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This blog is part of the “10+ ways to reshape your SAP landscape with SAP Business Technology Platform Blog Series”
Summary
In this blog series we will look at the role of the SAP Business Technology Platform to reshape your SAP landscape including SAP and Non-SAP systems. In this blog we discuss SAP Business Technology Platform capabilities around integrated planning. Bringing together manually entered or automatically generated plan data with transactional data, mostly from S/4HANA, is a prerequisite for a truly integrated steering system.
Corporate planning is the central process for coordinating goals and resources over a fixed time horizon. However, disruptive events such as the pandemic or supply chain bottlenecks disturb this process. Even in turbulent times, it is crucial to structure the future directions. Through coordinated planning, top down targets should be set, activities and budgets created. In bigger companies, hundreds if not thousands of people are involved in such a process. A key element is flexibility without disregarding governance.
Supporting the planning process is a central IT topic. After all, digitalization means more than just entering and consolidating planning values in standalone tools or even worse in spreadsheets. Disparate planning systems make the life of controllers hard. The possibilities offered by modern information systems should be utilized to improve planning quality, increase flexibility and reduce costs. But what is a good planning architecture? This is not an entirely new topic, but one that is constantly being discussed.
Integrated (or extended) planning & analysis is an important aspect of financial transformation. Planning usually takes place at different IT levels. These levels are somewhat simplified: operational transaction systems (e.g. ERP), data warehouses and systems for analysis. However, planning is often only seen as a sub-aspect of analysis. This is not necessarily wrong, but it is too simplified, as will be explained later.
A deeper look at planning reveals that there are at least two basic planning streams: planning that is usually orchestrated bycontrolling. It is profit-driven, and it is not only focussed on value flows, but also works with (usually aggregated) drivers. A typical planning method is cost center planning based on reference values.
But there are also many operationally oriented plannings, which are closely linked to execution. The focus is on the coordination of operational service creation processes. But secondary processes such as human resources are also supported. Individual objectives dominate here. For example, feasibility is an important goal in production planning. Efficiency is of course also essential here, but only partially. For example, liquidity is usually not considered.
Gartner has already pointed out in 2020 that the existing integration at many companies is not satisfactory, not only conceptually but also in terms of IT. The essence of so called xP&A (extended planning and analytics) is end-to-end planning in order to avoid wrong decisions due to a lack of coordination. For instance, adjustments in production have always consequences on profit, on balance sheet and on the cash flow. The latter is not obvious but even a delay in production may result in a latter payment. This end-to-end approach is discussed in theory for many years. It is however rarely implemented from end to end.
Unfortunately, such an approach often fails due to the high level of complexity. It is therefore not surprising that the "right" IT architecture is of central importance here and is indispensable for overcoming complexity.
Who can be the driver of such integration? Controlling has to coordinate a complex planning process that includes medium-term planning, budgets and forecasts. The controller's toolbox is rather simple. In addition to spreadsheets, stand-alone planning solutions have been established and became independent. These are occasionally also integrated with other financial applications such as consolidation. This planning process is usually independent from operational systems and is often rather loosely linked to data warehouse or ERP. Metadata is usually synchronized at certain milestones with the operational systems, very often not automatically and sometimes even based on file exchange.
However, the more "strategic" the planning process becomes, the less the individual planning approach fits into a predefined framework, which planning also needs. This isone reason why spreadsheets still play such a strong role in medium-term planning (3-5 year horizon). The requirement of individuality is the reason why it has been used in planning for so long. However, modern planning systems are now filling this space. This brings at least two temporal levels closer together.
But what about operational planning and control? ERP is the basis of such planning. Operational planning systems arose from the need for operational control of ERP. Last but not least, the name "Enterprise Resource Planning" already indicates a planning focus. The integration of execution control takes a central role here.
Integration is of central importance in a planning process. true xP&A brings financial planning together with operational planning. Here are a few examples of key links:
- A starting point of HR Planning is an extrapolation of all operational activities. Some of them are already future oriented like already known absences like pregnancy leave or sabbaticals. Additionally, employees are planned in operational personnel planning. Transfers, redundancies, part-time work and the necessary cost consequences must be planned and later executed in the HR system.
- Integrated planning from a short-term perspective requires components of production planning, whereby most approaches usually involve rough-cut planning.
- Planned measures, for example from strategic planning, are transformed into projects, which are then refined using project planning and execution.
- Sales prices and sales measures are planned in the sales planning. But new products (as part of overall planning) must be available and sometimes created with an urgency in sales planning, for example.
- Investment ideas emerge from the planning process. These must be evaluated. This is followed by a release process. Finally, the results must be transferred to asset management (asset accounting, maintenance planning). Also, all activities from existing investments must be accurately reflected in an integrated planning system. Even depreciations result into cash consequences though influencing tax calculation.
