Direct procurement digital transformation

Direct procurementdigital transformationTransforming direct spend withEY and SAP solutions

has a profound impact not just onbottom-line reduction but on top-linegrowth.— Hamish McKechnie-Sharma

1 | Direct procurement digital transformation

Focusing on effective direct materials

ContentsAbstract/introduction 2

Source and negotiate 5

Purchasing execution 8

Reconcile and pay 14

End-user experience 16

Analytics 17

Conclusion 18

In today’s evolving world, organizations requireadvanced and interconnected direct procurementprocesses and technologies to efficiently andholistically manage direct spend and minimize risk.Direct purchases are critical to a manufacturing orsupply chain organization, since they represent thematerials used as direct inputs to cost of goods sold(COGS). Transforming to a future state solution/platform must be comprehensive and scalable,and must align with procurement and organizationinitiatives. Tightly integrated with manufacturing,planning, costing and inventory management, directprocurement is a high-stakes and highly complexenvironment to navigate. The constantly evolvingworld of direct procurement is multifaceted andcovers tools and cross-functional areas, includingmarket analysis, sourcing and contracting, materialsmanagement, production planning, manufacturingexecution, logistics and inventory management.These are just a few of the areas that are dependentupon accurate and real-time data across the directlandscape and bring inherent risks and the potential toaffect the organization’s bottom line.

As organizations transform their direct procurementprocesses to a digital platform, careful andcomprehensive consideration must be made acrossthe organizations’ people, processes, policies, dataand technologies to ensure program success. The EYorganization and SAP are making significantinvestments to expand use cases of leading indirectprocurement solutions into innovative and cutting-edge direct spend solutions. These solutions willenable organizations to achieve strategic objectiveswhile reducing COGS and increasing operationalefficiency. Through our experience supporting clienttransformations, this document serves to delve intovarious areas across direct procurement and theassociated SAP products to be evaluated whenapproaching your direct procurement transformationwith S/4HANA.

Abstract/introduction


Common problem statements andpain pointsTechnology has transformed the way procurementis executed across all industries and throughoutthe world. With constantly evolving technology,organizations struggle to keep outdated, customized,and siloed systems and processes integrated, causinginefficiencies for the business and organization.Procurement strives to gain further value andreduce inefficiencies that are commonly dauntingorganizations by addressing some of the below painpoints:

• Slow product innovation cycles and poorly integratedprocurement and PLM tools

• Poor collaboration between internal businessfunctions (i.e., PD, Purchasing, Manufacturing,Finance)

• Higher costs due to design changes occurring later inthe product life cycle

• Manual and/or lack of standardized sourcing processfor direct and indirect spend

• Poor collaboration with suppliers around productdevelopment life cycle

• Limited spend visibility and ability to performanalysis by vendors and categories

• Lack of supply chain visibility, therefore high safetystock levels and inventory carrying costs

• Manual paper-based invoice processing and longinvoice processing cycle times

• Non-standardized payment terms exposure

• Little to no exposure on third-party risk managementor extended supply chains


A time for corrective actionOrganizations today are under more pressure thanever from leadership to evolve and move digital.Company initiatives and mandates are underwayacross the world, striving to transform direct

procurement and bring higher value across thebusiness enterprise. Organizations are workingto achieve modern business benefits and assessthe potential savings from improved control andcompliance, and process efficiencies in Procurementand Accounts Payable, as well as improved cashmanagement. Through leadership and collaborationwith EY people, coupled with the right SAPtechnologies, organizations are moving digital withhigher automation, greater visibility, increased savingsand greater spend under management. Below is asubset of areas that organizations are successfullyaddressing:

• Simplified direct procurement solutionportfolio

• Shorter cycle times and product time to market

• Enhanced user efficiency and end-user experience

• Enforcement of effective risk-free contracts

• Better and simplified collaboration acrosspurchasing and manufacturing

• Reduction in procurement cost by eliminating time-consuming manual tasks

• Streamlined order processing

• Improved total cost of ownership

• More spend under management

• Demand-driven supply chains for fast and accuratedelivery of goods

• Reduced inventories and significant working capitalimprovements

• Reduced supply chain cost, risk and carbon impact

• Increased accuracy and efficiency of tax compliance,reporting and planning

• Secure material tracking

• Greater visibility to drive ethical behaviorthroughout the supply chain

• Enhanced spend analytics, which leverage real-timereports across purchasing

Key considerations for the directprocurement transformationAs an organization prepares for the procurementtransformation journey, evaluating the full technicaland process landscape is a must. Sure, procurementis naturally the foundational pillar of the journey, butFinance, Product Development, Accounting, the widerSupply Chain footprint and various other stakeholdergroups all have an integral role to deliver a fullyreinvented end-to-end solution. A fully integrated SAPplatform anchored by SAP S/4 HANA serves as theanchor that converts material requirements planning(MRP) requirements to purchase orders, includingdigital collaboration across the entire supply chain

ecosystem with SAP Analytics Cloud (SAC), SAP Ariba,Integrated Business Planning (IBP), TransportationManagement (TM), Extended Warehouse Management(EWM), Global Trade Services (GTS), Open TextVendor Invoice Management (VIM), and the extendedsuite of tax and regulatory solutions. Leveragingour transformational experience and the EY viewof market-leading solutions offered by SAP, thefollowing outlines key foundational areas within directprocurement and important components to assesswhen planning for the future state.

