How to deliver Project Based Services in Two-Tier ERP
A Professional Services Use-case
For professional services companies, managing projects with multiple subsidiaries, affiliates or departments is a critical function as their centrally managed projects have many components delivered by other entities.
In such a scenario, the end to end project delivery process from initially requesting for services to delivery and execution and finally billing back to the requesting entity, requires a seamless integrated approach. Many times, subsidiary projects get delayed or overrun budgets because of missing links in this process chain.
This is where the Two-Tier ERP deployment for Project Based Services plays a critical role. With the introduction of the Scope Item Project-Based Service Procurement in Headquarter-Subsidiary Model (3TQ), SAP S/4HANA Cloud now has an out of the box, integrated solution for this use-case.
This blog post will explain with an example, how this scenario works.
At the outset, the deployment model we are considering here is the Headquarters – Subsidiaries model where, the Headquarters requests for project services from the subsidiary and the subsidiary uses SAP S/4HANA Professional Services Projects to deliver these services and bill the headquarters after delivery.
The following schematic shows a high-level process flow from Headquarters to Subsidiary and back:
Before we look at the example use-case, let us review the key business benefits of using this approach:
- Headquarters can implement its projects effectively by delegating to subsidiary
- Headquarters can have visibility into the projects managed in the subsidiary system (SAP S/4HANA Cloud)
- Reduce manual intervention in the business process between HQ and the subsidiary
- Real-time automation of the invoicing process between the subsidiary and headquarters
A more detailed process showing the different steps involved is shown below. This schematic, also indicates the SAP S/4HANA Cloud scope items used to accomplish this process:
Now, let us look at an example scenario to see this process in action.
Step 1: Create Purchase Order
The first step is for the Headquarters to create a purchase order requesting for project-based services from the subsidiary. The delivery schedule (project deliverable-based) should be maintained in the Purchase Order so that it sets the expectation for the subsidiary. Also, the is subsidiary maintained as the Vendor/Supplier in the Purchase Order.
Step 2: Create Customer Project
After this, the subsidiary now proceeds to create a project on the SAP S/4HANA Cloud side and uses the professional services customer project function to do this. The subsidiary project manager creates the necessary work packages and assign roles and resources to these work packages to fulfil the requirements of the headquarters.
The project manager also maintains the headquarters purchase order number on the project as a customer reference.
The project manager then proceeds to maintain the billing plan and chooses the appropriate project specific service rates where appropriate. After maintaining the billing plan, the subsidiary system, automatically creates a sales order.
Step 3: Link Sales order on Subsidiary to Purchase Order from Headquarters
The next step is the link the headquarters purchase order line item number on the sales order. This is a critical step as it closes the loop between the headquarters and subsidiary entities and ensures that the next step of automatic supplier invoice creation will be successful.
Step 4: Create Customer Invoice with reference to the Headquarters Purchase Order
When the subsidiary is ready to bill the customer in this case the headquarters entity, a customer invoice is created based on the billing plan previously generated directly in the SAP S/4HANA Cloud system, which then automatically creates a supplier invoice on the headquarters side.
This creates the final link between the headquarters purchase order and supplier invoice and ensures the customer invoice from the subsidiary is carried to the headquarters without losing the reference.
This ensures the end-to-end process gets completed successfully and the headquarters can then settle the subsidiary invoice on project works completion.
Step 5: Check automatic creation of Supplier Invoice on Headquarters
The automatically created supplier invoice on headquarters maintains the reference with the customer invoice from subsidiary as shown in the below screenshot. This is documented and available for any audits later.
This integrated approach, thus reduces manual efforts in maintaining these links and ensures complete transparency for the headquarters while delegating projects to subsidiaries.
A few pre-requisites to keep in mind:
- Subsidiary should be running on SAP S/4HANA Cloud system and Headquarters can use SAP S/4HANA or SAP S/4HANA Cloud or SAP ECC
- Subsidiary’s SAP S/4HANA Cloud system should have the scope items J11, J12, J13, J14, 2EL, 2EJ activated
- Headquarters should be represented as a customer in Subsidiary and Subsidiary should be represented as a supplier in Headquarters.
- Refer release note 2646738 for release restrictions of this scope item
Complete details about activation, deployment, integration options, setup instructions and usage of this scope item 3TQ are available in the best practices explorer.