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General Retail Industry Trends

The retail industry is driven by huge transformation trends in global and local supply chains and their disruption due to the pandemic, geopolitical instability, and other environmental factors such as inflation, climate disruptions, labor shortage and emerging trade barriers. This meta-trend is combined with an ever-increasing shift to e-commerce channels and digital logistics with major wholesale suppliers and customers who, in many cases, have substantial market leverage to impose their own logistics terms and tools on their partners.

Industry decision makers react to these developments by starting long-term IT transformation programs, which, given the low margins in many sectors, require a hard look at short-term value benefits and roadmap prioritization.

Oftentimes, upstream processes such as Warehouse optimization or Omnichannel initiatives get the right of way, at the expense of an overall and thorough harmonization of data flows across ERP components and platform which themselves are rapidly aging in unmanageable legacy technology stacks and tools, such as mainframe and file interfaces.

Finance Problem Statement

The finance function is at the center of this innovation backlog, with supply chain data flowing into the Balance Sheet and Cost P&L side, as well as revenue streams being aggregated in the central ERP books via Point of Sale (PoS) or e-commerce batch interfaces with a high degree of mapping, aggregation, and complexity. These technical limitations significantly slow down reporting, reduce close accuracy and hamper timely KPI dissemination.

A timely, accurate as well as detailed margin and management reporting as demanded by a “Fast Close” and other Digital Finance paradigms becomes almost impossible – a big ERP shift is required to re-innovate Retail Finance from the ground up and unlock the efficiency, reporting and analytics potential of improved Finance processes.

ERP Capabilities

Legacy ERP systems, mostly implemented in the first ERP wave in the 1990s, are not ready to integrate into a Digital Finance environment – this requires fast, in-memory and openly coupled ERP data models such as SAP S/4HANA which is gaining ground as a central ERP data hub platform in the Retail industry due to these benefits and advantages over classic ERP offerings.

Software such as S/4HANA alone has tremendous technical and functional unit benefits, however, it alone cannot cure the aforementioned industry pain points – that requires a holistic integration strategy and roadmap to choose, and deploy, the integration plugs and innovative applications in a feasible pace, given the limited resources and ambitious ROI requirements for large IT investments. The new ERP platform must be connected to all satellite applications. This requires a full process assessment and maturity inventory to get a high-level picture of ‘lagging’ digitization and process quality. The goal is a 'harmonization heat map' across the functional work streams, and then surgically targeted investment in those areas around a redesigned ERP core.

Cases for S/4HANA

My team works with multiple Retail customers across the globe to address the tremendous IT challenges our customers face. In the U.S., we currently work with major customers on Digital Finance transformation programs centered around SAP, here just two examples:

At a major US-based food distributor and grocery store retailer, we are helping IT leadership develop a long-term SAP strategy and roadmap. The foundation of the new ERP platform is a redesigned process map in an SAP S/4HANA core system, replacing an outdated ERP platform. Around SAP, we will deploy improved integrations by site/DC over the course of 5-10 years, targeting the identified process areas for maximum business benefit.


Sample S/4HANA Architecture (Wholesale Distributor and Retailer)


Another customer, a major US-based beauty retailer is working with us to replace an outdated legacy SAP system with a new central S/4HANA platform. The deployment is staggered by the Distribution Centers (DC) and owned stores over the course of the next five years. SAP’s S/4 deployment option “Central Finance” helps the customer to minimize the disruption to the as-is systems by replicating legacy ERP document copies to S/4HANA in real-time, enabling central functions in Release 1, such as payments, banking, month-end close and analytics, while slowly phasing out legacy upstream processes.

As a common theme, these and other Retail SAP customers do focus on innovation in work streams and areas with the most impact on value and benefit metrics, this is also applicable in our other non-SAP Retail operations:

  • Centralized and automated Master Data Management across all systems

  • Contract and Procurement streamlining with portals, freight, transportation, leasing integration

  • End-to-end Warehouse and Distribution Center (DC) integration with automated integration for movement aggregation and inventory valuation, incl. overhead processes such as equipment/maintenance

  • Invoice and billing flow mechanisms such as OCR, EDI middleware hub, tax calculation engine, e-filing etc. automated official requirements

  • Endpoint and e-commerce rollup with real-time capability and management reporting details

  • Cash/Bank management and Treasury

  • Wholesale Customer pricing, credit and dispute handling with integrated Sales, Billing and AR and portal solutions

  • Automated Rebate/Trade Funds handling on supplier as well as customer side

  • Shared Services enablement (central data bundling)

  • Planning and Capex process streamlining

  • HR/Payroll integration across geo, units, systems, jurisdictions

  • Period Close automation with RPA and intra-month ‘preview’ capability, >99% automated Intercompany matching/netting, and auto-generated downstream consolidated GAAP reports


Conclusion

SAP S/4HANA with its database and performance features is a perfect match for data requirement in retail accounting, such as the sheer volume as well as analytics complexity and aggregation levels.

However, an upfront and thorough tailoring of the solution scope, process priorities as well as the optimal customer-specific deployment strategy, over time and sites, is a crucial success factor in leveraging the various SAP Finance benefits.  A combined assessment of IT as well as business objectives, partnered with SAP product and roadmap expertise should be the first step to unwind the 'ERP debt' and close the backlog of IT developments in the backend.

 
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