How SAP S/4HANA Finance Simplifies ERP Challenges for Manufacturing and Distribution Clients

Enterprise resource planning (ERP) can prove to be a tough nut to crack for many manufacturing and distribution (M&D) clients. Keeping up with the challenges facing the industry in a soon-to-be post-pandemic world can cause even the most seasoned manufacturing leader to wonder how to effectively deal with the major issues facing his or her enterprise.  

While we see our M&D clients grappling with several ERP issues, in today’s blog, we are focusing on the ones we see as the most critical: 

• Inventory management/forecasting 
• Cash flow and cost fluctuations 
• Clean, reliable data
  

If these concerns are currently on your plate, read on. 

First, a little background on S/4HANA Finance: When SAP introduced the solution several years ago, it was intended to be a successor to SAP’s ERP Financials solution. Marketed as a ‘single source of financial truth,’ offering real-time financial close and predictive accounting, the product offers flexibility and scalability needed for any quickly growing organization, leveraging industry best practices to streamline, standardize and optimize financial processes. SAP S/4HANA Finance incorporates the benefits of machine learning (ML) and artificial intelligence (AI), making it extremely attractive for M&D clients, whether operating in an on-premise, cloud or hybrid environment. 

Inventory Management/Forecasting

The impact of COVID-19 has turned our world upside down. At mid-year 2021, we see the supply chain struggling to recover from a year in which M&D activity weathered severe peaks and valleys. Perhaps no area has been more impacted than inventory management and forecasting. The traditional ways of inventory planning may have failed to keep up with the downturn and the current resurgence in demand.   

While many new items for inventory management and forecasting were introduced when S/4HANA was released.   a few key features will benefit any business. One of those would be related to materials resource planning (MRP), which is used to plan manufacturing production and helps to identify necessary materials, estimate quantities, determine when materials will be required to meet the production schedule, and manage delivery time. This feature’s main objective is to reduce manufacturing cycle time and streamline material flow for internal requirements. One way this is done is with Predictive Material and Resource Planning (pMRP). This allows you to identify potential capacity issues and to evaluate possible solutions as early as possible based on a simplified requirements plan using a simplified algorithm for material requirements. This new functionality looks to replace Long-Term Planning (LTP) which was available in SAP ECC and earlier versions of S/4HANA. 

Advanced available to promise (aATP) is another feature that provides a response to order fulfillment inquiries in S/4HANA Sales and distribution, production planning and stock transport orders modules. There are many areas of innovation within aATP, including:  

• Product availability check (PAC) 
• Advance backorder processing (ABOP) 
• Product Allocation (PAL)
  

Some of aATP’s benefits include being able to promise what and when can be delivered accurately in real time, managing business priorities, and protecting customer interest, and to accurately confirm orders based on delivery constraints.  

Finally, the Graphical Kanban board enables users to constantly monitor the control cycles with the Kanban containers. The Fiori app allows personalized views for different business users. From this, it is possible to supervise and improve Kanban processes through analysis via quick access to the control cycle and container real-time information. 

 These three features could benefit any business but should resonate particularly well with M&D companies. 

Cash Flow/Cost Fluctuations

Before S/4HANA, the M&D industry struggled to reconcile between external and management reporting which resulted in different numbers, unassigned costing information, various reconciliations and a limit on further breakdown of Cost of Goods Sold. S/4HANA Finance combines financial accounting and management reporting into something called the ‘Universal Journal.’ This journal brings together the once-separate components of financial accounting (FI) and controlling (CO) into one pool of relevant business data. This has made life much easier for users by allowing quick decision making based on a holistic financial and management accounting snapshot. An example would be period end-closing activities; the Universal Journal should eliminate some small, menial reconciliation tasks. 

Similarly, a historical challenge has been to include additional data items to allow granularity on revenue and profitability reporting. With S/4HANA, revenue accounting and reporting delivers end-to-end extensibility, which allows finance users to add new custom fields and enable business add-ins. It is integrated with profitability analysis which streamlines management and execution of those revenue contracts. It is also designed specifically to help businesses comply with new statutory IFRS revenue standards and has the flexibility to support existing requirements. These new features allow users the ability to analyze financial and non-financial information in a transparent way by having access to group reporting and financial planning through SAP Analytics Cloud (SAC) and Central Finance (CFIN). 

Clean, Reliable Data

The critical path to S/4HANA projects is always data conversions. As is common in decentralized M&D companies, data may be coming from multiple sources and the amount of data records that need to be cleansed and migrated can be a huge challenge for a project team. While it seems like a daunting task, this does also allow the opportunity to optimize data quality and streamline processes so they can work efficiently in S/4HANA right from the start. There are many new features and master data settings that enable users to categorize their data. Production tools can be defined as registrable, classic bills of materials (BOMs) and routings for unitized materials can be migrated into unitized version controlled BOMs and routings in production engineering and operations (PEO), and users can enable a feature that allows them to monitor planned orders for which no valid production master data exists.  

Knowing the organization’s data and analyzing it is one of the first things to do when looking to get to clean, reliable data. Insufficient data knowledge is one of the most common reasons for additional project costs and delays. And once the data is identified, including quantity and quality, the next step is cleansing the master data. Then, migrate the data in an efficient and coordinated effort. Knowing that data will be the critical path on projects, fully understanding the time and effort required to get clean data during the cut-over process is a critical project objective.  

As stated at the beginning, a successful ERP implementation can prove challenging for many M&D clients. Understanding the challenges that the industry faces is one of the first steps in proactively identifying ways to manage this journey and achieve – or accelerate – your business objectives.

To learn more about our SAP capabilities, contact us or visit Protiviti’s SAP consulting services.