SAP Working Capital Analytics - Overview

SAP Working Capital Analytics Overview

SAP Business Suite – Application Innovation January 2014

Additional Information – SAP HANA Live

SAP Working Capital Analytics – Introduction

SAP Working Capital Analytics – Why Using HANA?

SAP Working Capital Analytics – HANA Model Overview


SAP Business Suite – Application Innovation







© 2014 SAP AG or an SAP affiliate company. All rights reserved. 4

SAP Working Capital Analytics Definition of Working Capital

= Current Assets – Current Liabilities A measure of both a company's efficiency and its short-term financial health.

Inventory

Accounts Receivable

Cash

Other Liquid Assets

Accounts Payable

Wor

king

Cap

ital

Cur

rent

Ass

ets

Other Short Term

Liabilities

Cur

rent

Lia

bilit

ies

Working Capital

Represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business.

Current Assets

Current Liabilities A company's debts or obligations that are due within one year.


SAP Working Capital Analytics Performance Indicator Relations and Influencing Factors

Cash Conversion Cycle (CCC)

Days Sales Outstanding

(DSO)

Days Inventory Held

(DIH)

Days Payables Outstanding

(DPO)

Inventory

Cost of Goods Sold (COGS)

Net Sales

Accounts Receivable (AR)

Accounts Payable (AP)

Operating Cycle (OC)

Influencing Factors Performance Indicators

+

-


(DSO)


SAP Working Capital Analytics Performance Indicator Relations and Influencing Factors

Cash Conversion Cycle (CCC)


(DSO)

Days Inventory Held

(DIH)

Days Payables Outstanding

(DPO)

Inventory

Cost of Goods Sold (COGS)

Net Sales

Accounts Receivable (AR)

Accounts Payable (AP)

Operating Cycle (OC)

Influencing Factors Performance Indicators

+

-


(DSO)

SAP Working Capital Analytics 1.0 features Web applications and content to analyze aspects relevant for

• Days Sales Outstanding (DSO)

• Days Payables Outstanding (DPO)


SAP Working Capital Analytics Business Context

Business Context / Use Case • In today's volatile financial markets a company’s

efficiency and financial health is more important than ever.

• Influencing working capital is of high significance in this context, especially in a global environment with major regional differences, e.g. with regards to payment terms.

• SAP Working Capital Analytics provides a new, intuitive and easy to use way to analyze Days Sales Outstanding (DSO), Days Payables Outstanding (DPO) and related KPIs.

• SAP Working Capital Analytics allows users to interactively build up flexible drill-down analysis paths to analyze complex data on a detailed level.


SAP Working Capital Analytics Product Overview

What’s this all about?

An analytics application that helps companies

• analyze all aspects of days sales outstanding and days payables outstanding

• explore root causes of working capital changes

• optimize strategies to improve the company’s liquidity, efficiency and overall financial health

Key Product Features

• Analytics for receivables and payables based on real-time ERP data powered by SAP HANA

• Analysis paths can be saved and reused • Multidimensional drill-down opportunities to

interactively explore data

• Drill-down to line item level to fine-tune tactics regarding receivables and payables


SAP Working Capital Analytics Customer Value

Value of SAP Working Capital Analytics Improvements in DSO-related and DPO-related KPIs • increase the efficiency of receivables

collections • support better payment term negotiations with

customers and suppliers • improve the payment behavior towards

suppliers • increase liquidity • give CFOs more flexibility regarding

investments, using own cash instead of loans • improve credit ratings

Limitations of Competing Solutions • Key-date-dependent views on data only • Loss of detail, information and precision, due

to calculations on aggregated data • Limited drill-down capabilities only


SAP Working Capital Analytics Technical Overview

Technology • Powered by SAP HANA

• SAP HANA Live two-tier architecture • SAP HANA views ready to use for DSO and DPO

Analytics • HTML 5 Web applications for desktop for

• DSO Analysis • DPO Analysis

• Analysis Path Framework • Provides reusable UI elements such as

• Analysis step gallery • Analysis path / drill-down logic

• Uses OData service requests to expose data • Allows application adaptations by configuration

Technical Prerequisites • SAP Working Capital Analytics 1.0 • SAP HANA Live for SAP ERP • SAP HANA 1.0 Appliance Software SPS07 • SAP ERP Financials


SAP Working Capital Analytics DSO Analysis

Target Roles Corporate / regional controller Regional CFOs Country manager

Analysis Area Days Sales Outstanding (DSO) /

Receivables

Business Questions How is the DSO performance of my countries ,

customers or sales organizations? What is the DSO / overdue DSO trend over time? How is the payment discipline of customers ? Which business partners do not pay on time? Which receivables are overdue and have significant

business volume? What is the aging structure of receivables?

