Download pptx - Credit Management

June2015

iSAP Methodology OTC: Credit Management

In collaboration with 2Client Logo Here The information contained in this document is proprietary. Copyright © 2013 Capgemini. All rights reserved.

Workshop Ground Rules

Cell phones off Full attention throughout Scheduled breaks only


Introduction

1. Name

2. Background and Role in the Organization, Project

3. Understanding or Experience with SAP Business Process

4. Expectations

We will capture expectations on a flip chart and mark progress through the session


Scope and Objectives

Business Process Concepts and Best Practices

Business Process SIPOC Exercise

Solution Manager Setup

Security Authorizations Design

Gaps and Requirements for Reports, Interfaces, and Enhancements

Implementation Considerations

Agenda


Introduction to Credit Management

A large number of outstanding receivables or bad debts can have a considerable impact on company’s performance. Credit Management can minimize your credit risk by defining a credit limit for your customers. This is especially important if you do business with customers in financially unstable sectors or countries, or trade with countries that are politically unstable or that adopt a restrictive exchange rate policy.


Objectives of Credit Management

Reduce payment failure by early detection of high risk customers

by taking action of the appropriate measures

Have a good assessment of the risk profile of your customer base

to advise sales where to focus on

to support SOX and Basel II regulations

Do not impede daily business Monitor everything, but take action only when

necessary

Emphasis on pro-active measures


Benefits of Credit Management• Supports collection and processing information

about the credit exposure of a business partner from different SAP and non-SAP systems.

• Support of automated updates of credit scoring information. Consolidation of credit exposure for the respective business partner enables central credit monitoring

• Companies with high number of business partners can automate their credit management processes by implementing rules for scoring and rating of their business partners. Based on rules the application can calculate credit limit proposals.

• Supports the integration of external credit information providers by standard XML interfaces. Real-time integration with external information provides like D&B ensures accurate customer scoring as well as request for credit insurance.

• Increased process efficiency by order-to- cash integration and support of automated credit decisions and customer data maintenance.

• Credit limit checks to various time points during the sales and distribution process (sales order entry as well as delivery).


Credit Management Process

Analysis Credit Check

Assigning credit limit Configuration


Credit Control Area

Credit control area is an organizational element which takes care of all the credit management activities within the company code.


SAP Credit Management in a nutshell

Flexible scoring Powerful process automation Easy integration with operational systems (sales, order tacking, finance) Real time integration with external information providers Comprehensive analytics & reporting


Credit Limits

Collection f Receivables

Ord

er

Credit limits are threshold that a company (creditor) will allow its customers to owe at any one time without having to go back and review their credit file. Credit Limit is the maximum amount that a firm is willing to risk in an account. Credit Limits helps the creditor in the following ways:1. It frees up valuable time for other credit management tasks2. It speeds up the sales process3. It reduces risk and improves collection activity and efforts.4. It is an account monitoring tool


Check Rules


Credit Segments

Credit Segments are organizational units used by the Credit Management.

Credit segments have the advantage that it is possible to group economic activities of the company from the perspective of credit control.

Every Credit Segment has its own credit limit and commitment.

Credit segments allow to split customers into different risk classes and support risk assessment i.e. to meet Sarbanes-Oxley guidelines.


Credit Groups

Credit group controls which transaction has to be blocked if customer credit limit exceeds.


Flowchart

Sales &Distribution

Credit Management

Payment &Clearing

Create Order

CalculateCredit Limit

SearchCustomer

Look upCredit Report

AssignCL

Deliver Order

PostInvoice

PostPayment

Update Customer CreditExposure & Payment Behavior

Sales

A/R Account.

Credit Manager

Ext. Info

Provider(e.g. D&B)


Credit Policy in SAP Credit Management

SAP User concept

SAP Authorization concept

Flexible organizational structure in SAP Credit Management

Workflows for credit limit applications, external rating changed, score change, credit limit change, credit worthiness check failed, credit exposure above 100%

Event driven updates for scoring recalculation, risk class assignment and credit limits recalculation

Scheduled mass updates for external rating import, scoring recalculation, credit limit recalculation


Credit Score Cards

The customer credit score card shall determine the probability of the credit failure risk of a customer

