Speed up your procurement transformation with SAP S/4HANA for Central Procurement
Recently, I had the opportunity to participate in a couple of SAP S/4HANA transformation workshops with one of our largest and most advanced customers in Regulated Industries. If you’ve ever had the chance to work with a client in the Aerospace & Defense industry, you may already be aware of this. It comprises a lot of complex manufacturing in highly regulated, multi-system environments spanning a lot of technology and touching almost every SAP product and module there is. There are dozens of processes from advanced planning, demand-driven replenishment, multi-level BOMs and MRPs creating a flurry of production orders, requisitions, stock transfer orders and many other follow-on transactions. There are fulfillment processes, collaboration with suppliers, costing & financial closing, interfaces to legacy systems with multi-layered master data and, of course, there is Procurement.
Now, moving all processes over to S/4HANA at once is possible but it would require considerable effort. It also increases the risk of almost everything that can go wrong in a project. As a consequence, the team suggested segmenting all processes to define a roadmap for a safe and phased migration to S/4 from ECC. This gives the customer both time and flexibility to move to S/4 at their own pace and manage change reducing the risk of disruption.
Previews of SAP S/4HANA Procurement created genuine excitement among the customer’s key stake holders but purchasing was considered a candidate for a later move. The reason was simple: the procurement of, especially direct materials is very mission critical in manufacturing and deeply integrated with other key processes. And many of these underlying processes cannot move to the new system in phase one. Can’t really argue with that…
But then there is…
SAP S/4HANA for Central Procurement
This not so new S/4HANA application – introduced with SAP S/4HANA OP 1709 – is popular overseas but it is still a well-known secret here in North America. An SAP S/4HANA system with Central Procurement activated becomes the central hub of procurement processes across the connected SAP system landscape.
The central S/4HANA instance does not have to be fully set up, e.g. your financials, supply chain etc. stay where they are today and can migrate over to S/4 later. The systems you can connect your Central Procurement instance with are – at this point in time – SAP ERP (6.0 EhP 6.0 or above), SAP S/4HANA on-prem (1709 or above) or S/4HANA cloud systems. Integration with non-SAP systems is planned.
SAP S/4HANA for Central Procurement capabilities are listed below and some can be seen in the embedded video. Please take a look!
Central Requisitioning: Create and approve purchase requisitions in the hub system using materials with corresponding sources of supply imported from connected systems.
Guided Buying for Central Procurement: Create a simple, smart, and elegant central purchasing experience that increases user engagement across all spend areas.
Central Purchasing: Manage purchase requisitions and purchase orders from connected systems. Create, approve and assign sources of supply to purchasing requisitions, create and approve purchase orders in the hub system.
Central Sourcing: Create RFQs for one or many requisitions without a valid source of supply. Create central supplier quotations on behalf of suppliers and award quotations to create central contracts or purchase orders.
Central Purchase Contracts: Create, approve and distribute central purchasing contracts to create outline agreements in the connected systems. Monitor aggregated releases centrally.
Central Procurement Operations Monitoring: Monitor errors and diagnose issues occurring in the distributed application and integrated central procurement scenarios.
Central Purchasing Analytics: Analyze spend, understand trends and compare between suppliers, company codes, material groups. Monitor purchasing document items, contracts and understand contract consumptions.
But the real question is…
What value does it add?
There are 3 categories of business benefits a customer gets with Central Procurement. This list is subjective, and many benefits are customer specific, i.e. these may or may not apply to you or your customer.
Process Centralization helps customers who run distributed scenarios in which procurement happens in silos. Silos can be different systems, organizations or solutions. Centralization often translates to process harmonization which can be the path to simplification. Customers switch from many to one centralized approval, analytics, portal, output management, contract repository etc. Also, consolidating processes into one system makes comparisons possible as overall transparency increases. You can start analyzing performance, measure speed and the number of exceptions in your organization or shared services.
Single access to procurement with the ability to manage all documents in one place doesn’t only lower the TCO but it will make your users happier. Procurement professionals, like everybody else, will prefer one system providing what they need over switching between multiple systems or applications with inconsistent user experience. In Central Procurement central buyers can manage purchase requisitions, purchase orders and contracts for all connected backends. They can assign or change sources of supply, create or edit procurement documents in the backends or post confirmation for central requisitions. Using centrally negotiated prices, catalogs and contracts across connected systems, monitoring of contract consumption and release orders are additional benefits.
Integration is a very important topic which can make the greatest application too difficult to implement or simply too expensive. The good news is that Central Procurement offers an out of the box integration between SAP systems. Its architecture reduces redundant replications significantly, e.g. you can complete the purchase order creation process without replicating the central requisitions to connected system.
SAP S/4HANA Intelligent ERP is the foundation of Central Procurement. An S/4 system provides more advanced capabilities compared to previous SAP systems. This is mainly due to renovations of the core technology and architecture, the overall simplification of business processes and improved user experience. Most SAP customers moving to SAP S/4HANA from SAP ERPs, other lower SAP releases or different solutions (like SRM) consider the new SAP system a substantial step forward.
A lot of customers running procurement in an SAP ERP environment consider the transactional GUI problematic. Central Procurement comes with the fully renovated user experience of SAP S/4HANA offering adaptive UIs increasing both user productivity and system adoption. Guided Buying for Central Procurement with SAP Ariba improves the buying experience of all end-users and is recommended for the creation of requisitions .
SAP S/4HANA comes with embedded advanced analytics and other built-in intelligent technologies like AI and machine learning. SAP Cloud Platform extensibility and other technologies like SAP Robotic Process Automation or SAP Conversational AI become an option, too.
Simpler transformation to SAP S/4HANA can be an important advantage for customers who want to start their journey into SAP S/4HANA and would like to do it in phases. Central Procurement as the first step can help to reduce risks and allows customers to move at their own pace. The key aspect to consider is that Central Procurement causes no changes and with that no disruption in the existing procurement processes running in the connected productive backends. There are procurement documents extractions and safe changes back via APIs but the connected systems continue to operate as before.
Another important aspect is the light-weight activation of Central Procurement. Some configuration and set-up is required but that is neither a full-scale S/4 project nor a cascading re-implementations of applications related to procurement. Central Procurement does not require extensive replications of huge amount of master and configuration data. More details how to set-up of a procurement hub instance can be found in the link to product details above.
My customer example above is a typical scenario in which Central Procurement makes sense and can be proposed as a bridge to S/4HANA. Once the operational procurement process migration to S/4HANA is completed and all capabilities from connected backend are available in the new system customers can choose to retire Central Procurement or continue to use it for non-SAP backends.
What else is noteworthy?
A Central Procurement customer was featured in the SAPPHIRENOW 2020 procurement channel (if you missed it click here https://bit.ly/2CYWCmD and fast-forward to minute 32:30) but there are more projects in flight. Check back with you SAP contacts if you want learn more.
Details regarding the features and functions of Central Procurement can be found here https://bit.ly/2WK68R7, in SAP product documentation or in other blog posts.
The embedded video provides a brief overview of SAP S/4HANA for Central Procurement. If you like to share it or embed it into your talk track you can find it on YouTube https://youtu.be/2Kj5z5j3zsI.