SAP and Commodity Management
A couple of weeks ago, Patrick and I had a briefing from SAP about its Commodity Management solution. We have been expecting SAP to enter the broader CTRM market for many years now and I think its fair to say that we anticipated that that entry might be via an acquisition of an existing player in the space. Well, we were wrong. SAP has, rather quietly, built a presence in this market but it has done so organically, investing in new capabilities and enhancing existing functionality to create a full featured product specifically for the commodity management space. SAP accomplished this through creation of a strategic investment area within the SAP Business Suite applications group, with both a dedicated development and solutions team assigned to the task. This team’s role was to leverage SAP’s traditional core strengths in logistics, finance and industry solutions while working with leading customers and partners to set out a roadmap for a complete commodity management solution.
The intriguing thing about SAP’s approach is that they have come from the perspective of their traditional customers – global or regional scale commodity producers e.g. oil producers, commodity converters (e.g. refining & petrochemical) and commodity consumers (e.g. consumer products) – not from a trading perspective. Conspicuously absent from its target market are large banks, funds or merchants/traders that have been the bread and butter for CTRM solution providers.
As might be expected, the SAP commodity management solution encompasses a broad set of capabilities, providing an end-to-end solution that enables timely and profitable procurement, sales, and hedging of commodities. The solution incorporates four key areas of functionality: finance, commodity procurement and sales, risk management and accounting. Given that reach of capability, SAP is increasingly competing with CTRM vendors, like Triple Point, EKA, OpenLink, Generation 10 and others, in the commodity management space; but less so in the traditional trading-centric CTRM space.
SAP has enhanced its existing modules for commodities where required and developed specific functionality as appropriate. For example, in their product’s commodity procurement and sales module, it has built a specific commodity pricing engine that allows for definition of pricing rules for all commodity-related pricing elements; including commodity prices based on market data, differential rules, surcharges, treatment charges and more. The system also facilitates integration with market data providers and into core SAP pricing procedures. Additionally, the company has built-out significant risk management capabilities focused on managing physical position throughout the supply chain. In the area of treasury, the solution does appear to have the critical linkage between credit risk and treasury that has been a weakness for many of the competing products.
SAP believes they have a compelling message and a market advantage for a number of reasons: their solution offers a real-time and fully integrated view of commodity management from contract to final settlement, it offers state of the art analytics and reporting (that via SAP HANA) and finally, for SAP customers, it is a single solution from a single supplier with measurable TCO benefits.
The company tells us that they have licensed the software to more than 60 companies, with more than 10 of those up and running on the new solution already. These current users include oil trading companies, metals companies, mining companies, and various companies in the agricultural and softs space for coffee, sugar, general ags and more.
Based on this briefing call, I think we can finally say that SAP is fully in this market after having made a significant investment in building-out a robust commodity management solution with live customers.
With SAP’s strategic view of the cloud and SaaS, we can also expect that SAP’s efforts in the CM market will be based on both traditional on-premises, and in-the-cloud offerings. SAP clearly has a natural advantage given its brand strength, existing ERP market share and a large commodity-centric customer base that it can leverage for some time to come to support (and fund) further enhancements to the commodity management solution. Ultimately though, the proof of the pudding will be when SAP competes for greenfield business against its CTRM/commodity management competitors and wins.
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