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Technical White Paper

Preference in SAP GTS for Author:

Karthik Gunda

NET COST Method Solution Architect, SAP SD & GTS

YASH Technologies Pvt. Ltd.
A brief about Preference determination (NAFTA):
In today’s global markets, outbound shipments
have to clear customs fast. That means ensuring
that products are correctly classified and have the
required complete and accurate documentation.
For a business with partners overseas, it’s critical
to ensure that it’s dealing with the right people,
countries, and products. Business must identify
restrictions on specific items, countries of
destination, and business partners, and there is
host of regulations to comply with – and severe
penalties for noncompliance. Also, to survive
in today’s fiercely contested global markets, a
business cannot afford to let go the opportunities
offered by trade preference agreements.
Businesses need to provide detailed certification
of the origin of goods to their overseas customers.
Preferential Trade Agreements exists among the
countries, where they provide exemptions on
certain goods upon the customs duty, based on
a criterion. NAFTA is the North American Free
trade agreement, covering US, Mexico, Canada &
Puerto Rico as member countries.
Preference Calculation for NAFTA agreement:
To conduct business in other countries,
Business must comply with local laws, adhere to
documentation requirements and understand
complex tariffs and duties. Failure to do so can be
costly so, and GTS helps automate these processes
to ensure compliances. SAP GTS is an ERP Based
solution meant for companies which are mainly
into Global Operation. Corporations which have
trading contracts with an extensive network of
partners across the world with operations in
different countries are likely to use this application.
GTS architecture how it communicates to Feeder
System, all the master data like Material, customer-
vendor and all the transaction data like sales order
delivery billing doc get pushed to GTS through
RFC Call. And any message back to Feeder system
flows through RFC call.
There will be an exemption from customs duty or
a reduced customs duty rate on the products that
are sold among these member countries when
the respective product qualifies for preference.
How does a product qualify for preference?
Product will qualify for preferential treatment
when it meets one among the following criterion:
1 When majority of the content in a finished
Product is Originating, this is determined
based on Regional Value Content(RVC)
calculated on that product.
There are two ways to calculate
the RVC:
a) NET COST Method:
RVC = NC – VNM x 100 NC
RVC – Regional Value Content
NC – Net Cost of that product
VNM – Value of
nonoriginating material
b) Transaction Value Method:
RVC = TV – VNM x 100 TV
TV – Transaction Value
/ value as per invoice
Originating – Raw material/ Sub-Assemblies
which are Produced or procured or certified for
preference from one among US, Mexico & Canada
that go into the finished product in question.
Usually, the rule against the classification of the
final product specifies how much RVC is expected
(50%, 55%, 60%, etc.,) in the product to be
qualified. The percentage will be different for Net
Cost method and Transaction Value Method on
the same product.
2. Tariff Shift Method:
These rules are defined by a change in tariff
classification of the non-originating materials.
This is dependent on what all components
that fall under specific list of classifications
have transformed into a certain Classification
in the production process to form the final
product.
The preference calculation using
a Net Cost method depends on
the following factors in SAP GTS:
1) Classification
2) Rules of preference
3) BOM
4) Procurement Indicators
5) Price
6) Vendor Declarations
Case in point
A company has its manufacturing spread across
multiple plants in the US and needs to calculate
NAFTA preference on their products. Let’s Say
there are 2 Plants within the US.
SAP GTS recommends using a plant group
comprising these plants if the parts are in
common.
In the event of calculating the RVC by NETCOST
Method on a Static BOM, through a TOP Down
Approach.
There are two important factors offered in
SAP GTS:
1) The cost of a component which is lowest
among the two plants will be considered
for Preference.
2) The BOM will be regarded as from other
plants based on the alternative BOM
explosion. And its related configuration.
SAP Global Trade
Services provides
one of the most
comprehensive
import
management
solutions in the
industry.
Business Requirement:
The Components belonging to other plants
needs to be considered, however, the price needs
to be taken only from individual plants. The
Cross Plant BOM needs to be triggered based on
special procurement indicators mentioned in the
Material Master of the Feeder and should apply
to the cases where there is a stock transfer as the
procurement value.
GAP:
1) The process as per standard SAP cannot be
considered based on individual plant level
prices in a plant group based BOM
2) The BOMs from other plants cannot be
considered for the procurement values
where there is a stock transfer defined
Solution:
Necessary changes in Feeder System
In Feeder system, there is scope to define the
configuration, for transferring the BOM in the
following path.
One can control the BOM transfer with the options provided as follows:
However, in the section above only those types of
BOMs that are selected would transfer into GTS.
This is the first step to consider while enabling
the Cross plant BOM’s. Alternative BOM’s section
per each Plant offers more scope to refine the
cross plant explosion further. The control related
to cross plant BOM explosion based on special
procurement still do not exist in this above
configuration transaction.
IMG-> Sales & Distribution-> Foreign Trade/
Customs->SAP GTS-Plugin-> “Control Transfer of
Bills of Product for preference and Re-export”
For this to happen, in the Transfer routine
program, the changes will need to be made in the
function Module CS_BOM_EXPL_MAT_V2, which is
used in the transaction SAPSLL/BOMMAT_DIRR3.
The custom Logic needs to be based according
to Configuration entries defined in Table T460A.
Against the Special Procurement type(SOBSL) and
Special Procurement-External Display(SOBES).
Necessary Changes in GTS System:
The Plants have to be defined as individual Legal Units; the price transferred from Feeder to the product
master in GTS would be recorded as per individual plants in that case. Material Transfer, Price transfer,
Procurement Indicator transfer has to be done from Feeder into GTS system; Further, the classifications
need to be maintained against all components as well as the headers.

A Comparision of the RVC (NET COST)calculation according to Both Approaches:

Impact of above custom approach changes:

• Ensures LTVD’s are maintained for all external procured components in all the
relevant plants of that plant group
• Allows plant-specific prices, providing greater accuracy in calculation
• The Tariff shift results are more accurate, enabling to identify those classifications
that may be defined in the “Exclusion” or “Inclusion” list in a few rules
Recommendation:
Logic needs to be coded in a way that control
can be maintained through a table entry so that
this custom transfer feature for BOMs can work Reference:
in specific cases where the entry is maintained.
When this feature is turned off on the table and www.sapgtsonlinetraitning.net/
run the transaction, original BOM shall replace sap-gts-overview
the custom BOM in GTS.

Conclusion:
By allowing the explosion to more levels (inclusive
of other plants with stock transfer procurements),
more control and accuracy is possible. The
NAFTA preference module within GTS provides
an automated means for managing your NAFTA
preference determination.

For more information contact YASH today

at info@yash.com or visit www.yash.com

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