Introduction and challenges in the grain business
In the agricultural world where commodities are stored in bulk and internal / outside factors are impacting what/where/how much is stored as well as the value of the stored inventory, the company’s inventory solution needs to be capable of addressing all of those challenges and requirements in real time integrated way with the company’s main ERP solution.
The requirements for such an inventory solution are manyfold and can be driven by internal business requirements and outside needs from external counterparties or legal authorities. These can include:
- Internal requirements and challenges:
- Do I have the capability of updating my inventory in real time based on logistical execution (incoming, outgoing loads or consumption for producing finished goods)?
- Can I track and report owned inventory which is currently in-transit and not in my physical location?
- Do I have enough inventory of a certain commodity to fulfil my contractual obligations and storage commitments?
- Do I have the commodity in the right quality?
- Do I need improve the quality of my stored commodity prior to selling or consuming it by performing services like drying, cleaning or blending? How do those services impact my inventory?
- Did the quality of my stored grain change because of outside factors like weather condition? (i.e., loss of moisture due to heat)
- External requirements and challenges:
- Provide external counterparties the ability to store their grain in the company’s facility.Do I have the ability charge for the storage itself as well as any related services like cleaning or drying?
- Did ownership of the externally stored grain change by for example presenting a warehouse receipt?
- Do I have enough detail information of the commodities on storage in order to fulfill legal reporting requirements?
- Can I evaluate a fair market value (Mark-to-Market) in a volatile market with frequently changing market prices?
SAP Agricultural Contract Management (SAP ACM) offers a solution to all of those challenges in an integrated way.
SAP ACM inventory features in a nutshell
The following chapter provides a high level overview of features provided by SAP Agricultural Contract Management. This article will not address each feature in detail, but will provide an overview of the most used and critical features.
Handling Loss
Did 100% of all the commodities that I unloaded are also reaching my physical storage location?
Example: the scale weight of a truck measured that 900 Bushel (~54,000 LB) have been unloaded. Is every pound of it also reaching my physical bin / silo or do I need to consider a certain loss in the handling while moving it from the unloading to the storage location?
SAP ACM offers the ability to automatically calculate and post a handling loss percentage which can be defined by each company for factors like mode of transports or type of commodity. The loss is automatically calculated and posted separately for maximum transparency. The functionality is available independently, if a load was captured within ACM’s own Load Data Capture transaction or via the by ACM provided external interfaces, like for integrating weighbridge systems.
Inventory Shrink
Is the entire quantity that has been physical measured also the quantity that needs to be reported as inventory or does it require adjustments?
Example: A truck is arriving directly from a farmer’s crop field.
- The scale weight of the truck which is arriving from a farmer’s crop field is measured as 54,000 LB
- The taken quality sample shows that the load contains a certain percentage of foreign materials like dirt, sticks, stone, etc. that the company does not want to report under the inventory of the received commodity.
- Additionally, the quality sample reveals that the moisture content of the commodity is too high and needs to be dried down prior to selling it or consuming it for the production of finished goods. The required drying process will therefore result in a loss of moisture, which subsequently means a shrinkage of the reported quantity.
Based on a flexible schedule (DPQS = Discount and Premium Quality Schedule) ACM offers the ability to calculate and report those adjustment at any time. The ACM reporting solutions reports therefore any quantity as a gross quantity (= physical measured and not adjusted quantity; i.e. the truck’s scale quantity) and net quantity, which is the gross quantity adjusted by qualities. If and how much the adjustment is, can be flexible defined by each company and the net quantity calculation is a by ACM automated process; bearing in mind that quality measurements are often not available at time of physical unload, but provided later by a laboratory. The reported net inventory will therefore have to be adjusted with the update of the received quality updates.
Net/Dry inventory calculation
Net/Dry inventory can be seen as an extension of inventory shrink process as outline above. The net/dry process takes also into consideration what the weighted quality average of each quality characteristic is in a specified storage location. If several trucks are unloaded into the same storage location in reality the silo does not have a layer of quality A and then another layer of quality B, etc. All the unloads are mixed together and forming a new weighted average which should be used for the inventory reporting as it reflects the reality most closely.
The ACM net/dry inventory solution is calculating those averages automatically in the background and also provide a workcenter that can be used to manually override the calculated average. This can be used for example if physical samples were taken and the actual quality varies from the reported quality – i.e. measured moisture is reduced due to weather conditions / heat.
Furthermore ACM offers summary and detail reports that shows the inventory impact based on the quality characteristics of the stored commodity. The entire net/dry solution is also fully integrated into the risk reporting solution for position reporting and MtM; ensuring physical inventory reporting and risk reporting go hand in hand.
I will be posting part 2 on Thursday September 21st 2023
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