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The SAP R/ 3 Logistics modules, Materials Management (MM) and Sales and
Distribution (SD), provide a comprehensive information system for the
effective and efficient management of all standard activities within the
supply chain. The objective of the Inventory and Hydrocarbon Product
Management (HPM) functionality within the R/ 3 IS-Oil Downstream
component is to enable these Core modules to address certain specific oil
industry requirements.
With regard to general hydrocarbon inventory management, IS-Oil amends
existing Core SAP functionality in order to:
q Incorporate ASTM/ API petroleum measurement standards. These
standards are used to convert volume quantities and product densities
at ambient temperatures to volume quantities and densities at well
defined standard temperatures for material movements and measure-
ments.
q Provide additional quantity fields enabling stock balances to be stored in
multiple units of measure (for example volume at ambient temperature,
corrected volume based on standard temperature and apparent mass).
q Allow stock balances to become negative as the result of a movement,
and handling the financial impact of such a movement.
q Provide a tracking function to link material movements from one plant
to another in order to calculate and post gains and losses (two-step
transfer).
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The key function benefits are outlined below:
HPMs functionality can be viewed as a tool for creating business benefits in
other design categories within IS-Oil. Principally, it allows oil companies to
effectively manage their supply chain of continuous and discrete product to
minimize costs and maximize the reliability and quality of service provided
to the customers.
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The ASTM/ API calculation function enables highly accurate automatic
conversions between alternative units of measure, based on internationally
accepted petroleum measurement standards (ISO 91-1), which are
performed within the SAP R/ 3 System. Thus, the company gains savings in
terms of time and effort by not having to perform these calculations outside
the system.
As there is no limit to the number of units of measure that can be calculated
for a material, the system provides complete flexibility for tracking and
reporting material quantities.
The ability to calculate material quantities using the ASTM/ API conversions
in HPM provides a high level of integration with the other modules. This
enables the company to view the product in the particular unit of measure
(UoM) desired.
Fig. 2-1: System Module Integration
The ability to convert units of measure and to post movements of material
simultaneously provides the company with accurate quantity levels of
material in real time.
The weight ( i.e. apparent mass) and volume of a product required for
shipment is calculated and saved to aid in the delivery and shipping process.
Issues and receipts for plant-to-plant transfers are linked by R/ 3 IS-Oil
Downstream functionality.
The enhancement to the intra-company movement (plant-to-plant transfer)
functionality enables an issue quantity from one plant and a receipt quantity
at a second plant to be reconciled, and the resulting gain/ loss associated
with the movement to be automatically calculated and posted.
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The following HPM enhancements are provided within the R/ 3 IS-Oil
Downstream component:
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IS-Oil incorporates an interface to ASTM/ API c-code routines to convert
volume quantities and product densities at ambient temperatures to volume
quantities and densities at standard temperatures for material movements
and inventory measurements. The system supports the standard ASTM
Tables 53 and 54, including the German rounding rules, ASTM Tables 23
and 24 for relative densities and ASTM Tables 5 and 6 for API gravity
calculations. The calculation is performed on goods movements relating to
oil materials, with the ability to calculate specific units of measure. The
user can configure whether the calculations are performed in display mode,
or in the background, and whether the values calculated can be overwritten
by manual entry or not. The system also provides an ASTM/ API desk top
calculator to perform quantity conversions when no goods movement has
occurred.
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Storing of multiple units of measure is made available through additional
appendix tables to the material master for each material, thereby providing
additional information for ABAP reporting capability.
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Issues and receipts for plant-to-plant transfers are linked by R/ 3 IS-Oil
Downstream functionality. The enhancement to the intra-company movement
(plant-to-plant transfer) functionality enables an issue quantity from one plant
and a receipt quantity at a second plant to be reconciled and the resulting
gain/ loss associated with the movement to be automatically calculated and
posted.
Material movements can occur between plants belonging to the same company,
or between storage locations within a single plant. These movements can be
monitored in the R/ 3 IS-Oil Downstream system.