Metrics and KPIs DSO Best possible DSO Overdue DSO Revenue Receivables Overdue receivables Open receivables Cleared receivables

Categories and Drill-Down Options Time Company code Country of company

Code Customer Country of customer Customer group

Sales organization Distribution channel Division Sales district Aging Net due days Days in arrears Receivables

Mandatory Analysis Settings Company code Analysis time frame Currency


SAP Working Capital Analytics DPO Analysis

Target Roles Corporate / regional controller Regional CFOs / purchasers Country manager

Analysis Area Days Payables Outstanding (DPO) /

Payables

Business Questions How is the DPO performance of my countries ? What is the DPO / overdue DPO trend over time? How is the payment discipline towards my suppliers? What are the countries with high expenses / a high

impact on DPO? Which payables are not paid on time? What is the aging structure of payables? How do payments terms (net due days) change over

time?

Metrics and KPIs DPO Best possible DPO Overdue DPO Expenses Payables Overdue payables Open payables Cleared payables

Categories and Drill-down options Time Company code Country of company

Code Vendor Country of vendor

Aging Net due days Days in arrears Payables

Mandatory Analysis Settings Company code Analysis time frame Currency








SAP Working Capital Analytics Example: Calculation Methods for DSO

SAP Working Capital Analytics allows analysts to calculate relevant measures based on financial line items (referred to as direct method).

The following slides provide details about typical calculation methods in comparison to the direct calculation based on financial line items.

The calculation methods are explained by looking at a calculation example for DSO.

The example is based on a simulation as outlined on the next slide.

Calculation: Introduction


Date Revenue DSO Clearing Date Receivables

01.06.2011 999,41 € 15 16.06.2011 11.878,96 € 02.06.2011 992,26 € 15 17.06.2011 12.417,71 € 03.06.2011 977,11 € 15 18.06.2011 12.886,84 € 04.06.2011 954,28 € 15 19.06.2011 13.276,78 € 05.06.2011 924,23 € 15 20.06.2011 13.579,59 € 06.06.2011 887,58 € 15 21.06.2011 13.789,09 € 07.06.2011 845,07 € 15 22.06.2011 13.901,03 € 08.06.2011 797,56 € 15 23.06.2011 13.913,11 € 09.06.2011 746,03 € 15 24.06.2011 13.825,10 € 10.06.2011 691,53 € 15 25.06.2011 13.638,78 € 11.06.2011 635,16 € 15 26.06.2011 13.357,95 € 12.06.2011 578,07 € 15 27.06.2011 12.988,34 € 13.06.2011 521,43 € 15 28.06.2011 12.537,47 € 14.06.2011 466,39 € 15 29.06.2011 12.014,53 € 15.06.2011 414,07 € 15 30.06.2011 11.430,17 € 16.06.2011 365,54 € 15 01.07.2011 10.796,31 € 17.06.2011 321,79 € 15 02.07.2011 10.125,84 € 18.06.2011 283,71 € 15 03.07.2011 9.432,44 € 19.06.2011 252,07 € 15 04.07.2011 8.730,23 € 20.06.2011 227,52 € 15 05.07.2011 8.033,51 € 21.06.2011 210,55 € 15 06.07.2011 7.356,49 € 22.06.2011 201,53 € 15 07.07.2011 6.712,95 € 23.06.2011 200,62 € 15 08.07.2011 6.116,00 € 24.06.2011 207,84 € 15 09.07.2011 5.577,81 € 25.06.2011 223,06 € 15 10.07.2011 5.109,35 € 26.06.2011 245,95 € 15 11.07.2011 4.720,14 € 27.06.2011 276,06 € 15 12.07.2011 4.418,14 € 28.06.2011 312,77 € 15 13.07.2011 4.209,48 € 29.06.2011 355,33 € 15 14.07.2011 4.098,43 € 30.06.2011 402,88 € 15 15.07.2011 4.087,23 €

SAP Working Capital Analytics Example: Calculation Methods for DSO

• Each day a certain amount of revenue is generated.

