In bulk commodity movements, it is common to ship quantities that exceed the mean quantity specified in contracts. Negotiated overfill tolerances play a role in contract negotiations to accommodate these variations.
Overfills can be priced either automatically or manually, depending on the agreed terms.
During the final settlement process, the system automatically prices the overfill quantity at the contract price if the following conditions are set:
- The replacement price type of the applicable overfill tolerance tier is set to Contract
- The consumption rule is set to L (last) or W (weighted average)
Additionally, the system will only distribute overfill pricing lots during final settlement when all other pricing lots have been distributed to final settlement.
Tolerance Schedule Master Data Change
The replacement price type, consumption rule, and single overfill flag are part of the tolerance schedule master data. These fields are copied into the contract and are editable.
In this example, the replacement price type is set to Contract. Additionally, the consumption rule determines how the automated overfill pricing is calculated. You can choose to either use the last price recorded on the contract or calculate a weighted average of all pricing lots.
The behavior of the system if you exceed your tolerance depends on the business rules you have set up. If you allow it, the system can create a second line item marked as unassigned to handle the excess quantity. You would then need to manage this through the work center and decide how to handle the extra quantity.
You can configure the system to fill and roll, which means filling up to the tolerance and rolling over the excess to another line item on the same contract or even to a different contract. This gives you the flexibility to split and distribute the quantity as needed.
The tolerance schedule maintenance transaction allows you to define these settings. When applied to a contract, these settings are defaulted but can be overridden and changed within the contract if desired.
To control overfill scenarios, you can specify whether a single overfill is allowed or if multiple overfills can occur. This is particularly useful when dealing with multiple loads that may trigger overfill on a contract, especially if the timing is based on delivery periods or all quantities of the contract.
Automatic Overfill Behavior
Automatic Overfill Behavior
| Tolerance Type | Price Type | Consumption Rule | Overfill price used |
|---|---|---|---|
| 02 | Contract | L | The value for the overfill price will be taken from the last pricing lot distributed to the settlement for the contract line item to which the overfill is applied. |
| 02 | Contract | W | The value for the overfill price will be calculated using the average price of all the pricing lots associated with the contract line item to which the overfill is applied. |
| 01 | Contract | L | Uses pricing lot assigned to the settlement unit. If more than one pricing lot is distributed to a specific settlement unit, then the last lot distributed to the unit will be used to calculate the overfill price. |
| 01 | Contract | W | Uses pricing lot assigned to the settlement unit. If more than one pricing lot is distributed to a specific settlement unit, then the average of the pricing lots distributed to the unit will be used to calculate the overfill price. |
| 03 | Contract | L | The value for the overfill price will be taken from the last pricing lot distributed to the settlement for the contract line item to which the overfill is applied. |
| 03 | Contract | W | Not supported |
If the timing is set as per delivery, meaning overfills and underfills are evaluated based on the quantity for each delivery period, and the consumption rule is set to use the last pricing lot, the system will take the value of the overall price from the last pricing lot that was distributed to the settlement for the contract line item to which the overfill is applied.
Alternatively, if the consumption rule is set as weighted average, the system will calculate the average price using all the pricing lots associated with the contract line item to determine the overfill evaluation price.
When the timing of the overfill evaluation is set as per delivery, it requires specifying the mean quantity. For example, if the mean quantity is 100 bushels per truck, each truck that comes in will be evaluated against this mean quantity.
If you are using the last pricing lot, the system will grab the last pricing lot that was distributed to the unit to determine the evaluation price. If the consumption rule is set as weighted average, the system will calculate the average price of all the pricing lots associated with the unit.
It's important to note that if the setting is per contract, weighted average is not supported. However, the use of the last pricing lot is still supported in this case.
Example
Automatic Overfill Calculation Example
| Future | Basis | Value | |
|---|---|---|---|
| Contract Pricing | $6.50 | $0.25 | $6.75 |
| Current Market Price at Settlement | $6.00 | $0.75 | $6.75 |
During the settlement process, when the automated pricing is applied, the system follows a specific calculation method. It treats the pricing similar to flat pricing, where it considers the total price and subtracts the current futures price.
For example, if the total price is $6.75 and the current futures price is $6.00, the system will calculate the difference between the two and assign it to the basis component. The overall calculated value of $6.75 will still be reflected in the contract, but it will be distributed between the futures component and the basis component based on the customer's preference.
By allocating the difference to the basis component, the system ensures that the calculated value is accurately represented and aligned with the customer's desired pricing structure.
Manuel Overfill Pricing
In the Settlement work center, a flag has been added to allow the user to manually price an overfill quantity during the settlement run. The settlement will be determined as final, instead of provisional, if the overfill price is the only reason the settlement would have been determined as provisional.
During final settlement, overfill pricing lots will only be distributed when all non-overfill pricings have been distributed.
The final overfill quantity in settlement will only be allowed to be manually priced if the contract does not have the setting to automatically calculate an overfill price.
When entering selection criteria, you have the option to specify whether manual overfill is allowed. If you enable this option, a popup window will appear on the Pricing tab, allowing you to enter the pricing details for the overfill quantity.
For example, if the overfill quantity is 50 bushels, you can input the corresponding prices in the designated fields. This functionality is available on the Pricing tab of the settlement unit.
