At the core of SAP Agricultural Contract Management is the provision of a comprehensive tool for traders that allows them to create and efficiently enter contracts into the system and streamline their trading operations. By offering a fast and efficient contract entry process, SAP Agricultural Contract Management ensures that traders can capture and manage their contractual obligations with ease.
The practice, known as desk trading, refers to the practice where a trader does not immediately enter the contract they have discussed into the system. Instead, the trader sells the quantity and another trader in the same company creates another contract for the same materials. This leads to the company being "double short" and having to buy the difference in quantity from the market at a potentially higher price to fulfill their obligations with the counterparties. This can severely impact the company's overall performance, so it is mandatory for most companies to avoid this by entering contracts into a system of record as soon as possible.
A significant percentage of the contracts that traders enter into the system are of the same type and usually have the same conditions. This creates a need for a fast contract entry process. While many data fields can be defaulted, they should also be available for changes by the trader or trade admin if necessary. Firm bids/offers, templates, and quotes represent the requirement to capture potential contracts early in the system and to provide an overview of the potentially contracted quantities. These types of contracts do not impact risk reporting.
Furthermore, agricultural companies aim to bring contract creation closer to the farmer as a counterparty. This means the contract creation functionality should be available through mobile devices and is becoming a more of a requirement.
Now, let's touch on the functionality of contracts, such as firm bid offers and quotes. Firm bid offers will eventually be converted into regular SAP Agricultural Contract Management trading physical contracts. When creating an SAP Agricultural Contract Management physical contract, it is initially in draft mode, allowing the trader to add the contract and any additional details later, even if all the information is not available at that point. The contract's draft mode ensures it does not impact positions until it is approved and completed.
You can create contracts based on templates, which contain predefined data for multiple contract types. Additionally, you can create contracts in reference to existing contracts, with the data being defaulted. However, pricing does not default in these cases, and you still need to go through the pricing process.
A trader can use the SAP GUI transaction or the SAP Agricultural Contract Management SAP Fiori app to create contracts, and there are also APIs available for creating contracts from external sources.
Firm Bid Offer
The primary requirement of a firm bid offer is to capture the price at which counterparties are willing to sell or buy commodities. These price-related documents can be monitored and converted into physical contracts when necessary. SAP Agricultural Contract Management offers dedicated contract types, including AB3P (firm bid to buy) and AO3S (offer to sell), specifically designed for bids and offers. With firm bid offers, traders can specify target prices and pricing instructions within the document itself. Additionally, SAP Agricultural Contract Management provides a BADI (Business Add-In) to facilitate the sending of firm bid offers to an external monitoring system.
To effectively manage these offers, SAP Agricultural Contract Management offers a worklist where all firm bid offers and their statuses can be monitored. The conversion from offers to contracts can be performed either through the worklist or through provided APIs. Traders also have the flexibility to create firm bid offers with reference to templates. Importantly, firm bid offers do not impact the position reports.
The contract types within SAP Agricultural Contract Management are managed using status management functionality, which allows for efficient tracking and control. Initially, contracts are created in a draft status and can be changed to released status when completed. The API integration enables the transfer of information to the monitoring tool. The monitoring tool is a proprietary capability that most agricultural companies will develop for themselves. Once the price condition is met, the status is changed to ready to convert, and physical contracts can be created either manually through the worklist or via API calls. Other actions, such as canceling or retiring an offer, are also possible.
The information captured in firm bid offers includes essential details such as the type (bid/offer), commodity, material, counterparty, plant, validity period, target price, pricing instructions (including price futures, price flat, and price basis), quantity with the unit of measure, currency, and futures reference (DCS/MIC/Key date). SAP Agricultural Contract Management provides mechanisms for companies to protect their prices by incorporating an additional cushion or buffer against market volatility, safeguarding their trading activities.
Status Flow
This status flow represents an Firm Bid Offer (FBO). The management process begins with the contract in the draft status, which can then be released. When the monitoring tool confirms that the price condition has been met, it sends a notification. At this point, traders can choose to automatically create the contract or use the work center for manual conversion. After the conversion, the contract is marked as completed. If needed, there are options to cancel or expire the contract.
Firm Bid Offer Transaction
The figure shows the firm bid offer in the SAP GUI interface. In the contract header, there is a tab called FBO Details where you enter the details of the firm bid offer. It includes the target price type, which can have multiple options and represents the target price for the futures commodity. The currency and unit of measure are also specified.
You enter the expiration date of the firm bid offer, after which it cannot be converted into a physical contract. Some default pricing details are mentioned, which will be discussed in more detail later. The configuration table represents the exchange, in this case, the Chicago Board of Trade, and the specific commodity (soft wheat).
The target contract type is the physical contract to which the firm bid offer will be converted. In this example, it will be converted into an AC3P (third party purchase) contract type. Other details related to incoterms, basis ID, and additional information can also be communicated.
There is an option to include a basis price and lock it, as well as specify the FX rate for the futures price. However, these are optional. Commodity details were not mentioned.
Regarding the validity period, it is typically at the item level in a contract. However, for the FBO, which is a special contract type, the validity period is set at the header level.
In the work center, you can set the status of the contract offer and convert the FBO into a physical contract. It provides functionality related to managing and processing the FBO.
Drafts and Quotes
The ability to capture quotes for both purchase and sales activities is a key requirement. To fulfill this requirement, dedicated contract types are employed: AQ3P for purchase bids and AQ3S for sales offers.
Quotes allow the specification of a flat price for the commodity. They are valid from their creation until the expiration date, which is entered in the quote header. The quotes are associated with a specific delivery period, and when converted, the contract's delivery period must fall within the quote's delivery period.
Quotes have a validity period and expire based on time. To monitor quotes and their statuses, a work list is provided. From the work list, quotes can be converted into contracts, either manually or using an API. It is also possible to create a quote in reference to a template.
It's important to note that quotes do not have any impact on positions. In the example shown, the header of the quote includes the expiration date and specifies the target contract type for conversion, which is SAP Agricultural Contract Management (third party contract) with the contract type AC3P.
Summary
The business requirement is to capture quotes given to the counterparty for both purchase and sales activities.
- SAP Agricultural Contract Management provides dedicated contract types (AQ3P) for bids on the procurement side and for offers (AQ3S) on the sales processes
- Quotes provide the ability to specify a flat price for a commodity
- Quotes are valid from creation until the expiration date entered on the header of the quote
- Quotes are for a specific delivery period and, when initially converted, the contract delivery period must be within the quoted delivery period
- An SAP Agricultural Contract Management quote expires based on time (validity period)
- A worklist is provided to monitor all quotes and their corresponding status
- Conversion of quotes into contracts is supported from the worklist or through provided APIs