Simple Finance is no more just a buzz word now. It is called as S4 HANA FINANCE. It is gaining an unprecedented momentum and becoming a need of the time and establishing its presence very quickly. The driver is obviously SAP HANA high speed in-memory database. It is not just the super power of the SAP HANA in-memory database, but also utilizing the calculating and analytical power of database and the whole gamut around it. It is being adapted by numerous clients ripping the benefits of the new architecture and amazing reporting functionality. It is knocking on the doors a bit early than expected and it may turn into a huge gold rush for the clients and consulting partners.
I would like to start discussing with something that is not a common approach. However, I feel that it could be a very good starting point not only for our discussion but to understand the technology, the processes and strategize the transformation. An excellent eBook by SAP’s own Janet Salmon provides all the necessary supporting statements and that is what I would like to refer and provide my take on it to the audience.
Need for Central Finance
The need emerges from receiving data for consolidation from various SAP and non-SAP (Legacy) systems. It is not only the pain of data integration but the time line that is crucial for accurate and timely financial reporting. The average time for month-end closing process is around two weeks in the United States. This is mainly because the Headquarters need to wait for the subsidiaries to prepare and submit their financial statements. The financial data then is aggregated, inter-company transactions eliminated to prepare the consolidated financial statements. The third aspect is one that directly impacts decision making – profitability analysis, for an example. It is difficult to drill down the aggregated data received from the subsidiaries and exactly understand who is doing well, the reasons for failure for others and understanding what is dragging the profits. Is it the cash conversion cycle, delays in fulfillment, industry concentration, and response to dynamic trends or demands? The fourth burning issue is that we understand the issues and we know how we could resolve it but implementing the reorg is a tough challenge. We need to find a not disruptive way that would keep the benefits of development over the years but add efficiency and save costs.
Central Finance Approach
The approach of central finance is to rethink the business process, rebuild the processes and the structure – a perfect chart of accounts. This is different than having an AS-IS system and then trying to get best out of it. It is rather creating a channel for which the input is from nonlinear systems leading to a perfect flow of information and granularity to trace back the source. Here when a new general entry is created, transferring it to the Central Finance system using the SLT (SAP Landscape Transformation) tool, validate and post. Adjust any entries that do not conform the business rules to keep the Central Finance integrated system clean and accurate. Every journal entry in the local (ECC or Legacy system) has an equivalent journal entry in Central Finance. This is also a necessity for the financial audit to trace back any journal entry and get to the required details.
The best use case for Central Finance is where a global organization has several SAP landscapes with different versions, enhancement packs and several legacy systems. The financial transactions are captured in different systems and then the financial data is aggregated to one single system for legal or managerial reporting.
Here the migration could be planned in two options – one is to create a global template and then roll it out to all subsidiaries. It is more like re-implementing the solution and could take years to implement.
Another, more practical approach is to set up a Central Finance Systems, collect data from the heterogeneous landscape and align and harmonize data in ‘real time’. In this case the migration is not an immediate requirement.
Note: I am writing another blog that is completely devoted to S4 HANA Migration, cases where where straight forward migration is possible.
Rethinking Approach before Implementation
Currently, the Consolidated System approach provides financial data that is aggregated with less granularity. Aggregation makes it difficult to understand and make decisions considering reporting entities like profit center, cost centers and also characters such as products, services, customers, regions etc. On the contrary Central Finance records each and every journal entry containing all reporting dimensions available in the local system line vendors, customers, material, profit centers, cost centers etc. It is then easy to slice and dice the information because of the analytics powered by HANA.
Here, clients have an opportunity to rethink existing system – streamline business rules for the journal entries. This would also help to harmonize the accounts and achieve a “golden” chart of accounts – for which many organizations struggle for ever. The data quality is improved because of such a check for each journal entry. Thus, the Central finance process is streamline as such that each entry is triggered, qualified, transferred, mapped to the appropriate reporting dimension and posted. Following section would provide a clear understanding of the process.
Main Components of Central Finance
- SLT – SAP Landscape Transformation Tool. The SLT is installed on each local system and the data transfer is triggered by specific entry in a table – example transfer triggered as soon as there is an entry in the FI Header table – BKPF.
- Respective BAPI implementation for mapping and posting the journal. The BADI at this point used is BAPI_ACC_DOCUMENT_POST. The mapping is between the local chart of accounts to a Central Chart of Account.
- Error handling thru a (ECS) – Error Handling and Suspension) Account.
In my next session, I will discuss more on Central Reporting, New Architecture and processes in Central Finance. That would provide basic understanding of S4 HANA and its moving parts.