate contract management.
• Draft Mode and Quick Contract Entry: When creating a contract, it starts as a draft in draft mode, which doesn't affect risk reporting. This preliminary phase provides the opportunity to add or modify information later, facilitating a quick and efficient contract entry process. This allows industry partners to initiate contracts swiftly while ensuring accuracy and completeness before finalization.
• Contract Templates and API Creation: SAP Agricultural Contract Management provides contract templates that serve as predefined structures for contract creation. These templates streamline the contract creation process by offering standardized formats and predefined fields. Additionally, the solution supports the creation of Application Programming Interfaces (APIs) that enable seamless integration with external systems, allowing for efficient contract creation and data exchange.

By leveraging these features, SAP Agricultural Contract Management empowers industry partners to create, modify, and manage agricultural contracts with ease and accuracy. The solution's flexible approach, draft mode functionality, contract templates, and API capabilities contribute to streamlined contract entry and efficient contract management throughout the lifecycle.

In the contract maintenance section, the pre-contract functionality enables you to provide a firm bid offer or a quote before creating the actual contract with your counterparty. This feature, offered by SAP Agricultural Contract Management, will be discussed in detail in a later session.

Within this area, you create the physical contract for delivery and manage pricing details within the contract. You also have the capability to capture and manage additional contract terms, such as weight tolerances and optionalities, which will be covered extensively in future training sessions. Furthermore, there are discount and premium quality schedules that can be applied to the contracts.

Under contract maintenance, you also have the ability to manage expenses associated with third-party services required for specific loads. For instance, if an elevator requires drainage services, you may need to engage a third party to handle this task, and the expenses incurred can be accurately captured and paid to the service providers. Additionally, the contract maintenance functionality includes a feature called Snapshots, which facilitates the management of contract amendments.

Load Data Capture (LDC) in SAP Agricultural Contract Management plays a crucial role in capturing the details of loads and unloads, including quality analysis information, typically obtained through a weighbridge.

Let's explore the key aspects of LDC:

• Integration: SAP Agricultural Contract Management utilizes an API to interface with third party systems, enabling the seamless transfer of weight and analysis details. This integration ensures timely and accurate information arrival in SAP, leading to precise inventory management and reliable financial reporting. The ability to capture and incorporate this data efficiently enhances overall operational efficiency, and the data can be processed either in batch files or through regular updates.
• Manual Load/Unload Entry: In addition to automated data capture through integration, SAP Agricultural Contract Management offers a dedicated work center for manual load or unload entry. This feature allows users to input load and unload information directly into the system when required. By providing this flexibility, SAP Agricultural Contract Management caters to scenarios where automated data capture may not be feasible or preferred, ensuring comprehensive coverage of load data.
• Contract Application Document: The processed load data, along with relevant quality analysis information, is consolidated within the contract application document, specifically designed for SAP Agricultural Contract Management. This document acts as a central repository for all the captured information, providing a comprehensive view of the load-related details. Customization options through Business Configuration (BC) sets enable businesses to tailor the contract application document according to their specific requirements and preferences.
• Timely Information for Accurate Reporting: The prompt arrival of load data in SAP is crucial for maintaining accurate and up-to-date inventory information in financial books and management reports. By ensuring that load information is captured and integrated into the system in a timely manner, SAP Agricultural Contract Management enables reliable reporting and facilitates effective decision-making based on data.

The LDC and analysis of valuation area focuses on capturing information from both the load and unload processes. It involves validating loads against contract terms, taking into account factors such as quality, optionality, and tolerances, in scenarios involving drop shipments or back-to-back contracts, or delivery diversions. Moreover, the transactional functionality allows for the copying of existing loads to create new ones, streamlining the process of adding loads.

LDC processes provide the following:

• Capture of information for load/unload events
• Validation of captured loads against contract terms for quality, optionality, and tolerance
• Diversions in Back-to-Back scenarios
• Copy functionality for LDC event to create a new LDC ID
• Capture of delivery quality based on predefined quality characteristics

In the agricultural industry, there is a distinct separation between the contracting process and the logistics process. Initially, a load can be processed without a specific contract, and later the contract and logistics are matched together. Independent functionality is assessed based on factors such as material schedule, delivery period, and INCO terms.

To facilitate this independent application process, SAP Agricultural Contract Management uses an application document that captures all the necessary information. The contract quantities can be applied to the consumed quantities at a later stage, allowing for flexible and efficient load management.

The load application process is primarily automated, leveraging business rules to determine the most suitable contract for application. In cases where the specific contract is unknown but exists in the system, a search process is initiated to locate and prioritize the appropriate contracts. Business rules play a crucial role in this search process, considering factors such as fully priced contracts being consumed first before contracts that are not fully priced.

While the majority of load applications are automated, there are instances where trade administrators or traders may manually apply the load to a different contract. To support this flexibility, SAP Agricultural Contract Management provides a dedicated work center where applications can be unassigned from one contract and assigned to another. This reassignment capability eliminates the need to reverse all the logistical documents created during the initial load application, saving time and effort.

In some cases, trade administrators or traders may require a proposal of contracts to which they can apply the load. The application work center offers the functionality to generate a list of possible contracts for application, providing additional decision-making support.

These capabilities within the load application process demonstrate the unique characteristics of agricultural contracting, where the contracting and logistics processes are separate yet integrated seamlessly in SAP Agricultural Contract Management. The system empowers users to efficiently manage load applications, consider various business rules, and flexibly assign loads to the most suitable contracts, driving operational efficiency and facilitating informed decision-making.