Suppliermanagement

Sourcing andcontracts Forecasting MRP Inventory

management Purchasing Logistics Freightprocurement

Invoiceverification

App

licat

ions

Proc

ess

Cap

abili

tyV

alue

driv

er

SAP AribaSource and negotiate

SAP S/4 HANAPurchasing execution

SAP S/4 HANAReconcile and pay

SAPtransportationmanagement

SAP extendedwarehouse

management

SAP vendorinvoice

management/open text

Vertex/onesource

SAP AribaSupplierlife cycle

management

SAP Aribasupply chaincollaboration

SAP Aribasourcing and

contractmanagement

SAPintegratedbusinessplanning

1 2 3

Direct procurement

End-user experience

Automation Data integrity Speed to market

Analytics

Get best price/product De-risk business Enable downstream

Manage cash Reduce admin Automate

4

5

needed for a fully integrated end-to-end direct MaterialSolution: IBP, S4/HANA, EWM, Ariba’s full suite, Supply ChainCollaboration, and the Ariba Network.— Dan Kowal

From a solution perspective, only SAP has all the components

Figure 1 — Direct procurement digital transformation with SAP solutions


Sourcing and negotiation compose the initial stagesthat take place prior to the transactional procurementof goods and services. The strategic sourcingstage comprises three primary areas involvingSupplier Management, Sourcing and Contractingprocesses — each playing an integral role in enablingand streamlining downstream direct procurementactivities. Each of these areas requires not onlydetailed strategic planning, but also a holistic view onthe organization’s people, processes, policies, data andtechnology leveraged across the landscape. Ensuringthat master data have been fully sensitized for directand indirect tax reporting is an important part of thisexercise.

Supplier managementSupplier management can be defined as thecapabilities to develop and manage suppliersthroughout the entire supplier life cycle to ensurethat maximum value is received. This is inclusiveof supplier onboarding, performance, evaluationbased on set criteria, assessing and reducing supplyrisk, and corporate responsibility. Ultimately, anorganization’s suppliers will have a major impacton its business, goals and the bottom line — thesesuppliers create goods and services for the business,which, in turn, are directly or indirectly incorporatedinto the organization’s end product that is deliveredto customers. In today’s world, global organizationsface the constant challenges of multiple back-endsystems and data, disparate onboarding procedures


and inconsistent qualification processes. Organizationsstruggle to analyze reliable vendor informationto assess performance and risk, and gain a truecomprehensive view for the benefits that the supplierbrings to the organization.

The EY approach to supplier management begins withestablishing a consistent and structured approachto the supplier management process and associateddata. It starts with a strong foundation of a clearsupplier life cycle process (onboarding, qualification,disqualification, etc.) that fits the client’s industryand organization, coupled with fully cleansed supplierdata to be leveraged throughout the organization. Ourexperience in this area concentrates on a streamlinedprocess that brings accurate real-time data throughoutthe organization, reducing bottlenecks, lowering riskand arming procurement to make more informeddecisions.

SAP’s offering of SAP Ariba Supplier LifecycleManagement provides organizations with theplatform to drive efficiency and reliability in supplierdata. With features addressing supplier onboarding,registration, qualification and disqualificationprocesses, organizations can gain insights to accurateand standardized data sets, which natively integrateto back-end platforms, such as SAP MDGS. A singlepoint of supplier registration/onboarding, transitioninginto qualification and segmentation establishes thebase information to be leveraged to ensure thatdownstream activities that are related to preferredand qualified suppliers are adhered to and strategically

Source and negotiate

driven. Creating a single organizational source oftruth to originating and maintaining supplier dataand performance is an integral step when consideringhow the direct procurement organization willfunction in the future state and how the applicationhousing the data will interact with other applicationsand supplier users themselves.


SourcingSourcing is the process of identifying, assessingand selecting the appropriate supplier that offersthe best value to the organization to supportbusiness operations for a given need. Within directprocurement, this can involve analyzing the categoryand market, benchmarking against competitorproducts, obtaining bids through competitive events,conducting third-party due diligence, and analyzingand tracking results. Many organizations today arechallenged with manual and inefficient processeswhen it comes to direct sourcing. Poor collaborationbetween the procurement organization and otherstakeholders, such as product development andfinance, often lead to a “black hole” of cost creep inthe product development life cycle. Organizationsneed efficient processes, policies, and mechanismsto share accurate and real-time data to ensure anefficient and reliable strategic sourcing process.

Technology is only half the battle; therefore,the EY organization leads to examine andupdate processes and policies that maycurrently be leading to inefficiencies inexisting processes. The transformation todigital in direct procurement is an opportunityfor EY people and the organization to visitoften long-standing policies and procedures,and implement and revise them to be a moreefficientand comprehensive fit for theorganization. In addition, standardization ofprocesses and templates further enables theorganization to gather more consistent andstructured data, allowing for further insightsinto product costs and analytical capabilities.

