Closing the SAP gap: Ways out of the cost trap
Precise price management is critical for automotive suppliers, as they are under massive pressure from several sides. The transformation to e-mobility requires high levels of investment, product and model cycles are becoming shorter and, since the coronavirus pandemic and due to geopolitical tensions, supply chains have become more volatile and energy and material costs have risen.
Added to this are tight price targets and regular price updates from automotive manufacturers (OEMs) as well as the demand for productivity increases of two to three percent per year, which suppliers often pass on as price reductions. With an average EBIT margin of just 3.6%, as determined by Roland Berger and Lazard for European automotive suppliers (source: Lazard), errors in price management quickly put pressure on margins, for example through additional charges and contractual penalties from OEM customers. Repeated errors can lead to a loss of orders and even threaten the company's existence.
Risk: Gaps in the SAP standard
Manual processes are one reason for errors in price management. These cause high additional costs. Many suppliers manage prices, discounts and conditions centrally in SAP S/4 Hana or SAP ERP. However, there are gaps in the SAP standard when it comes to price adjustments and importing price updates, with the result that many processes are carried out manually, often in Excel, and price data is maintained inconsistently. This is inefficient and error-prone.
No mass changes possible
The central problem with price adjustments is the management of often thousands of condition records, from the base price to raw material surcharges and quantity discounts. The SAP standard does not allow mass changes, as each price component is managed as a separate condition record. This means that each record is opened and processed individually, which quickly adds up to thousands of manual interventions. Depending on the complexity, processing takes around three to 15 minutes per transaction; it also lacks a holistic view of price structures and the ability to simulate price changes.
The SAP standard also offers neither adequate import functions nor automatic plausibility or collision checks for price updates. The price data regularly transmitted by OEMs as Excel, XML, CSV files or IDocs is therefore entered manually, line by line. Employees need around two to four minutes per data record to do this, with an average error rate of two to four percent, which can rise to up to eight percent under time pressure. Manual plausibility and tolerance checks further extend the processing time and increase the risk of billing errors.
Error reworking as a cost driver
The economic consequences of manual processes are considerable. For a medium-sized supplier with 500 to 1500 employees, the time spent on price adjustments (nine minutes per condition record for 5,500 records) and price updates (three minutes per data record for 4,500 data records) adds up to around 1,050 hours per year. With personnel costs of around
62 euros per hour, which is common in Germany according to the VDA (source: VDA), there are direct costs of 65,100 euros per year.
Incorrect entries cause additional costs due to rework and additional charges. The compliance effort is also considerable. As manual processes are rarely fully traceable, audits and supplier evaluations require time-consuming verification. These additional costs amount to an estimated 20,000 to 30,000 euros, meaning that the total annual burden can be between 85,100 and 95,100 euros.
Department and team managers from internal sales and invoicing are therefore looking for ways to close SAP process gaps in price management and eliminate cost drivers. There are three solutions to choose from.
Three solutions
1. customizing brings only minor improvements: The optimization of standard SAP functions, reports and workflows as well as greater use of batches quickly reach their limits. As mass change and price simulation functions are still missing, efficiency gains are limited to individual process steps with only ten to 20 percent time savings and cost savings of 8,000 to 15,000 euros per year.
2. in-house SAP developments are expensive and time-consuming: SAP custom developments theoretically offer maximum flexibility. However, due to project durations of six to 24 months, development costs in the six-figure euro range, high maintenance costs and heavy dependence on existing developers, they are hardly economical.
3. add-ons offer the best cost-benefit ratio: Specialized SAP-based add-ons, for example from WSW Software, offer the best cost-benefit ratio as they can be seamlessly integrated into the existing SAP system and close the process gaps for price adjustments and price updates without modifications. As the add-ons use standard SAP tables, there is no need to migrate data. All of this significantly increases process reliability and data quality and streamlines processing enormously.
A price maintenance add-on, which provides a central view of all price components and what-if simulations, enables hundreds of condition records to be changed in bulk in one step and price adjustments to be checked in advance. Processing takes just a few seconds instead of three to 15 minutes, a time saving of 70 to 80 percent.
An add-on that automatically converts price data from XML, Excel and CSV files as well as IDocs into SAP condition records, compares them with current conditions and allows the records to be adjusted (for example, to remove spaces or special characters) speeds up price updates. As it documents all changes in an audit-proof manner, this also reduces compliance risks.
Amortization in one year
The implementation of such add-ons usually takes four to eight weeks, with investment costs of 30,000 to 60,000 euros. This is offset by a realistic savings potential of 50,000 to 85,000 euros, meaning that their use usually pays for itself within a year, often sooner. As the IT service provider takes care of updates and maintenance, they are also compatible with future SAP versions.
Price management in SAP
This proves: Add-ons that close SAP gaps in price management reduce costs and create scope for investment, for example in research and development or in the optimization of sales and customer service. They are therefore a lever for strengthening competitiveness.
At the same time, employees in internal sales and invoicing gain time for value-adding tasks such as strategic price analyses, condition negotiations or ensuring data quality. Streamlined, virtually error-free processes also create the necessary agility to respond quickly to OEM requirements.
Department and team managers are therefore recommended to analyze the SAP processes for price adjustments and price updates, as the effort and error costs are often underestimated. Such an inventory creates the basis for well-founded investment decisions and shows that SAP-based add-ons pay for themselves faster than expected. In the low-margin automotive supply industry, this is an important step towards a strategic competitive advantage. (Source: WSW Software)
Suppliers struggle with margins
According to an analysis by Roland Berger and Lazard, the global automotive supply industry is under increasing pressure.
Stagnating production volumes, geopolitical uncertainty, increasing competition and rising cost pressure are likely to put pressure on companies„ profitability. As their profitability is still higher but has also fallen, suppliers“ margins are likely to remain under pressure in the coming years. These are the findings of the "Global Automotive Supplier" study, for which strategy consultants Roland Berger and financial advisory firm Lazard analyzed 600 automotive suppliers worldwide.
According to the study, the industry is in a phase of simultaneous stagnation and transformation. While demand is weakening, companies are having to adapt their business models to new requirements such as electromobility and software-based vehicle concepts. The transition to electric vehicles is progressing more slowly than expected, which means that the hoped-for economies of scale are not materializing. The trend towards software-defined vehicles is creating additional pressure. Although this opens up new opportunities, it is also expected to lead to rising development costs. At the same time, competition is intensifying as new providers enter the market, particularly in the field of electromobility. The analysis also points to structural challenges. A growing proportion of large suppliers are assigned to the non-investment grade segment, which is expected to result in higher financing costs. The capital requirements for innovations and transformation, for example, remain high. The authors of the study expect the market environment to remain volatile in the coming years. Companies therefore want to focus more on efficiency programs, partnerships and a focus on competitive technologies. The aim should be to hold their own in the long term in an increasingly challenging market environment. (Source: Lazard)
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