S/4 Hana as the digital backbone

In the discussion about S/4 Hana is primarily concerned with the following questions: What added value, or rather what concrete benefit, does S/4 Hana? In what timeframe will the investments in licenses and hardware pay for themselves? When is the right time for the changeover? What is the right scenario for the changeover - greenfield versus brownfield? What are the implications for adjacent systems (e.g., business warehouse, CRM, etc.).

Answers to these questions turn out to be as different as the companies in which the questions are asked. In our opinion, however, one thing is the same in all companies: The answers should not be given only from the point of view of the functions and possibilities of the new IT system S/4 Hana.

What do we mean by that? In the course of its communication on S/4 Hana the term "ERP as the "digital backbone" of a company. And I think that's an extraordinarily correct and accurate term.

An ERP system maps almost the entire organizational structure of a company into its various legally independent accounting units, production and warehouse locations, and its sales organization (to name just a few). It also contains all central information about business partners and products.

However, the most important Processes of the company is mapped in the system. The range of possibilities given by customizing is huge, already today!

From this follows the central insight: The benefit of a ERP-system depends not only on the structures and functions of the system, but also on the Quality the introduction, the Quality the Data and the Quality the use itself. It is not enough to deal with the here and now. What matters is how structures, Data and Processes can be made future-proof.

I would like to illustrate these points using three business management topics as examples.

Lot size 1

Behind this is the desire of many customers for individual products. In extreme cases, each product is manufactured only once, therefore Lot size 1. For industrial customers in the B2B business, this is about differentiation in competition. It is a classic strength of larger medium-sized companies in the DACH region to respond flexibly to these customer requirements.

However, this flexibility is at the same time a major organizational challenge, because very many different product variants arise, with enormous effects on data and processes. Of crucial importance here is the selection of the right "process scenario" in the ERP-system. In SAP, for example, the scenarios variant configuration, make-to-order production, and project production are available. For many companies, this offers great potential for optimization in the design of their Processes.

At Pikon, we have developed the so-called Complexity Score Index. We use it to evaluate the complexity of product variants and then derive the appropriate scenario together with our customers. For many companies that have not yet even thought about such process scenarios, there is considerable potential for improvement.

Offer process

Being able to quickly submit a competitive offer in response to a customer inquiry is a competitively critical important issue for almost all companies. For this purpose, the interaction between sales, design/engineering and production must be optimized. In the end, an attractive document should get to the heart of the proposal.

All of this can only be achieved if the corresponding business rules for pricing, availability checks, and text and message control function across modules and departments. Customer data must be stored in the system transparently and without redundancy, and modular product structures are important in order to be able to cover customer-specific requirements (see also item "Lot size 1").

These aspects in the ERP-system form the digital backbone at this point, so to speak. In addition, many companies rely on very individual functions here in order to differentiate themselves from the competition and to be able to react flexibly to customer wishes.

The range of possibilities for an electronic product presentation with selection of product options and provision of additional information on the product or sales process is diverse. Both online and offline solutions come into consideration. The supply of digital platforms and social media is also playing an increasing role. These individual aspects are increasingly being implemented in systems outside the ERP-backbone are mapped either as integrated SAP add-ons or as integrated stand-alone systems (e.g. CRM or external systems for product configuration).

Modernization in finance

In the course of the Digitization increasingly new requirements for a modern and efficient financial system are arising. For many companies, this includes the parallel mapping of different accounting standards such as IFRS or HGB. But the issue of acceleration also plays a major role. For example, in the area of period-end closing. At least, this is what the results of a study by the Institute of Management Accountants (IMA) suggest.

Of the 2000 CFOs surveyed, more than half said that accelerating period-end closings would significantly help increase the productivity of their teams. The prerequisite is efficient Processes and their mapping in a ERP-System.

The way to S/4 Hana

The three examples in the areas Lot size 1, bidding process and modern finance are only exemplary for the evaluation of the Process-structure and data quality in the current system. The following options are available for mapping future requirements:

1. Figure in today's SAP ERP and subsequent release change to S/4 Hana
2. Mapping based on new functions in S/4 Hana
3. Mapping with SAP add-on

Release upgrade to S/4

In many companies, the situation is such that considerable optimizations are already possible with the existing system. I would like to illustrate this using the example of "Lot size 1" show. Here are today already many very good functions in SAP ERP available to modularize products and optimally support the mapping of customer-specific wishes through the core process of order processing.

Often, these process scenarios (variant configuration, make-to-order production, project production) are not known or not known enough. Another potential for optimization is the elimination of duplicates in master data for products and business partners. All these points can be addressed in manageable housekeeping activities.

The benefit unfolds immediately and the subsequent conversion to S/4 Hana is thus facilitated because an optimized and cleaned-up system is a good basis for the release upgrade. Another example is the redesign of organizational structures in SAP. For example, it may make sense to merge accounting or controlling areas. After housekeeping has been completed, the changeover to S/4 Hana at a relatively late stage via a technical release upgrade (brownfield approach).

New S/4-functionalities

Of course, new technology is always a driver for optimization in the business area. This also applies to S/4 Hana. On the one hand, important functions from the area of production planning, which were previously implemented in a separate tool (SAP APO), will be transferred back into the ERP-system is integrated. Likewise offers S/4 considerable potential in the modernization of Processes in finance and accounting. This is achieved primarily by standardizing the data basis in internal and external accounting.

Thus, in the future there will be only one line item table with all details for controlling and finance.

This not only eliminates time-consuming reconciliation processes between FI and CO, but also makes period-end closing simpler and faster and opens up new reporting options. Furthermore, real-time reporting is considerably simplified by the new data structures.

I would like to give just one example of this: CO-PA characteristics can be derived in real time in the FI document in the future. Thus, at the push of a button, a P&L statement can be created from FI at any time according to specific characteristics. The use of imputed CO-PA for a contribution margin calculation is no longer mandatory. A tedious reconciliation between FI and CO-PA is no longer necessary.

Already above I have pointed out that the way to S/4 Hana can be taken via a "normal" release upgrade. However, if the structures between "old" and "new" are too far apart, a new introduction (greenfield approach) can also make sense.

Integrated SAP add-ons

Despite all the improvements, it will still be the case in the future that many companies will not be able to meet some of their requirements, or only to a limited extent, through the functions and processes of S/4 Hana. At competition-critical points, a solution from a third-party system or a self-developed SAP add-on comes into question. What is important here is the complete integration of data and processes into the SAP standard and the Quality of development.

With Hana technology, many functions are shifted to the database level, but the basic guidelines of software development remain valid. An object-oriented architecture is of great importance if the software is to be further developed later in a planned and secure manner and adapted to new circumstances.

Conclusion

When companies prepare for the digital future, they should consider business and technical aspects in equal measure. ERP-systems play a key role as the digital backbone. However, their benefit is not only derived from their functions, but also from the Quality the mapping of structures, processes and Data in the ERP system. These are determined by the Quality of the implementation process and the Quality of use by the users.