Within the SAP product suite, the SAP Ariba Sourcingmodule (including Product Sourcing) providesorganizations with the ability to transform theirstrategic sourcing processes and enable state-of-the-art sourcing features. The OnDemand Aribamodule enables visibility and collaboration across theorganization, including the sharing of an accurateBill of Materials (BOM) between Ariba and PLM orSAP ERP back ends, such as S/4 HANA via MaterialMaster. Additional features, such as Cost BreakdownAnalysis (CBA), enable organizations to quote at aconsistent detailed level and gain complete visibilityinto suppliers’ hidden costs. The ability to armprocurement with accurate and reliable information,advanced bid analysis and negotiation tools —coupled with minimizing manual data entry — drivesprocess efficiencies across all spend categoriesand often leads to decreased time to market andcost savings. Digitally capturing quoting against anaccurate BOM further provides procurement withanalytical visibility to track pricing over the courseof the life cycle and improve the ability to accuratelypredict the final product cost.

Contract managementContract management is the process of managingcontract creation, negotiation, and execution todrive the operational and financial performanceof an organization while concurrently protectingthe organization from inherent risk. Contracting isan integral piece of the procurement process thatcreates the base legal agreement to pricing achievedvia sourcing, but, equally important, it ensuresthat appropriate legal language is leveraged toprotect the organization’s interests. Organizationsneed a clearly defined set of standardized, legallyapproved contract agreements and clauses — a lackof this fundamental base can be detrimental to anorganization, creating unnecessary, extended reviewcycles and extended inefficiencies.

Direct contracts are complex in nature and difficultto negotiate; therefore, collaboration betweenProcurement and Legal (as well as additionalstakeholders) is required on clause language toensurean efficient process and lead to shorter negotiationcycles. Often, organizations hold these agreementsthroughout multiple tools, creating a lack of visibilitythroughout procurement and the inability to leveragethe information within downstream applications.

EY teams brings a structured and client-orientedapproach to the complex world of contracting. Adetailed design process brings with it an intuitiveapproach to establish the right processes and policiesfor the organization and negotiation playbooks toensure the lowest risk for the organization. Clientsoften benefit from the removal of unnecessaryapprovals, consolidation of agreements and language,aligned procedures and policies, and a clear andunderstandable process that brings furtherefficiencies to procurement.

Within the direct procurement space, the SAP AribaContracts module enables organizations to streamlineand standardize the way that direct agreements areauthored, reviewed and transferred to downstreamapplications. The use of features such as EnhancedContact Authoring and clause libraries, coupled withcleansed and standardized client agreement templates,enables organizations to truly automate the authoringand review processes, which can be cumbersome.The interconnected platform automates informationinitiated from Ariba Sourcing and passes throughto downstream applications, such as S/4 HANA,enabling scheduling and outline agreements andaccurate pricing for compliance via Contract Line ItemDocument integration. A proper deployment of SAPAriba Contracts, coupled with standardized processesand agreements, enables organizations to further de-risk legal and financial exposure to the organization.


EWM

Strategicsourcing

Managecontracts

Collaboration via theAriba network

Via the AribaNetwork

Confirmgoods andservices

Procurement execution

Purchaseorder (PO)/

managePO’s

CreatePO

GR INVPR PO

PO

CreatePR

ManageRFQs/quotes

SAPfieldglassINV

Manageinvoices

Supplierandcategorymanagement

SAP MDG-S(Master datagov.

for suppliers)

Guided buying

Tax EngineThomson Reuters

OneSourceVertex

COAHr Mini MasterLimits of authority

SAP TM

Supplierlife cycle

management

Contractmanagement

Managepurchasinginforecords

Managesourcesof

supply

MRPmaterial

requirementplanning

IMinventory

management

Projectsystemasset

managementand Costallocation

PMplant

maintenance

IBP

SAP Portal(i.e., Ariba network) Commerce

automation

SCC

SAP VIM

OpenText

SAP Ariba

Punch-outcatalogue

SupplierSupplierredlining

RFx andquotes

Businessplanning PO process

Invoiceprocess

SAP S/4 HANAOutput

management(Adobe forms)

Figure 2 — S2P Direct procurement SAP solutions landscape


Following the foundation set by the source andnegotiate phase, purchasing execution is wherefurther strategic and tactical actives within thedirect procurement process transpire. Variousactivities, such as forecasting, supplier collaboration,material resource planning, freight procurement,and warehousing and inventory, take shape in theexecution of ordering and procuring goods andservices. Highly complex and integrated across thedirect landscape, these processes are the backboneof the execution component of direct operationsprocurement.

ForecastingPredicting future customer demand enables a businessto make informed decisions downstream in supply-chain planning processes, including production andinventory planning. Due to ever-changing variabilityin product demand, as well as reliance on historical

data, forecasting is often a time-consuming,unreliable process. Forecasting is frequently done inspreadsheets, or in multiple tools, creating a lack ofvisibility and coherence in a single set of numbers. Asa result, there is a business value in an interconnected,digital forecasting solution to increase accuracyin revenue projections and improve supply chainefficiency.

