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In this blog I want to highlight the key Two-Tier ERP functionalities supported with the SAP S/4HANA Cloud 1802 release.


Check out the video below that introduces the top three business-driven innovations for this quarter in 2-Tier ERP space:



  • Drop shipment from headquarters with Advanced Shipment Notification (ASN):

Drop Shipment

Drop shipment is relevant for subsidiaries, which does not manage the stock of its own, but receives order from customers. Here, the subsidiary will create a purchase order against headquarters and it is converted into sales order at Headquarters with ship to party as the end customer.

Two- tier approach for Drop shipment

In this Two-Tier release, customer will get the pre-packaged integration content through EDI approach which facilitates automated integration between Subsidiary and Headquarter in below situations:

  • Sales Order creation at Headquarters from the Purchase Order created at Subsidiary

  • Updating confirmations with Advanced Shipping Notification at Subsidiary as soon as the goods are dispatched from the Headquarter

  • Synchronous replication of Supplier Invoice at Subsidiary through the Billing Document created at Headquarter

Customer can also make use of accelerator for automation of Purchase Order to Sales Order at the Headquarters referencing a Purchase Order from the Subsidiary with an API based approach.

Automated integration between Subsidiary and Headquarters results in reducing the manual activities with zero paper work.


  • Headquarters runs on On-Premise or ECC

  • Subsidiary unit runs S/4HANA Cloud

  • Same Customer Master Data is set up at Headquarters and Subsidiaries


  • Seamless Integration of transactional steps like creation of Sales Order at Headquarters, creation of ASN and Vendor Invoice at Subsidiary

  • Reduction in the data entry points from the business users

  • Direct customer delivery from Headquarters which reduce the transactional time



Figure 1. Drop shipment from headquarters with Advanced Shipment Notification (ASN)



  • Headquarters as internal supplier to subsidiary via central contract

Central Contract

In Procurement, Central Contracts are global long-term agreements negotiated between an organization and a supplier. This process helps in getting the best rates and conditions while bundling purchasing volume across multiple subsidiaries.

Two- tier approach for Central Contract

With this feature, you can create, change, and display central purchase contracts. You can use the Manage Central Purchase Contracts app to create central contracts in the SAP S/4HANA Headquarters system and distribute them to the subsidiaries which are relevant connected SAP ERP systems. Thus, distributed contracts are created in the subsidiaries. These contracts can be used as sources of supply in the subsidiaries. Additionally, you will receive notifications if the central contracts could not be distributed to the relevant subsidiaries or if the information regarding distributed contracts is not updated in the SAP S/ 4HANA Headquarters system. You can investigate the errors by clicking on the notifications. You can also maintain conditions for central contract items. You can use output control to display and print output details of a central purchase contract.


  • Headquarters run SAP S/4HANA cloud

  • Subsidiaries runs SAP ERP ECC EHP6 onwards


  • More autonomous procurement functions at subsidiaries.

  • Headquarters can play more strategic role since procurement operations are managed at subsidiaries

  • Improved Process, stocks and spend visibility

  • Productivity improvement across Headquarters and Subsidiaries by defining clear roles & responsibilities


Figure 2. Headquarters as internal supplier to subsidiary via central contract



  • Centralized Customer Payments for Headquarters and Subsidiaries

Central Payment

S/4HANA customer payments is a public cloud solution delivered in the SAP Cloud Platform, which provides a self-service offering to enable our customers to deploy electronic bill presentment and payment processes.

Two-tier approach for central payments

In this Two-tier scenario where headquarters is running On-Premise (ECC6+ or S/4HANA On-premise) and the subsidiary is running on S/4HANA cloud, SAP S/4HANA cloud for customer payment serves as a centralized customer payment solution for both headquarter as well as subsidiary.

The customers of Headquarter and Subsidiary can:

  • Create payment advice instructions which match payments to open invoices to ensure proper clearing

  • View their account statement / open item list

  • Make a payment

  • View their master data, and inform their AR team of changes.

The multiple alternatives for the user to assign payment methods is as follows:

  • Match payments with invoices allows the user to take existing credits in the system and apply to outstanding invoices.

  • Assign credit card as the payment method in which, the user applies a credit card for paying outstanding invoices.

  • Assign direct debit as the payment method in which, the user applies direct debit for paying outstanding invoices


  • Headquarters running S/4HANA On-premise or SAP ECC6

  • Subsidiary runs S/4HANA Cloud

  • Subsidiary and Headquarters has different company codes setup


  • Standardization of Payment Processes across Headquarters and subsidiaries.

  • Lower cost of billing for Headquarters and subsidiaries by eliminating printing and postal charges

  • Productivity improvement for Accounts Receivable department of Headquarters and Subsidiaries

  • Improved daily sales outstanding.

Figure 3. Centralized Customer Payments for Headquarters and Subsidiaries



A dedicated section for Two-Tier ERP in SAP Best Practices Explorer can be found in the Link .


For more information on SAP S/4HANA Cloud, check out the following links:

Follow us via @SAP and #S4HANA, or myself via srivatsan.santhanam