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A transaction exists in R/ 3 IS-Oil Downstream in which the issue from the
first plant is linked by a transfer tracking number to the receipt of the
second. Thus, the tracking number allows for the calculation of gains and
losses associated with a company movement, as well as tracking the status
of the material movement. The corresponding excise duty gain/ loss is also
calculated.
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Negative inventory allows for stock balances to become negative as a result
of a goods movement. This allows an issue of a material to be made even
though there is insufficient stock available in the system to complete the
issue.
For example, if a hydrocarbon movement occurs over several days, certain
transactions will be booked several days after the initial part of the movement.
This could result in a shortage of inventory, from a system perspective, if a
goods issue is made.
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The following features in the Core R/ 3 System are particulary applicable to
the oil and gas industry.
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The ability to change the material code of a product when two different
products are mixed together, creating a new product, or to change the
description of one product to another.
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Post to physical inventory balancing is simplified in R/ 3 by the detail stored
in the inventory. All movements and physical counts are retained by the
system, which provides for numerous ABAP reports to be developed for
inventory reconciliation. R/ 3 also provides the flexibility of a company
defined grouping of products that enable the company to create custom
ABAP reports.
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Set|c| Stetks
Consignment and subcontract stocks are easily accounted for and tracked in
the standard R/ 3 System, regardless of their actual physical location (for
example, stocks at customer or vendor sites). Functionality available for
special stocks is similar to that of normal inventory stocks, which includes
physical counts, stock reservations, and pricing.
Fig. 2-2: Functionality for Special Stocks
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LIFO/ FIFO valuation is provided by R/ 3 IS-Oil as part of the Core System.
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Within the SAP R/ 3 System, much of the master data information is
structured within a common hierarchy. This hierarchy consists of four levels:
client, company, plant and storage location. All information in the hierarchy
applies equally to all lower levels. Thus, the hierarchical structure ensures
that data redundancy is kept to a minimum.
Fig. 2-3: Location Hierarchy
The common hierarchy is applied to several different master file structures,
one of which is the location structure.
Clients and Companies
For any given organization, there may be a variety of ways that the location
structure could be represented within the SAP R/ 3 System. This is done by
mirroring current or desired organizational structures of the business. The
decision is driven primarily by how corporate information is gathered,
aggregated and reported.
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An oil company (the SAP client) may have divided its organization into
business functions. Thus, the SAP companies would be the independent
business units of the oil company, as illustrated in the figure below.
Fig. 2-4: Organization Divided into Business Functions
Alternatively, separate SAP companies could be used to represent each
national subsidiary of a multi-national organization (the SAP client).
Plant
A plant is a strategic business unit. The plant is the highest level in the
hierarchy where inventory balances are stored, so the assignment of plants
will determine how an organizations inventory position can be reflected.
The plant field is a four digit alphanumeric field. For an oil company, typical
uses of the plant entity in SAP might be to define:
q Crude storage terminals
q Finished product marketing terminals
q Refineries and manufacturing complexes
q Pipelines, or pipeline segments
In addition to these physical sites, where an organizations inventory is
maintained and reported, it is possible to define so called logical plants.
An oil company might use logical plants:
q To store and report inventory in a summarized manner
q To represent third party inventory sites, for example exchange partner
locations
q To store in-transit inventory, possibly by mode of transport
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Fig. 2-5: Physical and Logical Plants
Storage Location
A storage location is a subdivision within a plant, enabling inventory to be
managed at a more detailed level. Each plant must contain at least one
storage location. The storage location field is a four digit alphanumeric field.
Storage locations enable the management of inventory in smaller units.
Within a physical plant, an oil company might use storage locations:
q To track and report volumes of individual product, for example establish
individual or groups of tanks at a terminal (plant) as storage locations.
