Why Sourcing and Procurement Will Never Be the Same with SAP S/4HANA
Imagine for a moment that you are a procurement officer working for a national retail chain. You just learned that your marketing team is gearing up to launch a national promotional campaign for a product line. The promotion is a very big deal for the company, and many executives are relying on it to meet revenue and profit targets.
But wait a minute: It’s Friday, and you have already planned an exciting weekend off. The last thing you want is this promotion overshadowing it. Now, what if you had all the information you need right now that can help you ensure that the promotion is successful without running out of stock or ending up with lots of excess inventory?
Let’s compile a quick list of critical information you might need:
- Which vendors currently supply the materials that are part of the promotion?
- When do their contracts expire, and what are their consumption rates?
- What are the historic performance scores of these suppliers?
- Are there other suppliers that were used in the past that you could procure form?
- How long will it take to onboard these alternative suppliers, if needed?
I’m sure you can think of a few more questions but let’s work off of these for the time being. Now, revisit the above list again and mark down how many of these questions you can answer right now at this very moment. How many of them you can answer within the next 24 hours. How many in 48 hours? More important, how many cannot be answered at all?
…How is that weekend looking so far?
SAP S/4HANA: Three ways to make sourcing and procurement strategies more productive
A significant burden falls on procurement leaders who have to deal with an ever-increasing number of materials, suppliers, and contracts. Real-time insights into supplier spend, evaluations, scores, and contracts can have an immediate impact on their company’s bottom line and competitive position. Yet, many procurement executives are left with legacy technologies that hamper their productivity and diminishes their ability to spot gaps in suppliers’ performance and act immediately.
In sourcing and procurement, SAP S/4HANA can help procurement leaders be more productive by enhancing their ability to manage and optimize operational procurement. Let’s have a deeper look at how S/4HANA is different from classic procurement approaches enabled by pre in-memory enterprise resource planning (ERP) applications running on classical databases. (To find out how SAP S/4HANA is different from pre in-memory solutions in the Supply Chain line of business check out my previous blog here)
Instant material search
With SAP S/4HANA, you can instantly search for a specific term – such as a supplier, material, or rate – by using a Google-like search field. From there, you can drill down and navigate to various object pages, navigating from supplier object pages to materials pages. This level of insight uncovers suppliers that are delivering the same material and provides alternatives that you can onboard with ease, if needed. In classical ERP system users had to deal with isolated displays of documents and lacked the ability to execute searches across all documents and master data which sapped their productivity and limited their ability to quickly respond to material shortages.
Supplier evaluation and spend management
SAP S/4HANA brings new real-time insights and advanced analytics to procurement officers. A wide array of real time analytical views are now provided through the Fiori User Experience for Supplier Analytics such as On-time delivery, Price Variance and Quantity Variance, Contract Analytics such as Unused Contracts, Contract Expiry, and Contract Leakage and Spend Analytics such as Non-Managed Spend, Purchasing Spend and Of-Contract Spend to name a few. By running on data in real time without extracting the data into a separate data warehouse, you receive alerts from key performance indicators whenever thresholds are affected. In turn, procurement managers can make instant decisions about which suppliers to choose based on up-to-the-minute information.
Figure 1- Lab preview of SAP S/4HANA Procurement overview page showing filter cards across suppliers, materials, material groups, purchasing category, purchasing, group, plant, company code
SAP S/4HANA also benefits from native integration with the Ariba Network. In the past, with SAP ERP running on a classical database, a separate add-on was used to integrate into the Ariba Network. Unfortunately, this made the IT system too complex. Now with SAP S/4HANA, integration with the Ariba Network is prebuilt natively into the solution. Order creation, order change, order confirmation, advanced shipping notification, and invoicing can now be sent directly to the Ariba Network from within the software facilitating supplier collaboration.
This allows procurement officers to create orders in SAP S/4HANA and then send them to their suppliers on the Ariba Network for processing. Suppliers can then confirm orders or let their customers know if items are back-ordered. Suppliers can also notify their customers that items have shipped, and send an invoice for payment. Business rules can help enforce process and document compliance. For example, procurement officers can require that a supplier must confirm an order, create a ship notice, or wait for a goods receipt notice before they can send an invoice. Future functionality is planned such as supporting Variable Supplier Response in case suppliers can’t commit to the full order and Advance Shipping Notification in cases where special handling requirements are needed (e.g. special forklift or storage temperature for the delivered items).
Figure 2 – example of a purchase order and invoice automation between SAP S/4HANA cloud edition and the SAP Ariba Network (note the SAP Hana Cloud Integration layer is optional).
The before and after picture
For a quick side by side explanation of how SAP S/4HANA can transform your sourcing and procurement processes compared to pre in-memory solutions (and free up your weekend), check out the “before and after” infographic below.