• Revenue always results in a corresponding accounts receivable position.

• Customers always pay after 15 days.

Obviously, the DSO is 15 days!

Simulation Example

The table shows revenue and receivables for June 2011.

The graphic above illustrates how revenue and receivables are distributed over time, assuming that positions are cleared after 15 days. .


SAP Working Capital Analytics Indirect Calculation Method for DSO (classical)

DSOt = x 30* Receivablest

Revenue of last 30 days* * Could also be any other number of days

In a first step, the “classical” DSO calculation (indirect method) is explained in more detail.

DSOt = x 30 4.087,23 €

Receivables as of June 30, 2011: 4.087,23 €

Revenue June 1 – June 30, 2011: 15.517,40 €

15.517,40 €

DSOt = 7,9 days

DSO Calculation Example Indirect Method “classical”

DSO Formula Indirect Method “classical”

days

Result

Although the DSO should be 15 days, we see that the ‚classical‘ approach to calculate DSO results in considerable variations of DSO values (e.g. DSO June 03: 19,3 days/ DSO June 30: 7,9 days), depending on when the calculation is performed. This effect even increases in case of seasonal fluctuations.

DSO variations resulting from calculation method


SAP Working Capital Analytics Indirect Calculation Method for DSO (rolling avg. receivables) The following example shows how DSO is calculated using rolling averages.

DSOt = x 30 5.764,15 €

Avg. Receivables June 19 – June 30, 2011: 5.764,15 €

Revenue June 1 – June 30, 2011: 15.517,40 €

15.517,40 € DSOt = 11,1 days

DSO Calculation Example Indir. Method ‚Rolling avg. Receiv.‘

DSO Formula Indirect Method ‚Rolling avg. Receivables‘

DSOt = x 30* Rol. Av. Receivables 12 days**

Revenue of last 30 days* * Could also be any other number of days ** Could also be a rolling average over other perdiod

days

Result

Using rolling averages to calculate DSO decreases variations to some degree. However, DSO values are only approximations that are subject to certain assumptions.

DSO variations slightly decreased


SAP Working Capital Analytics Direct Calculation Method for DSO

This slide outlines how DSO is calculated based on original documents (direct method).

DSOt =

Doc.1: posted June 1, cleared June 16, 2011: 999,41 €

Doc. 2: posted June 2, cleared June 17, 2011: 992,26 €

1.991,67 DSOt = 15,0 days

DSO Calculation Example Direct Method

DSO Formula Direct Method

days

DSOt = Σ (CD – PD) * AR

Σ AR AR = Accounts Receivable Amount CD = Clearing Date PD = Posting Date

((06/16/11 – 06/01/11) * 999,41) + ((06/17/11 – 06/02/11) * 992,26)

Result

A DSO calculation based on document details allows you to derive DSO values that reflect real movements and developments without making any assumptions.

True DSO, no variation


SAP Working Capital Analytics Formulas for DSO / DPO Calculation

The following slides depict the formulas provided with SAP Working Capital Analytics to calculate the KPIs DSO and DPO.

Important note: By default, SAP Working Capital Analytics uses the direct calculation method based on financial line items for DSO and DPO.

You can change the configuration so that calculations are performed using the indirect method instead.

For more information how to switch the calculation method see the SAP Working Capital Analytics documentation, chapter Enhancing SAP Working Capital Analytics, available at http://help.sap.com/hba.

Formulas Provided with the Application

http://help.sap.com/hba


SAP Working Capital Analytics DSO Definitions

DSO Indicates the average number of days that it takes a company to collect its outstanding accounts receivable.

Overdue DSO Indicates the average number of days that an invoice has been overdue.

Best Possible DSO The DSO that can be reached if payment is always made on the due date.