EY teams not only focuses on the digitalimplementation to improve efficiencies, but it alsobrings along an IBP planning framework to define theend-to-end planning processes right from long-termplanning to short- term execution. Defining theseplanning horizons and handoffs for each process iskey to the success and the operating model of theorganization, along with defining a groupwidestandard template for demand planning and supplyplanning, as well as sales and operations planning.

Purchasing execution

SAP IBP is a robust supply chain solution thatfeatures a Demand Planning module with a widerange of forecasting capabilities. IBP offers amultitude of statistical forecasting algorithms toimprove accuracy on mid- and long-term demandplanning, as well as Demand Sensing, a short-termforecasting solution capable of reacting to real-time changes in order to drive improved fulfillment.Additionally, with exception management andembedded analytics, IBP performs real-time analysisidentifying trends and pain points to drive proactivedecision-making. With an Excel front-end interface,the change management effort and overall learningcurve for IBP are low, allowing planners more time tofocus on value-add activities.


Supplier collaborationAs an organization transforms to the digital platform,naturally moving from paper to electronic processingcan expedite and automate collaboration internallywithin the organization, but also externally withsuppliers and vendors. Collaboration enabledvia a digital network provides real-time insightsand information to better manage procurement,inventory, replenishment and material quality. Digitalcollaboration of sourcing, planning/forecasting andinventory can strengthen supplier relationshipsby providing a robust framework to communicateorganizations’ supply planning needs to suppliers.Organizations today commonly struggle to gainvisibility into accurate and trustworthy data toprovide true insights to the organization. They holdmanual and outdated processes collaborating withexternal partners to gain forecasting insights, andmanage inventory, purchase orders, advanced shipnotices, invoices and various other componentsacross the supply chain. Furthermore, the lackof a digital collaboration can lead to unnecessaryinventories, poor working capital, poor goodstracking and higher overall supply chain risks.

EY teams are highly qualified to support supply chaincollaboration transformations due to deep-rootedexperience in direct planning and procurementcapabilities. Our SAP Procurement & Planningcapability groups possess deep implementationknowledge in designing and implementing businessprocess improvements focused on demand planning,and on PO execution and supplier collaborationareas. In addition to standard integration methodsprovided, EY consultants have gained technicalacumen in solving custom integration requirementsto integrate products, such as the Ariba Supply ChainCollaboration (SCC) solution with varied customers’ERP landscapes (e.g., TIBCO, JDE, Informaticaintegration with Ariba SCC solution). Additionally,oursupplier enablement approach (defined by category/operating locations/supplier capability) assistscustomers with a successful and sustainable supplieronboarding journey.

Digital advancements for procurement executionactivities and collaboration between buyers andsuppliers have historically been primarily focusedon indirect spend via the Ariba Network — enterSAP Ariba’s SCC module. SCC is tailored specificallyto address the aforementioned open pain pointswithin the direct space. Easy collaboration isenabled between buyers and suppliers via the SAPPortal (aka Ariba Network) to increase visibility andmore effective planning. Standard integration isalso offered to products such as SAP IBP and SAPS/4 HANA to create a fully integrated and globalplanning environment for the supply chain. SCCenables forecasting collaboration and reduces theuncertainty between trading partners, leadingto consolidated supply chain inventories andoptimization of inventory levels. Organizationsgain not only visibility into supply with continuousmonitoring, benchmarking and enhancement ofsupplier performance, but also the ability torespondintelligently to changes in supply and demand withreal-time visibility into supply chain metrics.

MRPDirect procurement is mainly controlled byMRPas the source of most direct requirements fromproduction or sales. As customer demand changes,there are high pressures around accurate andefficient MRP to guarantee material availability, anddetermine the requirements in term of assemblies,individual parts and raw materials for fulfilling theagreed demand. MRP defines the required quantityand the requirement date based on considerationof multiple elements, such as forecasting, existinginventory levels, demands, supplies and planningparameters.

EY teams have the experience from advancedmanufacturing and S/4 HANA engagements to set astrong foundation for strategic discussions, and tochallenge and transform end-to-end Source-to-Payprocesses and modernize old mainframe systems.EY teams deploy an S/4 HANA-based, user-friendlysolution, streamlining procurement processes withSupplier Collaboration, Forecasting, MRP, Inventory,Warehousing and Transportation activities. Ourprocurement transformations ultimately lead tobuyer efficiency and an increased visibility acrossyour supply chain to support growth.

Using MRP Live on S/4 HANA, MRP controllers canbenefit from improved performance and executethe planning run in much shorter cycles — allowingfor matching demand and supply more efficientlyand reacting to issues far faster than before. S/4HANA MRP functionality helps production managersaccurately plan production and put together areliable production schedule. Thus, managementcan stay on top of processes and follow how thecustomer orders or operations are carried out froma master production schedule. With full visibilityof the manufacturing process from vendors tofinishing the end products, MRP helps to empowerdecision-makers, simplifying production and efficientdownstream purchasing to optimize the customerservice level and minimizing costs and capital lockup.


