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Enabling “Sales to Cash” cycle by using Forward Auction event from Ariba Sourcing & Credit Memo from Ariba P to P modules.

Business needs: Buying organization is buying castings products/parts from multiple suppliers while at the same time buying organization likes to dispose of rejected castings and other scrap material in the market. Buying of castings & payment to suppliers (reverse auction event, buying at most optimum price from suppliers) while selling of scrap & cash receivable from buyers (forward auction event, selling at maximum price to buyers).

I would like to elaborate above scenario with one Use Case using combination of functionalities built in multiple Ariba modules.

Castings (Metallic parts made after melting of metal and bringing to desired shape by pouring and solidifying metal in molds).Please click here to understand casting commodities/part in details, https://en.wikipedia.org/wiki/Casting

Let’s assume buying organization is buying lots of castings from multiple suppliers and as per agreed terms and conditions with suppliers, buyer organization can have certain % of castings may not be meeting to required final specification or in other words certain % of castings will be rejected from the supplied lots. Over a period of time stock of these rejected castings piles up to considerable numbers (measurement unit will be metric tons, 1 tons=1000Kgs) within buying organization.

At the same time buying organization have inventory of few other older metallic parts, need to be “dispose of”. All of castings rejection and other metallic parts are considered as “Scrap material”, these scrap materials can be raw material input for casting industries.

In above use case illustration, casting suppliers can buy these rejected material from buying organization to produce fresh castings & after remelting can resend as new lots.

We can use S to P (Source to Pay) and Sl to Cs (Sales to Cash) cycles configuration in following way:

  • Reverse auction events to buy casting from multiple suppliers & pay to suppliers – S to P
  • Forward auction events to sell scrap material to multiple casting suppliers & receive payment from casting buyers (Suppliers on Ariba network) – Sl to Cs.                                                 After selling scrap material inventory via Forward auction event to buyers (sellers on Ariba network), buyer organization to receive amount due to them as cash receivables from current suppliers.

In use case illustration we have assumed, buying organization have sourcing and P2P modules configured and participating suppliers are on supplier Ariba network to complete both the cycles.

At very high level “Source to Pay “process, starting from Ariba reverse auction event:

After reverse auction awarding,buying organization have following options to complete “S to P” cycle:

  1. Buying organization have  only Ariba sourcing module configured  – PR/PO & remaining (P to P) processes outside of Ariba.
  2. Buying organization  have sourcing and contract compliance modules configured- – PR/PO & remaining (P to P) processes outside of Ariba.
  3. Buying organization have sourcing, contract compliance & P to P modules configured- PR/PO, receipts and Invoices in P to P (On behalf of Suppliers by buyer or Suppliers’ uses their Ariba supplier network to submit invoices). After reconciliation in P to P module, payment advice is generated in P to P module.

Payment details can be either in buyer’s ERP system or in Ariba P to P module.After due payment is credited to suppliers’ bank account, S to Pay (Source to Pay) cycle gets completed

S to P cycle:  Option 3

Ariba Modules at Buyers’ organization Suppliers Remarks
1.Sourcing Suppliers on  Ariba Network

Trading relationship with Suppliers 2 & 3 after Reverse auction event.

Supplier 1 & 4 (New Suppliers) invited for competitive bidding from A/N

2. P to P Module Payment completion

 

Reverse auction event set-up & awarding:

 

Payment is outstanding (to be paid to supplier 2 & 3) after parts received and accepted at buyer’s organization

 Note: Buyers are familiar with P to P functionalities, hence screenshots of processes not considered for illustration.

 Ariba forward auction events.

By now all of us know, forward auction event is used for selling goods/services by seller community, hence next sets of processes will be different with respect to S to P cycle, here new cycle will be “Sales to Cash” (Sl to Cs) , we are using  “S to C” for (Source to Contract).

Do Ariba modules provide functionalities to complete “Sl to Cs” cycle?

Answer is big “Yes”.

After completing forward auction awarding in sourcing module, Ariba P2P module have functionalities to complete” Sl to Cs” cycle by using functionality of  Credit Memo.

At very high level “Sales to Cash “process, starting from Ariba forward auction awarding:

Sellers have Ariba sourcing, & P to P modules configured: After completing forward auction event in sourcing module, seller can releases customer invoice in P to P (here Invoice will be in the form of credit memo (credit memo is document used for account receivable from suppliers).Again, here suppliers from Ariba supplier network will be treated as buyers of castings.

Sales to Cash (Sl to Cs) cycle:

Ariba Modules at Buyers’ organization Suppliers Remarks
1.Sourcing Suppliers on  Ariba Network

Trading relationship with Suppliers 2 & 3.

After forward auction event, Supplier 3 awarded to lift inventory of scrap material.

Supplier 1 & 4 (new suppliers) invited for competitive bidding from A/N

2. P2P Module Payment after invoice reconciliation, Receivable after credit memo.

Forward auction event set-up & awarding:

Here, Suppliers will act as buyers and will be awarded. (Supplier 3 outbids other suppliers & got inventory stock of scrap material from selling event (sourcing and P to P enabled organization and scrap buying rates are economical to suppliers with respect to buying from local market).

 Payment is receivable (to be received from Supplier 3) by buying organization after selling scrap material

Adjusted/Recovered is scenario where cash receivable is adjusted against due payment (amount due against accepted lots of castings).

Note: In above discussed scenario supplier 3 is current supplier to buying organization and enabled on Supplier Ariba network.

To complete “Sl to Cs” cycle, credit memo invoice to be created by event owner in their Ariba P to P. Credit memo can be created by event owner for any of the following configured business environment:

  1. Non PO based Credit Memo.
  2. Contract based Credit Memo- In this scenario Ariba contracts modules is enabled at buyer organization and buyer organization has configured functionalities of tiered pricing (additional % discount applicable if certain volume limits is bought by buying organization during contract period)
  3. PO based Credit Memo- Here, Supplier 3 is incumbent supplier to buying organization and already supplied few lots of acceptable castings and payment for these lots is due to supplier 3.

once credit memo is approved within P to P module ,due amount will be adjusted against supplier’s net outstanding amount or credit note will be released for specific supplier.

For use case illustration, we have considered creation of PO based Credit Memo (Invoice):

1. Select Option- PO Based

2. Select Supplier Name- Supplier 3

3. Input Supplier Credit Memo reference or number- 01

4. Select PO Number- Active PO number of Supplier 3 against which cash receivable to be adjusted.

Amount will be prefixed with –ve sign as it is to be recovered from Supplier 3.

Any type of Tax/charges with –ve sign can be added under header taxes, charges & discount (here, -$20) added.

Against PO entry sale amount of castings can be added with –ve Sign, -$200 added.

Hence, total amount of -$220 is receivable from Supplier 3.

Once buying organization runs payment schedule run, $220 will be deducted from Supplier 3 outstanding amount and remaining will be paid and credited to Supplier 3’s bank account

Here, finally we have used sourcing module event forward auction for selling and P2P module’s credit memo for cash receiving, to complete “Sales to Cash” cycle.

Organization can critically review their business processes and can implement Ariba sourcing & P2P modules, so that they can easily complete S to P and Sl to Cs cycles.

Look forward to hear from you.

 

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