Σ (Line Item Clearing Date – Line Item Net Due Date) * Line Item Amount

Σ Line Item Amount

SAP Working Capital Analytics Direct Calculation of DSO

Σ (Line Item Clearing Date – Line Item Posting Date) * Line Item Amount

Σ Line Item Amount DSO =

Σ (Line Item Net due Date – Line Item Posting Date) * Line Item Amount

Σ Line Item Amount Best Possible DSO

Overdue DSO =

=


Average Overdue AR Balance of last X Months*

Average Monthly Revenues of last Y Months**

SAP Working Capital Analytics Indirect Calculation of DSO – Calculation per Month

Average Accounts Receivable Balance of last X Months*

Average Monthly Revenues of last Y Months** DSO = x 30

Overdue DSO x 30

* Parameter X: can be any positive number of months (Default parameter = 1)

** Parameter Y: can be any positive number of months (Default parameter = 1)

Best Possible DSO

=

= DSO – Overdue DSO


Average Overdue AR Balance of Analysis Time Frame

Average Monthly Revenues of Analysis Time Frame

SAP Working Capital Analytics Indirect Calculation of DSO – Overall Calculation

Average Accounts Receivable Balance of Analysis Time Frame

Average Monthly Revenues of Analysis Time Frame DSO = x 30

Overdue DSO x 30

Best Possible DSO = DSO – Overdue DSO

=


SAP Working Capital Analytics DPO Definitions

DPO Indicates the average number of days that it takes a company to pay its suppliers.

Overdue DPO Indicates the average number of days that an invoice from a supplier has been overdue.

Best Possible DPO The DPO that can be reached if payment is always made on the due date.


SAP Working Capital Analytics Direct Calculation of DPO

Σ (Line Item Clearing Date – Line Item Posting Date) * Line Item Amount

Σ Line Item Amount DPO =

Σ (Line Item Clearing Date – Line Item Net Due Date) * Line Item Amount

Σ Line Item Amount

Σ (Line Item Net due Date – Line Item Posting Date) * Line Item Amount

Σ Line Item Amount

Best Possible DPO

Overdue DPO =

=


Average Overdue AP Balance of last X Months*

Average Monthly Expenses of last Y Months**

SAP Working Capital Analytics Indirect Calculation of DPO – Calculation per Month

Average Accounts Payable Balance of last X Months*

Average Monthly Expenses of last Y Months** DPO = x 30

Overdue DPO

x 30

* Parameter X: can be any positive number of months (Default parameter = 1)

** Parameter Y: can be any positive number of months (Default parameter = 1)

Best Possible DPO = DPO – Overdue DPO

=


Average Overdue AP Balance of Analysis Time Frame

Average Monthly Expenses of Analysis Time Frame

SAP Working Capital Analytics Indirect Calculation of DPO – Overall Calculation

Average Accounts Payable Balance of Analysis Time Frame

Average Monthly Expenses of Analysis Time Frame DPO = x 30

Overdue DPO

x 30

Best Possible DPO = DPO – Overdue DPO

=


SAP Working Capital Analytics Characteristics of Calculation Methods for DSO / DPO

Direct Calculation Indirect Calculation

Calculation Approach

Direct calculation of time span between posting date and clearing date (true DSO / DPO) per line item

Indirect calculation by deriving DSO/ DPO from influencing factors (receivables balance and revenue for DSO; payables balance and expenses for DPO)

Calculation Level

granular per line item aggregated

Relevant Documents

cleared line items (cleared receivables/ cleared payables)

receivables/ payables: line items posted before end of analysis time frame and open at end of analysis time frame revenue/ expenses: posted within analysis time frame


SAP Working Capital Analytics Pros and Cons of Calculation Methods for DSO / DPO

Direct Calculation Indirect Calculation Pros • More precise

• Independent from calculation effects caused by seasonal business or big scale transactions.

• Less affected by a high proportion of special business transactions such as credit memos, invoice pooling, partial payments.

Cons Effects in case of special business transactions: • Unexpected effects in case of a high

proportion of credit memos. • Lower values in case of invoice pooling or

partial payments.

• Highly key date dependent, that is, KPI calculations are more affected by influences and assumptions causing considerable KPI variations with limited informative value.

• Effects can be reduced to some degree using rolling averages.








SAP Working Capital Analytics HANA Model Architecture, DSO Analysis


ECC Database Tables

Reuse and Private Views

Query Views

SAP Working Capital Analytics HANA Model Architecture, DSO Analysis


SAP Working Capital Analytics HANA Model Architecture, DPO Analysis


ECC Database Tables

Reuse and Private Views

Query Views

SAP Working Capital Analytics HANA Model Architecture, DPO Analysis








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