Freight procurementCompanies, especially those with manufacturingoperations, have evolved direct materials sourcingand freight procurement from an administrativefunction to a strategic procurement process.Strategic freight procurement helps an organizationidentify and negotiate the best rates from carriersto transport items between specific locationsand then agree a contract (agreement) with thecarriers. Transportation management solutionsautomate administrative tasks and make smarterdecisions. They supply the tools needed to requestrate quotations, evaluate responses and award thetransportation business to carriers to maximize youroperational efficiency and service excellence whileminimizing transportation cost.

Our experience in this space combines highly specifictransportation management systems knowledge withthe broad spectrum of digital supply chain solutionsto be able to work with organizations on the visionof end-to-end planning, logistics and fulfillmentexcellence. With a high emphasis on transportationimprovement opportunities, EY clients have achievedharmonized and streamlined processes acrossregions; appropriate governance models supportingthe business; and end-to-end visibility acrosscustomer services, logistics and finance, as well as aglobal integrated and scalable TMS solution.

SAP TM aids with the planning and execution ofthe physical movement of goods across the supplychain. TM enables organizations to manage thetransportation logistic network with a holistic view,reduce operational costs, maximize assets utilizationand meet customer service expectations whileremaining agile responsive about the unexpectedevents. The product offers solutions to minimize riskfactors across an organizations’ entire supply chainand ensure compliance with regulations and policies.TM has experienced significant growth in the recentyear, with 200+ new customers, as they migrate toS/4 HANA. TM developed innovative capabilities in

carrier rating, contract management and appointmentscheduling, as well as SAP Logistics Business Network(LBN), launching in 2019 providing partnerships withUber Freight.

SAP GTS helps facilitate global trade and customscompliance activities by automating the processingand screening of import (procure-to-pay) and export(order-to-cash) transactions to detect sanctionedparties and embargoed countries, determine importand export controls and licensing requirements, andfacilitate electronic Customs filing.

Additionally, GTS can be configured to generateglobal trade, Customs, transportation and shippingdocuments, which can lead to reduced brokerageand service provider fees and expenses. When GTS isintegrated with TM, companies benefit from seamlessend-to-end compliance with international traderegulations from order processing through proof ofdelivery while ensuring that Customs Declarationsreflect the most current transportation data, reducingfiling errors and Customs clearance times.

Warehousing and inventoryTo guarantee customer expectation or a productionprocess, or to avoid delays, various goods need tobe held in stock. Inventory management is allaboutknowing what goods you have, where they are stockedand how much you will require to meet your customeror internal production demand. The inventory andwarehouse management system helps an organizationmanage and intelligently execute the operationsof a warehouse or distribution center. Warehousemanagement (WM) applications offer capabilitiessuch as receiving, put-away, stock locating, inventorymanagement, cycle counting, task interleaving,wave planning, order allocation, order picking,replenishment, packing, shipping, labor managementand automated materials handling equipment (MHE)interfaces.


EY people are highly qualified to support warehousetransformation due to the firm’s deep WM functionaland technical experience, coupled with a wide varietyof successful WM deployments. EY has a leadingglobal and integrated supply chain network solvingclients’ most complex supply chain issues anddelivering high-quality and sustainable results. TheEY supply chain and operations practice has corecapabilities to provide specific business process/warehouse design capabilities, including businessprocess improvement, logistics operations, warehousedesign, labor management and experience withthird-party logistics. In addition to our pioneeringexperience with warehouse management applications,our team and the project and solution leaders holddeep roots in WM implementations, and our collectiveexperiences date back to the late 1990s, supportinghundreds of WM site deployments around the world invarious industries.

SAP has two main warehousing solutions: SAP EWMand SAP WM — its legacy solution. Help optimizing yourinventory means the right products in the rightwarehouse without tying up too much capital ininventory. Inventory optimization takes seasonality andcampaigns into account, as well as supplier lead timesand demand. Furthermore, integration with demandplanning offers the ability to adjust your stocks basedon patterns in demand. Organizations that havetransformed business processes enabled by SAP EWMhave achieved key benefits of increased scalability,reduced costs from lower maintenance efforts andglobally streamlined business processes, and they haveenabled themselves to leverage digital technologies ina “plug and play” manner.

Industrial materialsTo maintain competitiveness in today’s market,manufacturers must control their industrial materialscosts, which may, at times, account for up to 4.5%of total revenue. The impact of poorly managedindustrial materials processes can result in increasedmaintenance costs, inventory levels and freightcosts, adversely affecting plant performance. Theindustry today is aspiring toward integrated standardprocesses that cross lines of business to plan, design,and execute capital and O&M work, which can then beeasily managed and produce consistent and verifiableresults. The starting point is not a blank sheet ofpaper,and there are typically many challenges to overcomefrom the onset, such as determining insource vs.outsource strategy for managing materials. Manyorganizations additionally often struggle with a lackof demand plan/visibility by procurement, inadequatematerial traceability capabilities, unclear supplierperformance expectations and no clear system ofrecord for inventory. These issues can additionallybe further compounded with non-standardized itemmasters, non-user-friendly buying channels, andcumbersome accounting processes or structures.

