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Trade preference with SAP GTS Identity-based Preference Processing (IBPP)

image Aleksandr Piliptsevich 09. June 2021



SAP GTS Identity-Based Preference Processing (IBPP) is an add-on for SAP Global Trade Services (GTS) which brings additional functionality to it’s preference processing capabilities. The general purpose of trade preference processing is to leverage customs preferences, which are mainly represented in less or zero customs duties during importing of goods.

The most important advantage and added value of IBPP add-on is identification of preference status per individual stock, identified by a batch, which avoids unnecessary negative statements caused by application of standard “worst-case” principle once the LTVDs are being aggregated. This increases benefits of preference management and eases customs audits by giving user an option to present calculation log per each batch used in sales process.

When export of goods with preferential status takes place, then both exporter and importer of goods benefit from the transaction. For importer of goods, it means that lower customs taxes and duties will be paid. Goods that are being exported with preferential status become more attractive to the customers, which helps exporter to set higher margins and benefit from transaction as well. When performing intercompany sales, the company also saves costs by reducing of import duty.

Trade Preference business process, from the goods owner’s point of view, consists of the three main steps:

1.       Obtaining of a preferential status and origin for products from suppliers

For materials which are procured externally or have mixed procurement, we request preferential information from our suppliers. Materials with internal procurement are processed directly without requesting any information from the supplier.

2.       Maintaining/Determination of preferential status and origin for products

After we have collected preferential information for our products, we can maintain it in the IBPP Long-Term Vendor Declaration (LTVD), where preferential status will be stored. In case of complex materials, which are produced of multiple components, we run determination of preferential status.

3.       Issuing of certificates of origin to the customers

After we have collected and maintained all the preference information for our products, we can issue the certificate of origin to our customers on transactional basis or based on certain period.

In the next part of the blog will take a look at several important functionalities which IBPP brings into trade preference processing.

Maintenance of IBPP declaration

IBPP allows us to maintain preference status or goods based on their particular identifier, which can be batch, serial number or any other identifier, depending on the business process setup. Preference information is maintained in IBPP declaration for goods with external or mixed procurement after obtaining of preferential information from the supplier. Preference information from IBPP then can be used in SD process in ERP system.

On the following image we can see three different batches for product 1136. We can define different preference statements for each of the available batches:

Preference Determination for Process and Production Orders

During the manufacturing process, we produce finished products in our premises. Usually they have complex structure and consist of multiple semi-finished and raw materials. In production process, batch classification for materials is being widely used. Such classification is eligible to store preferential statements and to be processed by IBPP.

IBPP module can determine identity-based preference status for finished materials in production or process orders where particular batch number will stand for unique identifier in case of such orders. We run preference determination based on the Bill of Material (BOM) assigned to production or process order. During calculation, all the components of the BOM are taken into account, as well as their preferential statuses and appropriate rules of origin. After calculation, results are transferred back to the ERP system so they can be used further in sales process.

Preference calculation can be executed even before the document is transferred to IBPP. It is possible to run simulation of preference calculation on the ERP side:

Determination of Preferential Stock in SD process

After determination of identity-based preference information for our goods in IBPP and replicating it back to the ERP system, we can then use it during sales process. As it was mentioned before, preference information can be crucial during foreign trade process.

With the help of IBPP, we can automatically determine preference-relevant stock in sales process in the ERP system. Determination of preference-relevant stock is performed based on the defined conditions such as combination of particular customer and material. Such stock will be picked and can be further applied for customs preferences.

Preference-relevant stock (marked green) will be preferred against non-preference stock (marked red) during determination. Therefore, when 12 pieces of material are sold and only 10 preference-relevant pieces are available in stock, system will fulfill total required quantity with the lowest possible non-preferential quantity, which is 2 pieces:

Preference determination results are being updated within Batch classification in ERP system, which holds information about preference status and its threshold per each legal regulation customized:

Afterwards, preference relevance can be determined based on Preference statements flag or based on transactional basis comparing actual price with preferential threshold.

Preference flag determination in Billing documents

When creating a billing document, we can determine customs preference flag for particular item which is sold to our customer. The flag is determined based on the sales price of the item and it’s preferential threshold value, which is provided by IBPP based on the appropriate identifier.

Afterwards billing document is printed with the preference eligibility on it’s items and can be further processed in trade preference procedure.   

The Benefits

SAP GTS IBPP is an add-on component for SAP GTS, which does not perform preference activities based on the product itself, as standard SAP GTS does, but on particular identifier for a product. Therefore, when customer already uses preference capabilities of standard SAP GTS solution and want to enhance the efficiency of the process, we recommend to consider IBPP solution, which brings the following benefits to the user:

  1. By implementation, user will gain more preference by not applying worst case principle - no aggregation is necessary for batch-managed products
  2. Preference calculation is performed for each finished materials in production or process order 
  3. Batch preference situation of traded goods is used in sales process
  4. User can simulate the preference calculation for production and process order in ERP – user can see whether there is planned production of preferential or non-preferential product
  5. User can pick the preference-relevant stock in SD process based on particular identifier and add the logic into the picking strategy
  6. System will determine preference relevancy in billing documents based on product’s identifier.

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