Application Choices and Decisions for The Sourcing Process

[Bahitra]

Summary

This article seeks to provide guidance on deciding the most suitable target application architecture to support Sourcing needs of an organization.

With SAP Ariba and S/4HANA both delivering solution capabilities around Sourcing, enterprises now have multiple applications to choose from and need to make their selection by comparing their organization’s business capability requirements to the solution capabilities the two applications offer.

The licensing aspects of the components discussed should be considered during target architecture design and is beyond the scope of this evaluation.

Business Requirements

Purpose

Sourcing is carried out

• to identify suppliers for a product or service and/ or
• to pick the most suitable supplier(s) from a possible group of suppliers

Basic Process

Input

• Sourcing is typically triggered by a demand for purchase, captured in the form of a purchase requisition/ request, containing
  • product or service information like code, description, unit of measure etc
  • delivery information like quantity, location, dates etc.

• Sometimes, it may also contain preferred supplier information
• Business Roles : Individual Employees, Material Planner/ Manager

Process Flow

• Information from the Purchase Requisition/ Request is used to generate a Request for Quotation (RFX)
• The RFX is thereafter executed, i.e. either sent to a set of known suppliers or broadcasted in the market to involve both known and unknown suppliers
• Bids are subsequently invited and upon receipt, evaluated for competitiveness
• Based on the assessment, business is awarded either to one or more deserving suppliers

Business Roles : Purchaser/ Buyer, Sourcing Manager

Output

• Sourcing culminates into
  • determination of business share/ quota amongst supplier(s)
  • generation of a purchase contract or a purchase order

Business Capabilities

Supplier RFX Preparation

• Ability to determine sourcing engagement for a list of products and services through collaboration among business and internal stakeholders
• Track and manage sourcing of direct spend across product lifecycle during product development, forwarding sourcing, mass production, contract re-negotiation

Supplier RFX Execution

• Ability to capture suppliers’ proposed technical or resource offers along with commercial bids

Supplier Proposal Evaluation

• Ability to evaluate supplier proposals by assigning scoring points to sourcing event content and grading supplier responses to produce an overall score for each supplier

Supplier Awarding

• Ability to select the suppliers providing the best outcome according to the procurement or spend category strategy

Sources of Supply Management

• Ability to manage various forms of source of supply that are different from contracts, catalogs, and qualified suppliers for use in operational procurement to create purchase orders

Supplier Negotiation Management

• Ability to prepare for the negotiation of contract terms with the supplier, to manage the negotiation process and record discussions and decisions, and to finalize negotiation and collect approvals

Purchase Price Management

• Ability to manage purchasing cost, discounts and surcharges for products and services procured from a supplier
• This includes the maintenance of purchase prices as well as the purchase price calculation in a specific context, for example in a purchase order or in an invoice
• It also includes determination of commodity formulas linking to market prices

Supplier Discovery Management

• Ability to increase access to unknown and qualified suppliers by immediately matching your needs with suppliers who offer those products and services

Sourcing Collaboration

• Ability to collaborate and communicate with suppliers through the sourcing process
• Suppliers can respond to prerequisite questions, RFIs, RFPs, and auctions; communicate with buyers; import and export event content; submit alternative bids and custom offline responses; and work as a response team

Distribution of Business Capabilities in the Sourcing Process

Solution Options

1. SAP Ariba Sourcing
2. SAP Integration Suite, Managed Gateway for Spend Management
3. SAP Business Network for Procurement (BN-Proc, formerly Ariba Network)
4. SAP S/4HANA (private and public cloud)
5. SAP S/4 HANA for Supplier Quotation Management (S/4HANA SupQM)
6. SAP S/4 HANA for Central Procurement (S/4HANA C-Proc)

Characterization of the Solution Options

Common Process Variants

Collaborative Sourcing with Suppliers

For more information, please refer to the best practice Sourcing with SAP Ariba Sourcing (4BL).

Event Based Collaborative Sourcing

For more information, please refer to the best practice Direct Material Sourcing (4RD), Preferred Supplier List (4RI) and Central Purchasing (2XT).

Basic Sourcing

For more information, please refer to the best practice Request for Price (1XF).

Central Procurement with Collaborative Sourcing

For more information, please refer to the best practice Central Procurement with SAP Ariba Sourcing (4QN).

Capability Distribution Across E2E Process Variants

Criteria to determine the most suitable target solution

Solution Capability Based

Collaborative Sourcing with Suppliers

Event Based Collaborative Sourcing

Tactical Sourcing

Business Process/ IT Consideration Based

Additionally, the following business and IT considerations may also be applied in certain cases, to arrive at the most appropriate solution :

1. Are there any regulatory need to conduct sourcing exercise and record keeping for every/ most purchases, e.g. to determine L1 for government/ public sector purchases?
2. Are there any strategic/ tactical compulsions to evaluate and negotiate with multiple sources for every/ most purchase e.g. spot buys in commodities like oil or metals?
3. Are sourcing exercises limited largely to events, e.g. projects or marketing campaigns?
4. Are most of the sourcing needs for direct or indirect purchases?
5. Are most of the organization’s supplies secured through contracts with long term, reliable suppliers?
6. Are the sourcing needs mostly sporadic, e.g. with new raw materials once in a while?
7. Does the organization’s landscape consist of multiple ERPs from where specific items get selected for centralized sourcing negotiations?

Decision Tree

The architectural decision with the listed solution(s) are complementary and not mutually exclusive. Since the same set of business capabilities are enabled by multiple solution capabilities, the choice of application is tied more to the addressable business process variants than differential capabilities of the products.

Accordingly, the following 5 common process variants discussed in the Characterization of The Solution Options section may be used as a basis to arrive at application decisions :

1. Collaborative Sourcing with Suppliers
2. Event Based Collaborative Sourcing
3. Basic Sourcing
4. Central Procurement with Collaborative Sourcing
5. Tactical Sourcing 

Conclusion

• For Basic Sourcing capabilities with no collaboration, SAP S/4HANA will suffice
• For Event Based Sourcing capabilities, a combination of SAP S/4HANA, SAP S/4HANA Supplier Quotation Management and SAP Business Network for Procurement can work
• For Tactical Sourcing capabilities, SAP Ariba Sourcing and SAP Business Networks for Procurement will be required
• For addressing full blown Sourcing capabilities, a combination of SAP S/4HANA, SAP Ariba Sourcing, SAP Business Networks for Procurement and SAP Integration Suite Managed Gateway for Spend Management will be required
• SAP S/4HANA Central Procurement will be required additionally, if Central Procurement capabilities are required, i.e. a central procurement hub procuring on behalf of connected back end ERP systems