Digitalization and enabling information integrationmechanisms between ERP/EAM and procurementapplications would be a welcome step forward indriving this change and helping overcome challengesthat are faced. The aim to drive toward a closerintegration between EAM/ERP and digital procurementapplications may offer various benefits to theorganization, such as enhanced business unit visibilityof material availability, increased ability to matchinventory levels with demand signals and an improvedbusiness user consumer experience. This digitalizationand integration further benefit the organizationby creating a lesser need for field employees to beworking in multiple systems, and it further alignswitha digital and mobile strategy.


Through this transformation,organizations hold the opportunityto augment procurement’s skills andprocesses through effective changemanagement, global interaction, andanalytics to improve cloud processes andthe organizations future direction.

Through engagement experience, themakeup of a company’s business units,organization structure and specificrequirements, among other factors,

can also drive toward different solutiondesign answers. EY teams have workedwith many of the leading automotive andadvanced manufacturing organizations todefine their industrial materials strategyand implement supporting technologysolutions. Outlined below are key solutionoptions that organizations could considerto drive close integration of industrialmaterials management with supply chain.

Spend management

Suppliermanagement Sourcing Purchase requests

(indirect)Purchase

ordersReceiving(indirect)

Invoiceprocessing

Contracts Purchase requests(inventory)

Receiving(inventory) Payments

Inventorymanagement

Spend management

Supplier management Contracts Sourcing

Purchaserequests

Purchaseorders

Invoiceprocessing

Receiving

Payments

Purchaserequests Receiving

Purchaseorders

Inventorymanagement

Invoiceprocessing

Upstream

Indirect Direct

Spend management

Suppliermanagement Sourcing Purchase

requests Purchase orders Receiving Invoiceprocessing

ContractsInventory

management Payments

ERP Procurement application EAM/EWM systems

Figure 3 — Industrial materials management

Option A — Purchasing in eProcurementApplication• Buyers have to work in one application only• Broader ability to leverage supplier networks• Complex interfaces and integrations to connect

with work and asset management processes andrecords

Option B — Hybrid• Direct purchasing in EAM application, indirect

purchasing in eProcurement application• Preserves integration with asset records for direct

spend, but leverages functionality and suppliernetworks for indirect spend

• Broader ability to leverage supplier networks• Complex interfaces and integrations

Option C — Purchasing in EAM Application• Purchasing history is more easily tied to asset

record• Fewer systems for business to work within• Limited support for indirect spending• More limited supplier network options


Succeeding the purchasing execution phase isreconciliation and payment. Two large componentsand considerations of this area surround howan organization will handle invoice managementand indirect and direct tax compliance leading tothe payment of the vendor via S/4 HANA. Giventhe complex areas of exception managementwithin procurement, we discuss the followingtwocomponents in this section:

Invoice managementOpenText™ VIM optimizes and simplifies the process ofreceiving, managing, routing, and monitoring invoicesand related documentation. Stakeholders involvedin any invoice problem quickly and efficiently accessinvoice information. Additionally, VIM has the abilityto further extend its capabilities to archiving andautomating capture and extraction of invoice data. Formost companies, invoice processing requires too muchmanual effort, causing a drain on resources internallyand for the vendors involved. Manual keying of invoicedata and resolution efforts involve time-consuminghistorical research, communication with the vendor,documentation and involvement of multiple parties,etc. With that, invoice processing is wrought withmany opportunities for error, loss and delay. Lengthy

invoice cycle time results in missed payment incentivesand discounts due to untimely payment. Audit andcompliance concerns arise as well due to contradictorydocuments or user error.

EY people have the experience deploying theOpenText VIM solution to optimize the process ofreceiving, scanning and managing incomingsupplier invoices. We recently teamed with aleading agribusiness company to streamline itsaccounts payable function. Our solutionautomated invoice processing, transforming alegacy paper-based solution to a 100% digitalinvoice operation, reducing manual entries anddecreasing invoice processing costs more than50%.

With VIM, invoices are routed automatically to the rightperson for resolution, approval and payment. Cashflow can be significantly improved by streamliningworkflows, initiating reminders and shortening thepayment cycle. It also enhances vendor relationswith better access to current and accurate vendorinformation. With build-in reports, VIM providesaccurate and on-time financial reporting withautomatic access to accounts payable information.Organizations enabling VIM additionally promoteregulatory compliance with a well-managed processusing preconfigured rules, roles and actions.

Reconcile and pay


Tax complianceTax compliance is the degree to which a companycomplies (or fails to comply) with the tax rules ofthe country (e.g., by declaring income, filing areturn, paying the taxes due in a timely manner).Indirect taxes, such as value-added tax (VAT), goodsand services tax (GST), and customs duties/tariffsrepresent a significant revenue component for manygovernments worldwide. While direct corporateincome tax rates have fallen in many countries, thecombined tax burden represents a significant expenseand compliance responsibility. Given this changingenvironment, it has become more critical than ever tomanage indirect taxes with a view to optimizing cashflow and reducing risk.