It should consist of decisive and stable indicators

Access to internal data (from sales, accounts receivable,…) is used for scoring

Real-time XML based access to external data from information providers

Flexible definition of scoring formulas in SAP Credit Management

Business partner specific assignment of scoring formulas


OTC 2.4.1 – Credit Management Process

Process Step Description


Credit Management - Potential Process Improvement Opportunities (from Value Stream session)

Ref. Process Step Legacy Pain Points (in terms of waste)

Improvement Opportunities (eliminate waste)

KPI’s

1 Create Billing document • All are currently manually created (processing)

• Currently, MRP run is weekly, POs are processed weekly (waiting)

• Manual processing has high rate of errors (defects)

• Automated processing to reduce processing, waiting, and defects

• Daily MRP and PO processing to reduce waiting time

• Use of contracts/PIR to proactively process PO with accurate Pricing and lead time info

• PO processing time• Days supply in Raw

Material Inventory• Improved Planning• Reduced Inventory

2 Change Billing document • See above

3 Process Billing Due List • POs get stuck for approvals for very low $$ values

• Multiple levels of approvals• Long processing times due to

paper based approvals

• Redefine PO approval limits• Approval should be only for non-MRP

materials • Improved MRP planning due to faster

processing• Eliminate paper based PO approvals

Reduction in PO needing approvalsFaster processing through SAP approval

4 Monitor or view list of Billing documents

• Manual PO message output• Dispatching POs through mail• Waste of Buyers’ time

• EDI use• Web based PO output• Fax• Email

Reduced labor timeAutomated PO message outputEDI/Email use resulting in GREEN efforts

5 Monitor the output of messages

• Buyers review POs repeatedly• Manual Update of POs• Calling/emailing vendors for

updates/acknowledgements• Waste of Buyers’ time

• EDI use for PO acknowledgement• ASN for faster receiving

Improved buyer efficiency









Agenda


Proactive Credit Management

A proactive & preventive approach in Credit Management is necessary, because

Blocking a customer order always disrupts the business process

Approval decisions for blocked orders might have to be made under time pressure

Relationship to customer might be strained

Identify customers which utilize their credit limit to a certain extent and take action

Intensify cash collection

Verify payment terms

Check with sales and a risk assessment to find out if a higher credit limit is appropriate


Pledging

This refers to the use of a firm’s receivable to secure a short term loan. A firm’s receivables can be termed as its most liquid assets and this serves as prime collateral for a secured loan.


Credit Profile

In the analysis of the credit profile, Credit-specific master data for customers can be evaluated according to the following questions, for example:

How many and which customers belong to a particularly bad/good risk class?

How are the customers distributed over the spectrum of the score/risk class?

Which customers are locked by SAP Credit Management ?

Which customers are assigned to a specific analyst/customer group?

Which customers should be subject to special attention?

Which rule was used to determine the score?


Credit Policy

Determining the Level of Credit Sales

Determining of the Credit Standards

Determining of the Credit Terms

Rate of cash discount

Factors Determining Credit Policy:

The effect of credit on the volume of sales

•Credit terms

•Cash discount

Policies and practices of the firm for selecting credit customers.

Paying practices and habits of the customers.

The firm’s policy and practice of collection.


Credit Management- Best practices• Credit policy is clearly defined, monitored and communicated.

• Establish regular credit line reviews throughout entire customer lifecycle

• Allow immediate approval for customers with good previous history

• Automate credit analysis and initial credit line approval using rule-based decision support capability which is regularly updated

• Multiple tiers of credit approval supported

• Monitor total customer credit exposure including subsidiary activity, child accounts, and activity across product lines


FSCM Credit Management Standard Reports

Credit Profile• Risk Class (0CDM_DS03_Q0001)

The query evaluates the credit profile of business partners, concentrating on the risk class. The focus is on the distribution of risk classes over the business partner, for example, by country.

• Risk Class/Score Monthly History (0CDM_DS02_Q0002)This query portrays changes to the risk class and score in SAP Credit Management for each month.

• Credit Limit Monthly History (0CDM_DS02_Q0001)This query portrays the changes to the credit limit at credit segment level in SAP Credit Management for each month.

• Risk Class/Score Daily History (0CDM_DS01_Q0002)This query portrays the changes to the risk class and score in SAP Credit Management for each day

• Credit Limit Daily History (0CDM_DS01_Q0001)This query portrays the changes to the credit limit at credit segment level in SAP Credit Management for times and days.

