Sourcing and Procurement – what is available in SAP?
In response to falling oil prices and rising costs, upstream companies are under increasing pressure to achieve cost efficiencies. The supply chain is a network of organisations, resources and activities where costs saving can be made. In this blog, we will identify SAP functionality which can optimise the sourcing and procurement process to:
- Identify spend channels and cost savings within the supply chain
- Achieve time and resource efficiencies during sourcing
- Improve efficient operations with access to new suppliers which enhance business performance
- Streamline the procure to pay process
- Evaluate vendor performance to manage supply chain risk
What’s the difference?
Most organisations use terms like Sourcing and Procurement interchangeably, yet the fundamentals of supply chain regard these as separate processes.
Sourcing is often defined as the outcome of management decisions' to improve the bottom line (i.e. reduce travel spend by 5% in the next three years), whereas Procurement refers to streamlining business processes and the tools available to action the sourcing decision in place.
So what are the main differences we can highlight between sourcing and procurement in SAP?
- Precedes procurement and is often the qualifier for procurement activities
- Sourcing is strategic in nature as it involves:
- Finding new suppliers
- Getting Request for Quotes (RFQ’s) for the best possible price for raw materials, consumables and others…
- Sourcing helps evaluating suppliers
- Sourcing activities involve:
- Getting RFQ’s for new products
- Obtaining vendor information
- Uploading the vendor information into the system
- Minimum order quantity
- Standard packing quantity
- Lead time
- These activities could be one time or frequent depending on the size and nature of the business, it also involves capturing price changes and other factors that may affect a business process of a given company in the system.
- Follows sourcing
- It is operational in nature as it is a frequent process of:
- Placing a purchase order (PO) with a supplier
- Getting confirmation of the order
- Follow up with the supplier until receipt of delivery
- Involves invoicing when Accounts Payable is not a separate business function
*As a side note, we haven’t gone into the detailed Business Process as this would need to be evaluated on a case-by-case basis.
The following diagram shows the flow of source to pay (S2P). As it can be seen, sourcing is the more strategic aspect of the flow where sourcing strategy is applied. The following diagram represents effective processes in sourcing and procurement:
What do we need to consider for an effective implementation?
As easy as it sounds, it is certainly difficult putting it into practise. Before any implementation can take place, a large investment is required in terms of time to analyse past and existing spend channels used to make purchases.
Here are just some factors to consider:
- Realistic savings potential
- Prioritisation of existing workload against dedication towards testing new processes
- Users being able to seamlessly transition into a new way of working
- Risks associated with people, processes and technology
- Impact upon system performance
SAP offers various options to choose a solution which provides a ‘best fit’ within your procurement and sourcing framework.
What sourcing and procurement functions are available within SAP?
Only once you are aware of your procurement and sourcing strategies, are you are in a position to choose the best sourcing tool(s) available. These tools include, but are not limited to:
- SAP Contract Lifecycle Management (SAP CLM)
- SAP Supplier Relationship Management (SAP SRM)
- SAP Materials Management
The following are what I consider to be the most beneficial suite of products available within SAP:
Absoft's Self-Service Procurement Solution
Our web-based self-service solution offers the same process efficiencies and core functionality which drives procurement teams to invest in SAP SRM, but at a considerably lower total cost of ownership (TCO), as the future of the SRM module will be absorbed into S/4HANA.
What are the benefits?
These SAP tools offer a number of features and benefits during the sourcing and procurement process:
- Streamlined processes in a paperless environment to reduce the administrative burden
- Accelerate the sourcing and procure to pay processes
- Reduce procurement costs by closing the loop from source to pay
- Automated processes with consumer-like shopping features to increase efficiencies
- Greater visibility into supplier relationship and performance to manage risk
- Eliminate ‘Maverick Spending’ with improved visibility, tracking and cost control
- Empowering employees to manage their own requisitions with self-service procurement
- Business rules based workflow framework
- Category management within a compliance framework to focus on specific spend areas
We’ve only touched the surface, but I hope this has helped provide an introduction into which sourcing and procurement tools are available within SAP.