Within a logical plant, an oil company might use storage locations:
q To define individual third party sites (within a summary third party
plant)
q To define stock being transported by different modes of transport
(within an in-transit plant)
The assignment of a companys physical and logical inventory sites as plants
or storage locations is completely flexible within the SAP R/ 3 System. An oil
company would assign entities as plants or storage locations dependent on
factors such as:
q The number of inventory sites to be defined in the SAP R/ 3 System
q The level of inventory tracking and reporting required at the inventory
site
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Fig. 2-6: Plants and Storage Locations
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This is another area to which the common hierarchy is applied in the
material master record.
Client
The Client level is the highest level at which material information can be
maintained. Information maintained at this level includes:
q Material number and description
q Stockkeeping unit of measure
q Material type
q Industry sector
q Quantity calculation method
The stockkeeping unit of measure is the base unit of measure, or the unit in
which the stock is managed. The standard system converts all quantities
entered in other units to this unit. In R/ 3 IS-Oil Downstream, for oil
materials, these conversions can be performed using ASTM/ API conversion
routines (see the section Quantity Conversions Incorporating ASTM/ API
Procedures). All implicit financial transactions (material valuations, accounts
payable updates, etc.) associated with a goods movement are performed
based on the quantity in the stockkeeping UoM.
The material type provides one method for grouping materials together in
the SAP R/ 3 System. Examples of material types are raw materials, trading
goods and finished products. The material type defines certain features of
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the material and has important control functions. For example, the material
type determines which department-specific data the user can enter for the
material.
Company
In the oil industry, a requirement exists to hold material information at the
company level, since some information, for example, that pertaining to tax
and excise duty, is country-specific. R/ 3 IS-Oil Downstream provides the
following information at that level:
q Additional units of measure for maintaining inventory quantities in
master files and reports
q Conversion group
The units of measure that are calculated automatically for a material (in
addition to the stockkeeping unit) when a material movement occurs, are
defined at this level.
It is possible to group individual units of measure, by a key, simplifying the
assignment of the units of measure to a country code. The units of measure
that are reported in the standard stock reports (see the section entitled
Inventory Information and Reporting) are also defined at this level.
The R/ 3 IS-Oil Downstream System provides a number of methods for
converting between the different units of measure defined for a material (see
the section Quantity Conversions Incorporating ASTM/ API Procedures).
The conversion group defines which set of formulas will be used in the
conversion calculations.
Plant
The plant level is the highest level in the SAP hierarchy where stock balances
are stored in the SAP R/ 3 System. Material information held at this level
includes:
q Stock balances, in stockkeeping unit of measure, for different types of
material quantity
q Stock balances in additional unit of measure for total stock and valuated
stock with unrestricted use
At plant level, stock balances in the stockkeeping unit of measure are held for
a number of different types of stock. These include total stock, unrestricted
use stock, stock in transfer, consignment stock and reserved stock.
In addition to these quantities held in the stockkeeping unit of measure, the
total stock and valuated stock with unrestricted use are held in the
additional UoM and are available for reporting.
The batch managed indicator is maintained at plant level. If this indicator is
set, then a material is managed in batches.
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Storage Location
Information maintained for a material at this level in the R/ 3 IS-Oil
Downstream system includes:
q Stock balances in stockkeeping UoM for different types of material
quantity
q Stock balances in additional UoM for total stock and valuated stock with
unrestricted use.
Batches
Storage location stock can be subdivided into batches in order to facilitate
the management and valuation of inventory at a more detailed level.
Special Stocks
SAP R/ 3 provides functionality to manage stock owned by third parties, or
stocks stored at third party locations. Special stocks are typically stored in
the system as logical plants and storage locations, as described in the
section entitled Location Hierarchy. Some examples of special stocks
include:
q Vendor Consignment Stock - Stock owned by a vendor, but stored at
your site
q Subcontract Stock - Stock owned by your company, but stored at a site
belonging to a supplier
q Customer Consignment Stock - Stock owned by your company, but
stored at a site belonging to a customer
q Suppliers and Customers packaging to be returned
q Project Stock - Stocks allocated to projects defined in the SAP R/ 3
project system
One example of the way special stocks could be used by an oil company is as
follows: customer consignment stock could be used to keep track of
inventory quantities at certain dealer-operated retail stations. After delivery
of the product, it is still owned by the delivering company until it is finally
sold. Inventory at retail stations can be tracked in the system using customer
consignment stock.