• Profile Analysis: Credit Limit (0CDM_C0_Q0001)The query evaluates the credit profile of business partners, concentrating on the credit limit. The focus is on the distribution of the credit limit over the credit segments.

• Profile Analysis: General (0CDM_C0_Q0002)The query evaluates the credit profile of business partners according to the central characteristics of SAP Credit Management. The focus is on creating an overall list with all of the important information.



Credit Risk• Early Warning List (0CDM_MC0_Q0001)

The individual business partners are listed with their credit exposures. You can use this query to identify the business partners with a particularly high exposure. You can branch to the liability individual evaluation via the report-report interface.

• Score from Analysis Process (0CDM_I0_Q0001)The query represents the score calculated by the analysis process and its influencing factors for each business partner.

• Liability – Individual Evaluation (0CDM_C2_Q0001)The query represents the composition of the liability of business partners broken down by different liability categories.

• Portfolio (0CDM_MC0_Q0003)The query portrays the credit exposure, aggregated by risk class.

• FIAR: Payment Behavior Payment History (0FIAR_O10_Q1001)The query represents the payment behavior of the customers.

• Credit Risk Analysis Credit Exposure List (0CDM_MC0_Q0004)The query represents the credit limit, the credit exposure, and the credit limit utilization.

• Credit Exposure by Country (0CDM_MC0_Q0002)The query portrays the credit exposure of the business partners, aggregated by country



New Rating Analysis and Simulation Analysis

• Overview of Collective Processing Runs (0CDM_EXTR_Q0001)This query provides an overview of all collective processing run extracts for the new rating or simulation of credit profiles of business partners in SAP Credit Management that are in the SAP Business Information Warehouse (BW). The query is used as a selection list for branching to the queries of the new rating analysis/simulation analysis.

• New Rating Analysis and Simulation Analysis (0CDM_DS00_Q0001)The query analyzes collective processing runs for simulation or new ratings as part of the determination of credit profiles of business partners in SAP Credit Management. It provides an overall view of the changes to the credit profiles that result from such collective processing runs.

• New Rating Analysis and Simulation Analysis: Risk Class (0CDM_C1_Q0001)The query analyzes collective processing runs for simulation or new ratings as part of the determination of credit profiles of business partners in SAP Credit Management. The focus is on changes to the risk classes resulting from the simulation or new rating.









Agenda


Standard Billing Process Flow (SAP)


Key Design Decisions – Billing Processing

Ref. Key Decision Description Initial Recommendation Key Decision Made

1 Doc Types Use Standard

2 Number Ranges (internal, external)

Use internal range

3 Text types by billing document types

Default from customer master/sales order/delivery

4 Billing due list creation Manually, Automatically

5 Invoice Splits Use Standard

6 Billing Blocks Use standard as reference

7 Special Pricing

8 Account Determination Use standard as reference

9 Reference Number and Assignment Number

Use standard as reference

10 Invoice List Use standard as reference


Key Design Decisions – Billing Processing

Ref. Key Decision Description Initial Recommendation Key Decision Made

9 Partner Functions Use standard as reference from sales order.

10 Incompletion Log Use standard as reference - Header / Item

11 Output Types Use standard key combination

12









Agenda


Solution Manager Setup for Billing Processing

1. Populate the high level processing node with all processing objects in scope

2. Adjust each object/process step scope of transactions to fit the process flow diagram, divide each process step as necessary to meet separation of duties and governance approach (e.g., Centralized vs. De-centralized)

3. Align the Roles tab with the Process Flow Diagram and each processing object/process step

4. Create one “Sales Order Processing Display” Process step, assign all list and display transactions to this process step. Assign the process step to a new role “OTC Processing Display”

5. Post Functional Design Document and Process Flow Diagram to the General tab at the high level processing node level


Solution Manager – Process Hierarchy for Billing Process

In scope Process Steps are inserted below the correct Business Process node (selected in the Structure tab from the Business Object Repository)


Solution Manager – Transactions for Billing Process

Default transactions assigned per each object, must be reviewed and split into more granular process steps as necessary (e.g., “Change” allows all order administrators to change any Sales Order)


Solution Manager – Posting Documentation

Functional Design Document and Process Flow diagram are posted on the General Documentation tab at the Business Process node level

Functional Design Document

Process Flow Diagram









Agenda


Security Authorization Requirements

Ref. Process Step (Sol Man) Role (Sol Man) Org. Restriction Process Restriction (exceptions only, not recommended)

Notes

1 Create Billing document

2 Change Billing document

3 Cancel Billing Document

4 Process Billing Due List



7

8

This must be completed for each Process step listed in Solution Manager for this process.