Tax authorities are driving changes for transparencyreporting, requiring filing through digital methods,requesting more information provided, increasing real-time filing, and employing the use of data analyticsfor risk profiling and auditing. This means that thecompliance process model needs to become quicker,more efficient and more streamlined. As tax reportingbecomes increasingly closer to real time, a keyconsideration for indirect tax is streamlining the flowofsource data for purchasing between the procurementtool and the ERP/tax engine to aid accurate reportingand reducing manual effort downstream.

With over 400 dedicated tax technology resourcesthroughout all major markets around the world, EYbrings a dedicated tax network and skill set to addresstax. EY supports its clients in their development ofglobal tax policies and the translation of those policiesinto consistent finance processes across jurisdictions,helping them optimize the balance between insourcedand outsourced processes/resources, and framecontrol policies and procedures around financeprocesses to facilitate the completeness and accuracyof financial data.

Simplification of period-end processes, as well asstreamlining reporting processes, places organizationsin an improved state to be integrated into the overallSAP landscape.

Automating tax determination leveraging third-partytax engines (such as Vertex and Thomson Reuters’OneSource) can reduce under- and overpayment errors,further driving the concept of touchless procurement.The solution should have the capability to validate taxcharged by a vendor before an invoice is processed forpayment. On top of location and addresses are otherfactors, such as status of the vendor, established vs.VAT registered and country VAT/Tax ID validation. Thehigher level of accuracy achieved by automating VAT/GST/SUT within the solution will reduce significantlythe risk of manual errors and related tax recoveryopportunities.

SAP tax compliance delivers a complete cycle coveringthe detection and investigation of tax issues, and itcan help reduce compliance issues in tax processesgoing forward. Automating tax-checking processeswith a unified, standardized set of rules reduces timeand effort, and allows anomalies to be identified moreaccurately. The solution provides the ability to viewand analyze country- or sector-specific data and drilldown to individual tests and transactional data. Thisenables organizations to manage compliance, focusonmajor cost drivers, and develop an Indirect tax strategyon a local and global basis.


As organizations look to transform processes andmove to advanced digital platforms, oftentimesthey can lose track of the true end-user experience.Within direct procurement, there is a wide rangeof stakeholders that will interact with the solutionsand adopt new processes implemented. Creating aseamless environment for these individuals acrossintegrated applications and job functions willultimately lead to stronger adoptions and betterreturn on investment. End users need their voices tobe heard — involving cross-functional stakeholders upfront early in the process and ensuring that propercommunication and training plans are established areimperative to success. Often, the key foundationalaspect of the enhanced user experience can be blurredby stakeholder groups with competing interests andcomplex requirements. A choppy interaction amongdrastically different user interfaces, inconsistentmetadata and duplicative tasks can lead to loweradoption, unrealized savings and, ultimately,unrealized return on investment. EY teams approachesthe end-user experience with a persona-basedapproach throughout the design process. This user-centric-based approach brings representation fromvarious personas into account and emphasizes theimportance of the “voice of the customer” and usersatisfaction.

Creating the “ideal” user experience may, at times,seem to be a stretch; however, organizations thatare successful in enhancing the everyday working lifeof their workforce will ultimately lead to increasedproductivity and satisfaction. The SAP Fiori userexperience creates an integrated and seamlessinterface to provide a consistent and intuitiveexperience for end users. Understanding how userswill interact with various applications and leveraging apersona-based view during the design process ensuresthat the voice of the customer is heard. EY peopleworkhand in hand with the organization through thepersona- based approach to ensure that the optimaldesign for the end users is tailored to theorganization’s goals.Organizations must consider not only how users willinteract with the tool itself, but also how the rolloutwill be communicated, trained and transitioned,ensuring no disruption to the business. Not only willEYsupport the digital transformation from a process andtechnology perspective, but it will also bring leading-class change management resourcing and perspectivethat are tailored to align with an organization’sculture and new ways of working. Managing changewhile equipping end users with the right tools andstreamlined processes will translate into a successfulimpact to the organization, driving further savings andreturn on investment for the program.

End-user experience


As more information becomes readily available inthe digital age, a key question for any organizationis — What can we do with this data to further driveproactive decision-making and gain a competitiveedge? Analytics is the use of data, statistical andquantitative analysis, explanatory and predictivemodels, and fact-based management to drivedecisions and actions within an organization to createstrategic value. Today, analytics is used by world-classprocurement organizations to create insights and drivedecisions. Analytics enables a procurement function toidentify and prioritize purchasing savings opportunitiesand then take action upon those bringing increasednegotiation power to procurement. Today, manyorganizations struggle with a lack of visibility overgeneral spend due to a lack of consistent classificationand poor master data quality. Procurement continuesto wrestle with an unknown range of opportunitiesto leverage cost savings, performance improvementand risk mitigation. When moving digital, clients havethe opportunity to further transform themselves byavailable data and advanced analytical tools.

SAP Analytics Cloud provides the analytical toolwithin the SAP family that integrates seamlessly withthe suite of SAP products and allows individuals todiscover, visualize, plan and predict in a single solution.Leveraging the Analytics Cloud, organizations cancreate dashboards that provide insights to spend,and arm the procurement function with data to makequicker and more educated decisions. Working withclients, EY teams have helped enable organizations tounderstand what their people need, and how they arelooking to see it — all while streamlining the processandremoving the manual efforts previously required tomine data.With advanced analytics, EY clients have helped data-driven communications to all stakeholders, improvedcompliance with policies and contracts, and a morerobust and productive sourcing function providingincreased savings and return on investment.