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In the oil industry, it is a requirement to be able to hold material quantities
in multiple units of measure (UoM). The volume quantities and densities of
oil materials are temperature-dependent; Raising the temperature of a liquid
or gaseous material increases the materials volume and thus decreases its
density. In order to compare one volume quantity of material to another
volume quantity of the same material, the comparison must be made at a
common temperature.
Fig. 2-7: Quantity Conversions
Thus, it is usual (and a legal requirement for excise duty calculations) to
maintain inventory balances in a UoM at a fixed temperature (for example
liters at 15 Celsius, L15). However, most goods movements occur at ambient
temperature, with the temperature at which the movement occurred being
measured along with the density of material moved. The quantity correction
functionality provided by R/ 3 IS-Oil Downstream system enables conversion
between volumes measured at different temperatures into UoM at a standard
temperature, for inventory management and reporting. It is also possible to
calculate the weight of a material. All UoMs relevant to a material can be
defined and calculated automatically when a movement of the material takes
place.
Functions Utilizing Different Units of Measure
A particular UoM may be required in order to calculate the excise duty. The
TDP functionality uses the conversion routines to calculate and report
inventory balances in the required UoM.
A companys marketing department might require various UoMs, due to
pricing procedures for different customers in international markets.
The pricing functionality in MAP can use any of the UoMs as the basis for
pricing.
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Since all UoMs defined for a material are calculated for every movement
type, the Exchanges functionality is able to track exchange balances in
multiple UoMs.
Quantity Calculation Method
The following description of the quantity conversion routines applies to oil
materials. These are defined by assigning a conversion group to the
material master record of the material. If this group is set to indicate an oil
material, then the quantity conversion routines will be performed for the
material.
Quantity Determination
There are two possibilities for entering quantities in the R/ 3 IS-Oil
Downstream system:
The first is to enter the movement quantity along with the density and
temperature of the material when the movement occurred. Automatic
internal conversion routines then convert this quantity into all the UoM
maintained for that material.
The alternative is to enter all quantities required, with associated
temperature and density information, directly in the system. This procedure
is used if the quantities are calculated outside of the SAP R/ 3 System. The
system checks all mandatory fields for a manual entry of that kind.
Quantity Conversion
The automatic conversion of one UoM to another UoM can be performed in
one of two ways:
The R/ 3 IS-Oil Downstream system contains ASTM/ API conversion
routines. This functionality performs conversions based on the rules and
formulas defined by the American Petroleum Institute (API), based on the
descriptions created by the American Society for Testing and Materials
(ASTM). The system supports the standard ASTM Tables 53 and 54,
including the German rounding rules, the ASTM Tables 23 and 24 for
relative densities and ASTM Tables 5 and 6 for gravities. The conversion
calculations use formulas based on these standard tables.
The alternative is to perform the calculations by an external customer
function module.
An external interface to the SAP R/ 3 System allows conversions that are not
supported by the ASTM/ API routines, as described above.
The two methods are illustrated in the following diagram.
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Fig. 2-8: Conversion of one UoM to Another
Units of Measure Available
The standard UoM for a material is the stockkeeping unit defined at client
level in the material master record. This is the base UoM for storing and
reporting inventory balances. R/ 3 IS-Oil Downstream enables an unrestricted
additional number of UoMs to be defined for each material. The system
automatically converts transaction quantities to these UoM for each goods
movement of the material. Quantity balances are maintained for the material
in all of these additional UoMs, as described below.
