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13 January 2025

From non-ferrous metal processing to SAP Commodity Management

New approaches to material procurement and pricing for raw materials and commodities in S/4HANA.

Price management for fluctuating commodity prices: new requirements and solutions

In an economy characterized by price fluctuations, companies that use non-ferrous metals such as copper, aluminium or nickel in their production face particular challenges. Fluctuating raw material prices affect production costs and customer prices in equal measure. With SAP S/4HANA, the innovative SAP Commodity Management (CM) solution replaces the previously used non-ferrous metal processing and opens up new possibilities in pricing and risk management.

Functional scope of non-ferrous metal processing

Non-ferrous metal processing in ECC makes it possible to store the exact metal content in products such as copper cables and map it in the documents. Price fluctuations are recorded using the stock exchange key and note determination key in order to include daily updated prices in the calculation of material costs. Important functions are:

1. Material master and pricing: The non-ferrous metals are maintained with specific base keys and weight units in the material master. Prices are determined using standard conditions or user-defined ABAP routines.

2. Price control: price fluctuations are recorded using daily, monthly or periodic average values. These can be updated automatically via data feeds such as SAP Market Rates Management or manually.

3. Processing logic for sales and purchasing: The pricing mechanisms are used and synchronized in parallel in purchasing and sales to ensure that the pricing logic is consistent in both areas.

In the purchasing process, the data specific to the non-ferrous metals is displayed at item level of the order documents. This includes information on the material content of the non-ferrous metals, current market prices and, if applicable, the base key. This data is automatically updated on the basis of the rate determination key in order to record the current market value. In cases where prices are missing or are adjusted manually, the system automatically creates a price check block. In the goods receipt and invoice, the calculations are also based on the specific market value on the key date, taking into account tolerances and deviations depending on the customizing settings.

The non-ferrous metal processing in SAP enables the mapping of fluctuating raw material prices in the purchasing documents. With the change to commodity management, pricing, risk management and precise inventory valuation are integrated along the entire value chain.

Stefan Oberlik, Managing Consultant Digital Procurement CONSILIO GmbH Contact us

Commodity Management in S/4HANA

Commodity Management (CM) in SAP S/4HANA offers a comprehensive solution for processing transactions involving raw materials and commodities. It combines traditional purchasing and sales processes with specialized functions for evaluating and hedging market price risks. This enables companies to better manage price volatility and flexibly adapt their procurement and sales strategies.

The graphic opposite illustrates the integration of Commodity Management in SAP S/4HANA. Important components such as Commodity Procurement Specifics, Commodity Sales Specifics and Non-Ferrous Metal Processing are closely linked to modules such as Materials Management, Sales and Distribution and Treasury and Risk Management. This integration enables an end-to-end process flow - from procurement and risk assessment through to financial processing.

With these functions, companies can manage commodity transactions efficiently, minimize market price risks and meet regulatory requirements.

Restrictions on non-ferrous metal processing

Despite its strengths, non-ferrous metal processing falls short of modern requirements. Functions such as risk management, price forecasts or the integration of global trading strategies are missing. SAP Commodity Management in S/4HANA closes precisely these gaps.

New functions in Commodity Management

1. Commodity Pricing Engine (CPE) in SAP enables flexible and precise pricing for commodities. Complex pricing formulas, such as bonus/penalty rules, can be mapped using user-defined formulas and configurable parameters - without ABAP programming. This allows volatile market conditions to be taken into account dynamically and individual pricing strategies to be implemented efficiently.

2. Provisional and differential invoicing: In the event of fluctuating prices, provisional invoices can be created in purchasing, which are adjusted at a later date based on updated raw material values.

3. Mark-to-market valuations and hedging: CM integrates comprehensive risk management functions such as position valuation, hedging and risk reporting to assess and minimize market price risks. These functions were not included in non-ferrous metal processing and give CM a clear advantage in terms of risk management.

Comparison and transition from non-ferrous metal processing to SAP Commodity Management

The strategic focus on SAP Commodity Management enables companies to respond more flexibly and comprehensively to market conditions. The main difference to non-ferrous metal processing is the ability to manage risk management, pricing and hedging in one integrated system. Some of the key differences are:

Modern commodity management is the key to operating stably in volatile markets and ensuring long-term success.

Moritz Barg, Consultant CONSILIO GmbH Contact us

Summary: Transformation with SAP Commodity Management

The transition from non-ferrous metal processing to SAP Commodity Management in S/4HANA represents a significant step forward for companies that trade non-ferrous metals or other commodities. By integrating comprehensive risk management functions, complex pricing logic and global trading functions, Commodity Management is better equipped to meet future challenges than non-ferrous metal processing. SAP CM also offers a future-oriented platform that ensures a long-term perspective in commodity procurement and trading through regular innovations and enhancements.