Direct Procurement is one of those areas that has long been the topic of discussion for most of the organizations. Acquiring raw materials as well as goods for production needs to be done in a cost-effective manner. It is noted that nearly 26% of organizational spend is on direct procurement.
It is important to reduce the overall spend and this is where SAP Ariba comes into the picture. SAP noted all of the discrepancies existing and working towards adding the missing piece indirect procurement. This is basically done by adhering to the needs of direct sourcing through integration between PLM and SAP Ariba Sourcing.
Also, the SAP Ariba deals with the planning collaboration rendering the forecasting ability. On the other hand, Supply Chain Collaboration (SCC) entails the visibility of the Subcontracting process. Starting with the issue of raw material to the status of all the goods manufactured and finally to the receipt of finished goods, SAP Ariba Solutions addresses all.
Direct Procurement with SAP Ariba
SAP Ariba direct procurement can be categorized in a total of two ways through ERP integration.
- Direct Sourcing
- Supply Chain Collaboration
SAP Ariba direct material sourcing allows organizational leaders to gain the expertise of Ariba Sourcing application with Quote and embed the same within the RFX Functionality. What this suggests is the Integration of the organizational ERPs with SAP Ariba Sourcing. Further, additional integration includes Quite Automation and Product Sourcing with BOMs.
There are two different ways of direct material sourcing in Ariba.
- Creation of Sourcing request –
Sourcing project, then RFX and Contract, followed by the Contract to ERP
- Creation of Quote from PR –
Quotation, followed by the Quote and then, Contract/PO
Supply Chain Collaboration
This includes the integration of the ERP system of the organization with the ASN to extend the procurement forecasting capabilities. Such integration facilitates attaining timely commitment from the vendors and then, using the above to outline business-specific and realistic decisions to avoid glitches in the supply chain.
Why SAP Ariba for SCC?
Knowing about the supply chain collaboration integration with SAP Ariba gives a clear picture of how joint collaboration with the suppliers and the partners eases the task of direct procurement.
On one end, SAP Ariba, being a cloud-based solution, offers total clarity and ubiquitous visibility over supply chain materials, it also strives to maintain a healthy relationship between the partners and the suppliers, ensuring that they all club together to streamline different supply chain while lowering the stock.
- Automated Document Management
- Integrated Forecasting
Contract Manufacturing Collaboration (Subcontract PO) for Direct Materials
Contract manufacturing or in simple terms the subcontracting feature can be done in a series of steps. The basic subcontracting process is now deemed as the integrated SAP Ariba ASN. The conventional process executes as:
- Subcontracting purchase orders along with components.
- A ‘purchase order confirmation’.
- A ‘ship to’ notice sent to the buyer.
- Receipts and invoices sent by the buyer to the supplier.
Further, the supply chain collaboration isn’t limited to shipment, instead, it gives users the ease to keep an eye on the deliverables and the corresponding product in transit. SAP Ariba supports component shipment is more than one way.
- One-Step Process:
Here in this process, both the shipment activity message and the request of shipment notice is dispatched in a single step. Once the products are obtained by the buyer, a message is sent to the supplier as the delivery proof.
- Two-step process:
Similar to the one-step process, the two processes differ in the manner of execution. Instead of sending bot messages at the same time, this awaits the product to be received before triggering the activity message.
- Finished Production:
This gives suppliers the opportunity to notify the buyers about the completion of the production of finished goods. A manufacturing execution system (MES) visibility is used to keep the buyers updated on how much goods have been produced at a significant time.
- Real-time Consumption:
This occurs after the supplier has totally used the components as shipped by the buyer. A notification is sent to the buyer who then initiates a product activity message from SAP packed with the current component quantities to be stored in SAP as a record.
Surprisingly, SAP Ariba extends support to multi-tier subcontracting. All-round visibility of the movement of goods between the manufacturers of the subcontract and of the parts is initiated through a multi-tier order of purchase and goods receipts.
Integrated forecast collaboration is another feature of SAP Ariba SCC, giving suppliers the benefit of knowing about the near rising demands and then align their operations to map the same. This ensures that organizations never fail to meet the requirements of the buyer, keeping the supply chain role effectively.
Why SAP For Direct Material Souring?
The integration of the SAP Ariba Direct Sourcing with SAP ERP or S/4HANA is executed at the time a user wishes to operate their procurement process in SAP ERP or SAP S/4HANA without collaborating with the SAP Ariba Sourcing’s procurement process.
SAP and SAP Ariba Sourcing standard integration is seen to support the combined sourcing events as triggered by the SAP ERP or the SAP S/4HANA and comprises of the:
- Manual creation of the purchase requisitions as part of the SAP ERP materials management (MM) which is then used to form the RFQ or the request for quotation.
- Automated creation of the purchase requisitions when the MRP runs. This further account’s for the creation of an RFQ.
- Manually create the SAP ERP RFQs without having the need to purchase requisitions.
Direct Procurement sourcing is facilitated in SAP Ariba by Product Sourcing and Quote Automation. Each of these allows the creation of the sourcing projects from different pages or the material view. With Quote Automation buyers can speed up the process of publishing bids and getting approval from buyers. In a nutshell, it is all that an organization needs to streamline the direct procurement process.