The total stock and available stock balances are held in the additional UoM
at the following levels:
q Plant
q Storage location
q Batch level
q Special stock
The transaction quantity in the following transaction types are converted to
the additional UoM:
q Material movements: goods receipts, goods issues, . . .
q Deliveries
q Physical inventory documents
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Material-Specific Information Used in the Quantity Conversion Calculations
The quantity conversion routines require the material density and temperature
to perform their calculations. This information may be obtained from the
conversion routines in one of the following ways:
q The values for density and standard temperature can be stored at, and
defaulted from, plant, storage location and batch-level. This information
can be updated at those hierarchical levels, based on the date.
q For each individual goods movement, it is possible to manually enter the
temperature and material density associated with the transaction.
Carrying out the Quantity Conversion Calculations
For some transactions, it is a requirement to be able to enter temperature and
density measurements made at the time of the goods movement. The R/ 3 IS-
Oil Downstream system provides this capability. Dependent on transaction
type, it is possible to configure the R/ 3 IS-Oil Downstream system to perform
the quantity conversion calculations by one of four different methods:
Fig. 2-9: Methods to perform the quantity conversion calculations
Automatic Conversion Calculation
The system uses default values for density and temperature. The quantity
conversions are performed in background calculations, based on the
transaction quantity and associated UoM.
Semi-Automatic Conversion Calculation
The system uses default values for density and temperature. The quantity
conversions are performed in background calculations, based on the
transaction quantity and associated UoM. The results of the calculations are
displayed to the user and can be changed manually before being posted.
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Manual Conversion Calculation
The system uses default values for density and temperature. The system
displays these values to the user, and may be changed by manual input. It is
also possible to manually input values for the transaction quantity in any of
the alternative UoMs. The system then performs conversion calculations to
the UoM that have not been manually input. The results of the calculations
are redisplayed and can be changed by the user.
Semi-Manual Conversion Calculation
The system uses default values for density and temperature and allows only
these values to be changed. The system performs the volume conversions in
the background, based on the transaction quantity and associated UoM.
Calculation of Gross/Net Weights and Volumes
The R/ 3 IS-Oil Downstream system performs automatic ASTM/ API
calculations of weights and volume in the shipment process.
Base Sediment and Water Calculation
Base Sediment and Water (BS&W) is a percentage of the total quantity that is
non-oil material. This value is to be subtracted from the ASTM-corrected
quantity and is applied to volumes when activated. Activation takes place
by product type specified in a table. The BS&W is an integral part of all
material movements. The meter calibration factor is applied to all target
volumes, when BS&W is activated.
Gain/Loss Handling with Plant-to-Plant Transfers
The two-step plant-to-plant transfer functionality has been enhanced to
enable the reconciliation of individual goods issues and goods receipts
associated with a physical shipment.
Performing Quantity Conversion Calculations When No Goods
Movement Has Occurred
The R/ 3 IS-Oil Downstream system provides the functions for performing
quantity conversions when no goods movement has occurred. A desk top
calculator is provided to perform stand-alone calculations, using either
ASTM/ API or customer conversion function modules.
Fig. 2-10: Desktop Calculator for Stand-alone Calculations
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Checking the Results of Quantity Conversion Calculations
Functionality is provided to be used for checking the results of system
calculations, performed either using the ASTM/ API or the customer
function modules. The result is a report that compares the system calculation
with values in the standard ASTM/ API tables.
The following table illustrates the use of the R/ 3 IS-Oil Downstream
quantity conversion functionality. In this example, a material has a
stockkeeping UoM of barrels at 60 degrees Fahrenheit (B60), while goods
movements of the material are recorded in barrels at ambient temperature
(BBL). The material has an API gravity of 40 and the initial stock of the
product is 500 B60. The table shows the changes in quantity for the following
scenario:
A supplier delivers 950 BBL of the material. The temperature measured at
the time of delivery is 50 degrees Fahrenheit. Subsequently, 500 BBL of the
material is issued to a retail station. The temperature measured at the time of
issue is 70 degrees Fahrenheit.