Agenda


Functionality or Standards Gaps

Ref. Gap Description Gap Resolution or Mitigation


Reports

Ref. Process Step Report Description


Interface

Ref. Process Step Interface Description


Conversion

Ref. Process Step / Document or Order

Conversion Description


Forms

Ref. Process Step / Document or Order

Form Description

1. Billing Output Form to suit the needs of the organization.


Enhancement

Ref. Process Step Enhancement Description









Agenda


Creating the top-level KPIs involves focus on the ‘Vital Few’ measures…this must logically link to Operational KPIs

Example: Return On Net Assets

Supplier Lead Time

GR Processing Time

Days in Inventory

Reflect High Level ResultsNot actionable

Reflect Operational ResultsLinks Executive KPIs to

OperationsCan be impacted by external

forcesNot actionable in isolation

Drives Operational ResultsLogical, and mathematical

impact to the Supporting KPIsActionable by SAP process

design, master data settings, training, process and policy changes

Objectively measurable in the System

PO Processing Time

Example: Reducing Days in Inventory improves RONA

Example: Reducing Procurement Cycle times improves Days in Inventory

Any actionable business case must be based on more than Executive or Supporting KPIs. It must be based on internally

controllable, actionable Operational KPIs.

Executive KPIs Supporting KPIs Operational KPIs


Use the Insights APQC Benchmarks

Initial KPIs and performance gaps should be detected during the Value Stream Mapping session. The focus should now be on which KPIs to prioritize for this process and what system and process/policy changes are required to enable.


Process KPIsRef. Executive

Level KPIMiddle Level

Supporting KPIOperational KPI Expected

Improvement in Operational

KPI

Changes required to achieve

1 Return on Investment

Days in Inventory

Procurement Cycle Time

• XX days

2 Reduction in Inventory Levels

Days in Inventory

PO Cycle Time • XX %

3 Profitability Total Supply Chain Cost

#FTE’s per Billion in Revenue

• X FTE’s


Regulatory, Policy, and SOX Considerations

Ref. Process Step Regulatory, Policy, SOX Considerations








Organizational Change Impacts and Considerations

Ref. Process Step Organizational Change Impact Description







Thank you!

www.capgemini.com

AppendixCompleting the Functional Design Document


Completing the Functional Design Document

Section Title/Description Instructions

1.1 Process Scope List and describe the Process steps in logical order, from the Solution Manager hierarchy for this process.

1.2 Business Objectives and Expected Benefits

Using the 7 wastes as a framework for improvement, and using the Process steps in scope, document project objectives and improvement opportunities provided aligned with the Process steps.

2.1 Business Process SIPOC

Document the results of the SIPOC exercise

2.2 Business Process Diagram

Insert the completed Visio process flow diagram.

2.3 Detailed Process Step Description

Narrate each process step including SAP and non-SAP steps, triggers, etc.


Completing the Functional Design Document (continued)

Section Title/Description Instructions

3.1 Solution Key Design Decisions

Document the required Configuration for the Process. Do not postpone Design decisions to the Realization Build phase.

3.2 Gaps Document any functionality gaps related to Process.

3.3 Gap resolution Document work-around or process changes to resolve or mitigate the gaps.

3.4-8 Technical Considerations

Describe impacts of the Business Process Design in terms of Reports, Interfaces, Conversions, or Enhancements.

3.9 User Roles and Authorizations

By Process Step and Role, document required restrictions.

4.1 KPI’s Document the KPI’s required to maintain and support the new processes. (e.g., cycle time, etc.)

4.2 Major Policy, Regulatory, Sox Considerations

Document how the Business Process design impact or how is it impacted by Policy or Regulatory considerations?

4.3 Organization Change

Describe the impact of the Org. Structures design on current roles and organization.

5 Conclusion Narrate an executive summary of the designed process 3-5 sentences.

6 Sign-off Sign-off by Capgemini lead and Business Process Owner

7 Contributors and Participants

List all with role and name.