The sub-plans also need to be coordinated with each other. Employee planning should arise from capacity considerations resulting from the primary processes. Investment decisions result from capacity restrictions.
The advantages of such close integration are obvious:
- Coordination improves so that there are no longer multiple "truths" or (temporary) inconsistencies.
- Comprehensive scenarios are becoming increasingly important. Rapid countermeasures also mean that the consequences of changes must be visualized quickly and as fully as possible.
- Duplicate planning is avoided. This also improves coordination.
Many modern planning systems like SAP Analytics Cloud have a generic structure so that the special requirements of operational planning approaches can be covered relatively easily. After all, personnel master data, work schedules or parts lists are simple data structures. But an extension is not that simple after all. This is because operational planning requires a close connection to the execution control system. Here are a few examples:
- Production planning needs a close connection to scheduling. Current feedback influences short-term planning.
- also in the future) must be taken into account and lead to the adjustment of (planned) capacities.
- Personnel cost planning requires information from personnel development, which is a key function of Human Capital Management systems.
- Budgets should be planned against current expenditure. Under certain circumstances, a budget freeze should take effect.
- The short-term liquidity forecast is traditionally closely linked to accounting and is mapped accordingly in ERP. Medium-term liquidity planning is rather derived from profit and loss and financial planning. The medium-term view nevertheless requires the transitions from liquidity management. This requires a close connection to cash management. Very recent payment delays, for example, influence the liquidity forecast of integrated profit and finance planning
In this respect, expanding financial planning solutions is not enough. The integration of sub-planning with ERP and other operational systems must be much closer. The integration between operational planning and financial planning, on the other hand, appears to be much simpler.
Accordingly, there are also operational sub-planning systems that have been established for some time and are optimized for operational coordination (e.g. SAP Integrated Business Planning with a close link to production control). This is not a typical financial domain. It needs special operations like bill of material explosion (usually a recursive processing) and production program optimization (usually operations research methods). However, the profit and financial planning managed by Controlling should easily be linked to such operational planning and used for joint scenarios. Program optimization not only needs capacities but also costs (or even more accurate contribution margins) to generate a feasible program with the highest profit.
Why are these plans not immediately mapped in ERP, i.e. extended by the corresponding planning function in S/4HANA? This approach has indeed been discussed. However, ERP systems are only capable of abstracting to a limited extent. Financial planning usually takes place at an aggregated level. These levels must remain freely definable. Planning on cost type groups, product lines and regions are just a few examples. And ERP systems are not good at flexible processes and sometimes rather spontaneous ideas. Planning also includes vision and customization. Scenarios are often based on changed structures.
The ideal solution is an approach that functions independently of the ERP solution, but still maintains a close connection to and is harmonized with operational systems, thus creating a true integrated planning system. What are the requirements for a solution that integrates ERP, operational planning and financial planning?
- Automatic synchronizing of master data in the sense of meta data management with the possibility of additions in all sub-components
- Real-time availability of actual figures
- a generic planning interface (for example, the ACDOCP table in SAP S4/HANA)
- Writing back the planning results in operational processes (again using the ACDOCP)
- Methods which are already set up in operational system for process actual data should be easily reused in planning systems like allocations, group eliminations and many more (e.g. using the definitions of the universal allocation in S/4HANA also for plan data coming from SAP Analytics Cloud)..
SAP's xP&A strategy describes such an integrative view. The following illustration uses a few connections to show what such a connection can look like in the SAP environment.
SAP’s xP&A Scenario
Modern planning therefore requires an intelligent combination of transactional systems and planning systems with a high level of integration. This intense coupling of systems needs a strong technical foundation. This is the clear strength of SAP Analytics Cloud Planning in combination with S/4HANA, SAP IBP and so on. The systems can communicate directly via OData. Therefore the applications can be set up more or less independently, though based on common structures which can be also synchronized.
However, if planning is only limited to the financial aspects, a direct link might be ok. But enhancing the controlling system by operational planning requires a lot more data. The more heterogenous the environment, the bigger is the need to use a unification layer to provide a unique view of planning systems on their environment. Non-SAP data is quite often needed to be the foundation of planning decisions. Datasphere is built for that. Some of the advantages:
- Additional data can be used and integrated to enrich the foundation of planning.
- Complex planning calculation can be done based on the Datasphere foundation with the use of PaPM
- Individual predictive analytics functions can be used beyond Smart Predict, natively with python and / or using PAL or APL.
- SAP Analytics Cloud has a native connection to Datasphere. This year the possibility to plan directly on Datasphere structures within SAP Analytics Cloud will be released.
The following picture shows the art of the possible with SAP BTP infrastructure.
How SAP provides the breadth and depth of planning capabilities (Micheal Emerson)
Only a strong technological foundation can be the base of a effective xP&A scenario.
