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Welcome back to the next blog in the SAP S/4HANA Cloud 2-tier ERP blog series.

In the previous blog, we discussed the manufacturing processes in a 2-tier model and saw how S/4 HANA Cloud can support the organization and subsidiaries to have optimized and integrated manufacturing processes.

In this blog, let us understand how the Procurement Process can operate within 2Tier deployment model with some examples.

There is immense responsibility on Procurement Managers as they need to deal with ever increasing requirements of materials, suppliers and contracts, which require constant monitoring in terms of quality and time of delivery. This is a pre-requisite for smooth running of manufacturing and sales processes and reduce the expenses of the company. Procurement processes in SAP S/4HANA Cloud can help Procurement Managers in Organizations to have real time visibility into the requirements of materials and Services, Supplier performance, real time spend, contract monitoring, forecast price and market trend and track other key functional metrics to reduce expenses and improve effectiveness.

Organizations wish to become more Competitive in the market and strive to cater to Customer demand much faster as compared to their competition, Organizations are changing their business models and more mergers and acquisitions are happening. With the headquarters running SAP S/4HANA On-Premise or SAP ERP 6.0 EHPs possibly with SRM and subsidiaries running the SAP S/4HANA cloud, the 2-Tier deployment model is highly effective.

To streamline the Procurement Processes in an acquisition/merger or even a standard Headquarter -subsidiary setup, we can consider the following few scenarios which can leverage the powerful streamlined procure to Pay functionality with SAP S/4HANA Cloud:

  1. Subsidiary running procurement processes independently with reporting at headquarters
  2. Subsidiary using the central contract which the headquarters negotiated globally for all subsidiaries.
  3. Subsidiary as a sales office or distribution center which is periodically replenished by the Headquarters (Procure to Stock).

Let us consider the scenarios in more detail.

Subsidiary running Procurement Processes independently with reporting at Headquarters

This is a typical scenario where a subsidiary is an independent entity with an efficient purchasing organization having strong presence in a geographical location. The subsidiary is equipped to run the procurement and manufacturing operations with ability to manage local inventory. The headquarters would prefer that the purchasing operations be independently be carried out by the subsidiary using S/4HANA Cloud for operational ease and cost effectiveness. The supplier management and evaluation, source of supply and contract management is done locally by the subsidiary. The headquarters then has visibility into the spend, the inventory and the financial position of the subsidiary.

Subsidiary driven external procurement using Central contracts.

Central Contracts are global long-term agreements negotiated between an organization and a supplier. This process helps in getting the best rates and conditions while bundling purchasing volume across multiple subsidiaries. These contracts are typically negotiated by the central purchasing organization, mostly at the headquarters, and used for globally driving operational efficiency, reduced cost while complying with regulations, across multiple subsidiaries. Sourcing is executed based on spend report analysis of prior activity at all subsidiaries. Once negotiated, the central contract can be replicated to the relevant subsidiaries and used for procurement. Central monitoring of contract consumption and renewal of expiring contracts is easily managed by the headquarters.

Procure to Stock from Headquarters

Let us look at a scenario where the headquarters supplies materials to the subsidiary which is the manufacturing unit. The headquarters then becomes a vendor for the subsidiary. The subsidiary, post MRP run, creates requirements. Post approval, these requirements are converted to purchase orders. This purchase order is then sent the headquarters, where it can be received as a sales order,  triggering the sales process thereby replenishing the stocks at the subsidiary. The process flow would typically look like this: The purchasing processes happen at the subsidiary while the sales process is completed in the headquarters ending with the invoice processing at subsidiary.

In the beginning, we saw that immense responsibility is placed on a purchasing manager to drive operational efficiency and reduce costs. The 2Tier use cases, described above, strives to address this very requirement of a purchasing manager and therefore an organization while leveraging the S/4HANA cloud Digital core capabilities. We will continue to explore more scenarios using API based Integration capabilities in 2-tier world in the next part of this blog. We will derive additional 2Tier Integrated scenarios between HQ and Subsidiaries which will give immense benefit to Organizations in this competitive world. I am confident that the Streamlined procurement scenarios in a 2Tier environment would add tremendous value and is the right way forward.

Stay tuned for my next blog in this series.

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