Analytics


With the high-paced flow of business and operations,organizations need to pause and ask themselves —Where is the organization now, and where do we wantto be? An important aspect of any company is havinga detailed technical road map outlining the technologyof the future. This road map will be unique for a givenorganization based on its complexity and set of definedgoals and technology landscape. Understanding

where processes can be improved, and then enablingnew processes with the right technology, can lead tonew ways of working and increased productivity andsatisfaction among the user base.

Consider the following questions associated withtheir subtopics. Are there better ways of working andefficiencies to be gained to make direct procurementrun more effectively in the digital age?

Conclusion

Direct procurement process Key questions for the organizationSupplier management • How are onboarding, qualification and master data associated with the supplier managed across

applications and shared with relevant internal stakeholders?• How is the organization measuring and providing visibility into a supplier’s performance, compliance

and external risk factors?• How is the organization ensuring that preferred suppliers for given categories are being properly

leveraged within downstream activities?

Sourcing • How can procurement better collaborate with product development/engineering and otherstakeholders?

• How can procurement better track pricing over the course of the product development life cycle?• How can the organization better communicate BOM information and documentation across

procurement and product development?

Contract management • How are contract agreements stored across the organization today?• Does the organization hold and maintain unnecessary or duplicative contract agreements and

clauses?• What is the process for negotiation and clearly defining alternate and fallback clauses to incorporate

when needed?

Forecasting • How would you rank your products in terms of importance and predictability?• What are the quality and consistency of your historical sales data?• How frequent is forecasting needed and over what period of time?

Supplier collaboration • How is the organization collaborating with external stakeholders to align on supply and demandplanning?

• How are suppliers being provided with transparency into long-term and near-term demands?• How is the organization anticipating and resolving supply assurance problems?

Material resource planning • How you do manage your planning horizons?• How integrated and accessible are you to shop floor, inventory and quality data?• How do you balance production objectives, resources and capacity?

Freight procurement • How accurate, forward-looking and aligned is your transportation and demand planning?• Do you have access to disaggregate spend data and visibility into a detail overview of your freight

rates and charges?• Do you have the flexibility in your freight procurement process to quickly leverage spot rates or

negotiate discounts with carriers?


Direct procurement process Key questions for the organizationWarehousing and inventory • In which environment do you operate: a pull system (based on demand/customer orders) or a push

environment (stock to prepare for future orders)?• How do you monitor and manage safety stock?• How do you avoid overstocking certain items by stocking based on current demands?

Industrial materials • What internal resources and processes are used to plan and manage industrial materials inventory,and what percentage of industrial materials are managed externally?

• When the reorder process is run, does it consider WM service and material needs?• Does your supplier place materials in the customer’s possession, but not charge for the inventory

until it is consumed?

Invoice management • What is the organization’s average invoice processing cycle time?• What is the common bottleneck in invoice processing?• How does the organization monitor invoice processing steps?

Tax compliance and planning • Are there any internal data/information points that you are not getting today that result inorganizational process inefficiencies and elevated financial risks?

• What planning opportunities may be available through better leverage of enterprise analytics?• Has the organization captured the full tax value case — enterprise-wide — from enhanced automation

across direct and indirect tax?

User experience • Is your organization considering how your digital transformation and the applications and userinterfaces leveraged will affect productivity and user satisfaction?

• How will the individual behaviors and needs of end users be addressed to increase useradoption?• How do you ensure the proper level of engagement across the organization to support and drive

purposeful change?

Analytics • Where are your biggest areas of risk throughout the supply chain, and what is the current exposurefor each area?

• How can procurement decipher which finished products are leveraging the same specific rawmaterial component, and who is your most strategic supplier?

• What type of information and analytics would allow buyers to think more strategically?

Don’t underestimate both the effortto make significant improvements andvalue gained with transforming thispart of your business. With the rightsolution and partner, you’ll have asustainable foundation and leading-edge platform for the long term.— Brad Durst


Organizations today are global andcomplex, and are evolving withinnovative technology at an acceleratedpace. Selecting the right team for adigital transformation who knows theindustry, processes and technologiesis crucial to ensuring programsuccess.Our approach to direct procurementtransformations brings not onlyaccelerators and experience within thetechnology and data aspects of SAP,but highly talented professionals fromprocurement, manufacturing, risk, tax,change management and otherfunctionsto provide the most comprehensiveapproach to fit an organization’s needs.

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This material has been prepared for general informational purposes only and is not intendedto be relied upon as accounting, tax, legal or other professional advice. Please refer to youradvisors for specific advice.

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Contacts:Dan KowalPrincipalErnst & YoungLLP+1 248 [email protected]

Bradley T. DurstManaging DirectorErnst & Young LLP+1 312 [email protected]

Hamish McKechnie-SharmaAssociate Partner U.K.Ernst & Young LLP+44 (0) 77 1897 [email protected]

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Direct procurement digital transformation