Describing Inventory Handling and Commingled Stock

The management of inventory within the soft commodities industry can be approached from various angles. Inventory handling refers to the phase within the post-harvest system during which products are stored to ensure food security outside the agricultural production periods. The primary objectives of inventory handling encompass several critical aspects:

• Food Level:

  The goal is to facilitate the deferred utilization of agricultural products on an annual or multi-annual basis, ensuring their availability for consumption.

  At the food level, to permit deferred use (on an annual and multi-annual basis) of the agricultural products harvested.

• Marketing Level:

  Inventory handling seeks to achieve a balance between supply and demand, thereby contributing to the stabilization of market prices.

  At the marketing level, to balance the supply and demand of agricultural products, thereby stabilizing market prices.

• Agricultural Level:

  Ensuring the availability of seeds for future crop cycles stands as a pivotal objective in sustaining agricultural operations.

  At the agricultural level, to ensure availability of seeds for the crop cycles to come.

• Agri-Industrial Level:

  The focus here is on maintaining a consistent and uninterrupted supply of raw materials to support processing industries. These objectives collectively underscore the significance of effective inventory management.

  At the Agri-industrial level, to guarantee regular and continuous supplies of raw materials for processing industries.

Bulk grain is stored in bins or silos of various capacities. The choice between these methods and the degree of technological sophistication of the storage buildings depend on many technical, economic, and socio-cultural considerations.

In the logistics system storage, strategy is to bring solutions to the materials storage problems enabling the integration of supply, generation, distribution and customers.

A primary purpose of grain storage is preserving the quality of the commodity. Degradation of grains/soft commodities in general depends principally on a combination of three factors: temperature, moisture and oxygen content. During storage, as during other phases of the post-harvest system, the combined effects of these three factors can sometimes cause severe losses.

While soft-commodities sit in inventory, there are certain measures necessary to preserve them as best as possible. These measures typically result in a physical change of inventory. These changes need to be accounted for and reflected as book inventory changes. These are called production services.

Whenever soft-commodities are physically moved, there is some quantity that gets spilled. To account for this fact, most companies consider a handling loss reserve.

Within the commodity market, there is a need for grain companies to accept stock for storage from a counterparty/farmer. However, the grain company might not purchase the stock, but will need to keep a record of the delivery and its quality. This practice is called commingled stocks because this stock quantity will be stored in the same location as the grain company's own inventory. Therefore, the stock's grade and quality characteristics may become indistinguishable from other inventory. To ensure that the stored quantity can be restored to the counterparty in the same or better condition, or be valued for purchase, its quality characteristics must be measured and recorded prior to being stored.

Additional functionalities are necessary to manage quantities which belong to third parties (for example, farmers or other grain companies):

• Obligation tracking/goods tracking, including load-out matching
• Managing storage agreements (setup, run storage settlement, automatic assignment of loads to storage agreements, handling fees)
• Receiving without reference (unassigned loads)
• Managing warehouse receipts
• Recording ownership changes while in storage (agricultural company purchases from counterparty, counterparty sells stock to other counterparty holding stock in elevator)

Let's explore an illustrative example of operational events that can occur along the inventory flow. We've discussed the scenario where farmers bring their product using trucks to a country elevator. Upon arrival, two primary possibilities arise: the grains are received for purchase and deposited into our company-owned storage, or they are received as commingled stock when the farmer hasn't yet decided on a sale. Even within the same elevator, meticulous record-keeping is essential to accurately manage the quantity and quality of each load, regardless of ownership. The SAP Agricultural Contract Management Load Data Capture (LDC) mechanism and its corresponding application document ensure this precision.

When the grains are stored within the country elevator, the interplay of production services and handling loss reserves comes into focus. The handling loss reserve feature proves invaluable when navigating movements between bins, addressing incidents like spillage, and other unexpected occurrences. As the grains are managed, various processes unfold to maintain quality. For instance, in cases of drying or other preservation activities, we rely on our production services framework to document such changes. Similarly, techniques like blending and mixing to enhance quality are facilitated through production services.

Progressing in the inventory journey, the grains may transition to a transfer elevator, often facilitated through intra-company contracts. These contracts account for the movement of grains between different elevators. Much like the country elevator, the transfer elevator is also susceptible to handling loss reserves and production services, ensuring comprehensive quality control.

Ultimately, the grains find their way onto barges or other transportation means, often bound for other agribusinesses or partners. This dynamic inventory handling underscores the intricate and multifaceted nature of the agricultural commodities industry. By orchestrating a symphony of processes such as LDC, handling loss reserves, production services, and meticulous contract management, SAPs SAP Agricultural Contract Management streamlines the complex flow of commodities, ensuring quality, transparency, and seamless movement throughout the supply chain.