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Author's profile photo Maiko Rahman

SAP S/4HANA Demand and Supply Segmentation – A practical guide for Solution Architects

Since Demand and Supply Segmentation (LO-SGT) was made available for every industry within SAP S/4HANA OP, I have experienced an increasing demand from customers of discrete industries and process industries to evaluate and assess the business value as well as the impact on business processes, solution design and change management.

The functionality is already widely used by our customers using the industry solutions for Retail or Fashion. For other industries, however, I have experienced a need for an extended approach to acquaint customers with the concept of Segmentation.

This guide intents to provide a practical guide for solution architects to introduce customers to the functionality of SAP S/4HANA Demand and Supply Segmentation during a sales cycle, solution discovery or high-level solution design.

Demand and Supply Segmentation

Quick recap, Segmentation offers a unique value proposition embedded into master data maintenance and E2E business processes along the logistical and financial value chain (please refer to other blog posts for a detailed description of the functional scope). It became standard functionality in S/4HANA OP for all industries and further functional enhancements have been released with SAP S/4HANA 2021 (PPPI) and 2022 (EWM, ePPDS and QM).

The functionality helps to:

  • Manage the supply chain and product costing/material valuation by product attributes rather than separate master data (material codes, BOMs, master recipes, info records, prices, etc.)
  • Reduce significantly the number of master data objects by associating attributes rather than creation additional master data. Those attributes in turn, are fully reflected and embedded in the application to control the execution of business processes.
  • Improve business agility by enhanced inventory transparency to fulfil sales orders by product substitutions with common characteristic (country of origin, quality, sales channel, market approval, etc.)
  • Establish E2E processes to streamline regulatory compliance of supply chain planning and execution, from raw material purchase through issue of delivery documents
  • Automate regulatory checks before batch release or fulfilling sales orders, thus reducing errors and preventing stockouts
  • Reduce the cost of managing master data in S/4HANA compared to SAP ECC

The extended approach

Embracing the concept of Segmentation requires a mind-shift from customers. In the absence of Segmentation, they have often experienced the proliferation of material codes and other master data objects (like routings/master recipe, BOM, inspection plan, etc.) to account for differentiating characteristics of the supply chain/logistics or in product costing/material valuation. Some customers even have very sophisticated decision trees when to create a new material code for e.g. a country version, packaging variant or country of origin).

Based on my experience, this mind-shift takes some time and extra effort to let the huge potential of Segmentation really resonate at our customers. The following approach has its basis on lessons learned from several workshops conducted with customers from manufacturing industries, life sciences and crop sciences.

It’s divided into the following 5 steps:

  • Introduction
  • Deep-dive supply chain/logistics
  • Deep-dive product costing/material valuation
  • Customer use-case (if required)
  • Conclusion

Step 1: Introduction

Typically, customers had already a first touchpoint with Segmentation but cannot fully contextualize it. Therefore, I let them present the actual business requirements resp. uses cases. Followed by the problem statement that arose out of it with regards to master data proliferation, supply chain and product costing issues.

As a second part of the introduction, I present a general example that explains how Segmentation works. Typically, I use a generalized product (cordless drill-driver) for customers from discrete industries and a fictitious pharmaceutical product (liquid drug) for process industry customers (see figures below).

Demo%20Scenario%20for%20Discrete%20Industry

Demo Scenarios for Discrete Industry and Process Industry

I kick it off with presenting the very basic configuration steps with regards to Segmentation Characteristics, Segmentation Structure and Segmentation Strategy based on a supply chain E2E process including program planning, MRP, purchasing, production execution, goods receipt, inventory overview and quality management) which I present on slides only w/o any system demo.

In the third part, I touch upon additional topics. Very common questions are with regards to E2E processes which include other SAP solutions or non-SAP applications. I also mention relevant SAP notes, links to the SAP Help Portal and the SAP API Hub. Important to mention is also that the Segmentation settings can be maintained through standard backend transactions but also Fiori Apps.

I recommend to plan for 2h for the initial workshop and would reserve sufficient time for discussion and Q&A.

Step 2: Deep-dive Supply Chain

The deep-dive sessions are meant for system demo. I walk the customer through a scenario that I have set-up in a demo system. It includes in detail the configuration steps, master data setup and E2E processes in program planning, MRP, Manufacturing, QM, sales, Purchasing and materials management.

Focus should be on the understanding of the basic concept of Segmentation. In order not to overwhelm the participants, a basic scenario should suffice. If not specifically requested, my preference is to leave out EWM or ePPDS at this point.

I recommend to plan for 2h for the deep-dive session.

Step 3: Deep-dive Product Costing/Material Valuation

In this session, I walk the customer through a basic cost estimate (e.g. tcode CK11N) in order to demo how the different Segmentation values in a BOM or routing/master recipe are picked up.

A very common question is how Segmentation in product costing/material valuation differs from standard product costing and split valuation. Helpful, from my perspective, would be a scenario that would calculate different prices on finished good but also semi-finished good level. This helps to explain that mixed costing is supported across all BOM levels which eventually, is rolled up to the finished good per Segmentation value.

I recommend to plan for 1h for the deep-dive session.

Step 4: Customer-specific use cases

In order to foster the understanding of the business value and implementation requirements, customers often requested me to set-up their specific use-cases. I recommend to stick to a level of detail where the meaning comes across but not to set it up in every detail. Typically, the preparation should not take more that 4h.

For the actual session, depending on the scope of the use case, I would again reserve 1-2h.

Step 5: Conclusion

The final session, either separate or the end of one of the others, should address any open topics that may be required to let the customer make a final decision.

I usually share a sample high-level project plan, work packages and roles to be staffed. I also offer to support the set-up of a business case.

It should also be discussed how we as partner can stay engaged during the design and implementation. Potential roles could be design authority, quality assurance or implementation.

Summary

The potential to improve customer’s business processes and compliance with SAP S/4HANA Demand and Supply Segmentation is huge. However, in order to leverage the full business value and pave the way to a successful implementation, customers should be supported throughout the entire journey. The presented approach should help you to plan and refine your own engagement. Hope, you could find some valuable input and suggestions.

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      3 Comments
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      Author's profile photo Yuri Almeida
      Yuri Almeida

      Thanks for sharing, Maiko. I believe that many new S/4HANA customers from discrete and process industries will adopt this powerfull solution in the next few years, since SAP made it available for all.

      I had the opportunity to evaluate Segmentation for a Fashion customer using S/4 2021 but we didn't go forward with it because of EWM limitations. Now, after the release of S/4 2022, I'm just waiting the upgrade to happen in customer's system to bring back the idea.

      Author's profile photo Kristin Dyrud
      Kristin Dyrud

      Hi Maiko Rahman , thanks for the interesting reading. We are in a transformation journey to S4 and in this context interested in learning more on Segmentation to take the right decisions. How can we move forward with an introduction session? I will also address this to our company's TQM in SAP. Thanks in advance for your guidance.

      Author's profile photo Maiko Rahman
      Maiko Rahman
      Blog Post Author

      Hi Kristin,

      thanks for your feedback. Your TQM has already reached out to me. We'll be in contact soon.

      Best regards

      Maiko Rahman