Fig. 2-11: Illustration of Quantity Conversion Functionality
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Standard Inventory Information Available
The R/ 3 IS-Oil Downstream component provides extensive functionality for
storing and reporting inventory information. The inventory information
stored at the different levels of the common hierarchy were discussed in the
section entitled Product Hierarchy. Other inventory management functions
and the reporting capabilities of the system will now be considered.
Physical Inventory
The real-time nature of SAP inventory functionality assumes that transactions
are entered into the SAP R/ 3 System as they occur.
When a goods movement occurs, the corresponding posting should be made
immediately, to ensure that the system reflects an accurate view of the true
inventory position. Thus, all transactions for a given location must be
entered into the system before a physical inventory count is performed at
that location. The physical inventory count consists of the following steps:
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q Select the materials and locations to be included in the count
q Perform the physical inventory count and record the results in the
physical inventory document
q Enter the physical inventory measurements in the system. These can be
entered either manually, from the physical inventory document, or using
an interface to the SAP R/ 3 System. The quantity conversion routines,
discussed in the section Quantity Conversions Incorporating ASTM/ API
Procedures are used to calculate measured quantities into the UoM
defined for the material
q Create a post to physical inventory difference list
q If possible, correct the physical inventory measurements, for example if
differences can be traced to input errors
q Post the differences. This involves adjusting the book inventory to reflect
the physical inventory measured and the generation of the associated
financial adjustments.
All physical inventory results are stored in a physical inventory document
file. The document file can be displayed online, covering multiple years.
Inventory information is stored in the storage location, batch and special
stock segments of the material master.
Inventory Balancing
Each material movement is posted in the SAP R/ 3 System as a document,
and stored in a movements history file. Material movements are categorized
by movement type. The movement type defines the nature of the movement,
for example goods issue to production or plant-to-plant transfer.
Inventory balances are updated in real-time, as each transaction is recorded
in the system. This ensures that the risk of reconciliation errors is small. It is
assumed that any errors will ultimately be identified during physical
inventory counting.
The user can reconcile transactions and physical balances using the
movements history file and the physical inventory history file. Customized
ABAP reports could be produced to display information from these files if
required, for example, for estimating production and consumption, storage
losses and gains or trend analysis.
Inventory Reporting
The inventory balances that are held at each level of the location hierarchy
were discussed in the section Product Hierarchy. These balances can be
displayed through the location structure using the stock overview
transaction. This transaction provides an inventory on-line report, for a
single material number, at all, or selected, levels of the hierarchy.
The user can drill-down in the hierarchy to see all of the product inventory
for the company, plants and storage locations within a plant. Individual
batches at a storage location are also displayed by this transaction.
In R/ 3 IS-Oil Downstream, this transaction enables the additional, oil-
specific information recorded in the system to be displayed. The transaction
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enables inventory balances in additional UoM, as well as the stockkeeping
UoM, to be reported.
The SAP R/ 3 System provides several capabilities for assigning a material to a
user-defined product grouping, for example material group. This functionality
allows the user to create his or her own product hierarchy. Customized ABAP
reports can then be produced to report material balances within the user-
defined hierarchy.
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Blending is a common transaction in the oil industry. Product blending
includes:
q The mixing of two different materials to obtain a new material
Fig. 2-12: Mixing Different Materials
q The mixing of similar materials
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Fig. 2-13: Mixing Similar Materials
Rebranding is available as a function of the Standard SAP R/ 3 System.
The blending (mixing) of products is supported by a bill of materials with
sub-items for a given delivery of a product. The density for the new material
is recalculated based on the sub-item densities.
The rebranding is provided by a material-to-material transfer posting. In
order to perform a material-to-material transfer posting in R/ 3, it is
necessary that both materials be managed in the same stockkeeping unit.
ASTM/ API quantity conversions are provided for both functions.

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