Commodities

A commodity is a material for which there is little differentiation between one lot and another, regardless of the source or producer. For example, milk is a commodity, since the milk that is produced at one farm is indistinguishable from the milk that is produced at another farm. This is in contrast to items for which different sources produce unique products. While milk is a commodity, cheese is not, because variations in the production processes between one cheese manufacturer and the next will result in different products.

Since every lot of a commodity is interchangeable with another, a commodity vendor has no control over pricing. While there may be slight differences between lots that can have an impact on value, they are not significant enough to identify one segment of a commodity as more or less valuable than another segment of the same item. For example, it may be that a lot of milk with a higher percentage of butterfat is more valuable than lots with a lower percentage. Although we might pay a higher price for milk with a higher percentage of butterfat, we still do not distinguish one vendor's product as being superior, and therefore more valuable, than the others.

Due to some of the unique issues that are present when working with commodities, companies that use these items for manufacturing processes have specific requirements for managing purchases, costing, and vendor payments. As commodities are purchased, it is necessary to process receipts as a single quantity where all units are indistinguishable from each other, while at the same time maintaining the specific amounts that were purchased from each vendor. This need for separation continues with costing and payment considerations, as the inventory value that is assigned to a commodity may not be the same as the amount that is paid to vendors.

The following table describes a sequence of tasks, with links to the topics that describe them. These tasks are listed in the order in which they are generally performed.

To	See
Define the general rules, properties, and values for commodity processes.	Configure Commodity Processes
Process and post multiple commodity purchases that enter the inventory as part of same receipt.	Receive Commodities
Update commodity cost factors, use these new values to adjust commodity costs on posted activities, and recalculate open purchase activities for commodities.	Manage Commodity Costs and Payments

NOTE: The Commodities features within STAEDEAN Food are based on how Milk prices are set in the USA. Milk pricing regulations in US Federal Milk Marketing Orders (FMMO) are among the most complicated commodity pricing regimes across all of agriculture. To follow these regulations we build the Commodity functionality within STAEDEAN Food. It also means we only look to the product, the commodity item, and not to a specific vendor as regulations to set the price are set to the product, in this case Milk. The above is not to say that this feature cannot be used for other commodities, which price based on quality.