Within the application process, a crucial component in the SAP Agricultural Contract Management object called an application document is created. This document is created based on the captured load data and serves as a technical document that houses weight and characteristics information. Its primary purpose is to apply the load data to the contract, taking into account the captured quality and weights. The success of the application in consuming the contract quantity depends on whether it meets the contract terms. If any discrepancies arise, exception processing is required.

Additionally, there is a dedicated work center associated with these application documents. Within this work center, various exception handling tasks can be performed. For example, situations may arise where loads need to be reassigned to different contracts, which is a unique functionality specific to the agricultural industry. The system also allows for multiple contract assignments, enabling consumption against more than one contract for a single application. Moreover, vendor splits are supported, enabling the allocation of load payment or settlement percentages among different vendors. This can be useful, for instance, when a farmer wants to allocate a portion of the payment to another counterparty.

Another feature within the work center is the ability to procure from storage. In cases where a farmer decides to store their stock in the company's elevator and later chooses to sell it to the agricultural company, the procurement process can be initiated directly from storage. This triggers the automatic generation of follow-on documents to handle the procurement process efficiently.

The application process delivers the following:

• Rule-based application of loads to contract(s)
• User-friendly re-assignments of loads to contracts
• Management of contract assignment and vendor assignment splits
• Triggers for automated generation of follow-on documents

Settlement is an interactive process that can be carried out several times during a contract's lifecycle. It depends on the type of transaction (purchase or sale) and the contract terms. Contract settlement is broadly organized into the following three types:

• Provisional settlement
• Final settlement
• Adjustment settlement

The prerequisite for running the settlement process is that the application document must have been successfully applied to a contract. This is a necessary condition to run settlements. The settlement process includes a work center and specific settlement document types provided through Business Configuration (BC) sets for SAP Agricultural Contract Management.

• Provisional Settlement: This type of settlement is employed when certain contract terms have not been fully met. It allows for partial settlement based on available information, even if some elements, such as pricing or finalized weight and quality details, are still pending. Provisional settlements can utilize provisional prices or exchange rates until all contract terms are fulfilled. The system automatically determines whether a settlement should be provisional or final, based on the available information from the application process.
• Final Settlement: As the name suggests, a final settlement occurs when all the contract terms and conditions have been successfully met. It represents the comprehensive settlement of the contract, including pricing, actual weights, grades, and any agreed-upon exchange rates. Final settlements reflect the complete fulfillment of the contract.
• Adjustment Settlement: In some cases, after the final settlement has taken place, adjustments may be necessary. Adjustment settlements address specific issues, such as disputes or missed fees, which require corrections or modifications to the previously settled amount. These adjustments ensure accurate and fair settlement of the contract.

It is possible to have multiple provisional settlements before the final settlement. The final settlement represents the remaining amount to be settled, which can be positive or negative. Adjustments, as previously mentioned, account for cases where corrections or modifications are needed after the settlement process.

In the settlement work center, application documents are used to calculate the amount owed or to be sold to the counterparty. The calculation takes into account factors such as weight, contract pricing, and qualities captured for the loads, all of which are reflected on the application document. Additionally, any premiums, discounts, tolerance evaluations, or optionality evaluations that affect the base price can be applied.

Settlement is performed using standard Sales and Distribution (SD) and billing processes. After settlement, a Materials Management (MM) invoice is generated, similar to the invoicing process through the SAP MM module. If standard sales and distribution billing transactions are used, the invoicing can be generated accordingly. Consolidated settlement with business partners is also possible, where multiple contracts and applied loads can be consolidated into a single settlement document. Furthermore, the option to split the settlement into different documents is available through business rules.

The solution supports settlement adjustments, allowing corrections to be made after the final settlement with the counterparty. If there are disagreements or discrepancies in quality characteristics that significantly impact the discount, adjustments can be negotiated and handled through settlement adjustments. In future topics, we will cover additional fees, where extra services can be charged to the farmer and included in the settlement process.

During the settlement process, the system allows for the capture of information regarding any liens on the farmer's property or on the grains themselves, as required, for example, in the United States.

The settlement process provides the following:

• Calculation of the settlement amount based on available pricing, quality info, weights
• Settlement with counterparty using standard SD/MM billing and invoicing
• Consolidated settlement with farmer/business partner
• Settlement adjustments
• Enhancements to Lien process

Revenue recognition and purchase realization are crucial steps in the contract management process. When a final settlement has been completed, the next stage involves running these two processes:

• Revenue recognition for sales
• Purchase realization for purchases

To carry out these processes, there is a dedicated work center available. However, it is common for them to be executed through batch jobs. Batch jobs offer efficiency and are often the preferred method for executing these tasks.

For revenue recognition on the sales side, a posting document is created, which facilitates the recognition of revenue and cost of goods sold. This accounting posting document ensures that the revenue generated from the contract is appropriately recorded.

On the purchase side, the process involves quantity updates and contract repositioning. This entails updating the classification of quantities in the contract. The purpose of this update is to accurately reflect the purchase realization and adjust the risk reporting accordingly. By updating the quantities, the impact on risk reports, position reports, and mark-to-market calculations are accounted for in the system.

Overall, these processes of revenue recognition and purchase realization play a vital role in accurately reflecting the financial impact of the contract and ensuring that relevant risk reporting and accounting measures are in place.