Direct procurement
digital transformation
Transforming direct spend with
EY and SAP solutions
has a profound impact not just on
bottom-line reduction but on top-line
growth.
— Hamish McKechnie-Sharma
1 | Direct procurement digital transformation
Focusing on effective direct materials
Contents
Abstract/introduction 2
Source and negotiate 5
Purchasing execution 8
Reconcile and pay 14
End-user experience 16
Analytics 17
Conclusion 18
In today’s evolving world, organizations require
advanced and interconnected direct procurement
processes and technologies to efficiently and
holistically manage direct spend and minimize risk.
Direct purchases are critical to a manufacturing or
supply chain organization, since they represent the
materials used as direct inputs to cost of goodssold
(COGS). Transforming to a future state solution/
platform must be comprehensive andscalable,
and must align with procurement and organization
initiatives. Tightly integrated with manufacturing,
planning, costing and inventory management, direct
procurement is a high-stakes and highly complex
environment to navigate. The constantly evolving
world of direct procurement is multifaceted and
covers tools and cross-functional areas, including
market analysis, sourcing and contracting,materials
management, production planning, manufacturing
execution, logistics and inventory management.
These are just a few of the areas that are dependent
upon accurate and real-time data across the direct
landscape and bring inherent risks and the potential to
affect the organization’s bottom line.
As organizations transform their direct procurement
processes to a digital platform, careful and
comprehensive consideration must be made across
the organizations’ people, processes, policies, data
and technologies to ensure program success. The EY
organization and SAP are making significant
investments to expand use cases of leading indirect
procurement solutions into innovative and cutting-
edge direct spend solutions. These solutions will
enable organizations to achieve strategic objectives
while reducing COGS and increasing operational
efficiency. Through our experience supporting client
transformations, this document serves to delve into
various areas across direct procurement and the
associated SAP products to be evaluated when
approaching your direct procurement transformation
with S/4HANA.
Abstract/introduction
2 | Direct procurement digital transformation
Common problem statements and
pain points
Technology has transformed the way procurement
is executed across all industries and throughout
the world. With constantly evolving technology,
organizations struggle to keep outdated, customized,
and siloed systems and processes integrated, causing
inefficiencies for the business and organization.
Procurement strives to gain further value and
reduce inefficiencies that are commonly daunting
organizations by addressing some of the below pain
points:
• Slow product innovation cycles and poorly integrated
procurement and PLM tools
• Poor collaboration between internal business
functions (i.e., PD, Purchasing, Manufacturing,
Finance)
• Higher costs due to design changes occurring laterin
the product life cycle
• Manual and/or lack of standardized sourcingprocess
for direct and indirect spend
• Poor collaboration with suppliers around product
development life cycle
• Limited spend visibility and ability to perform
analysis by vendors and categories
• Lack of supply chain visibility, therefore high safety
stock levels and inventory carrying costs
• Manual paper-based invoice processing and long
invoice processing cycle times
• Non-standardized payment terms exposure
• Little to no exposure on third-party risk management
or extended supply chains
3 | Direct procurement digital transformation
A time for corrective action
Organizations today are under more pressurethan
ever from leadership to evolve and move digital.
Company initiatives and mandates are underway
across the world, striving to transform direct
procurement and bring higher value across the
business enterprise. Organizations are working
to achieve modern business benefits and assess
the potential savings from improved control and
compliance, and process efficiencies in Procurement
and Accounts Payable, as well as improved cash
management. Through leadership and collaboration
with EYpeople, coupled with the right SAP
technologies, organizations are moving digital with
higher automation, greater visibility, increased savings
and greater spend under management. Below is a
subsetof areas that organizations are successfully
addressing:
• Simplified direct procurement solutionportfolio
• Shorter cycle times and product time tomarket
• Enhanced user efficiency and end-user experience
• Enforcement of effective risk-free contracts
• Better and simplified collaborationacross
purchasing and manufacturing
• Reduction in procurement cost by eliminatingtime-
consuming manual tasks
• Streamlined order processing
• Improved total cost of ownership
• More spend under management
• Demand-driven supply chains for fast and accurate
delivery of goods
• Reduced inventories and significant working capital
improvements
• Reduced supply chain cost, risk and carbon impact
• Increased accuracy and efficiency of tax compliance,
reporting and planning
• Secure material tracking
• Greater visibility to drive ethical behavior
throughout the supply chain
• Enhanced spend analytics, which leverage real-time
reports across purchasing
Key considerations for the direct
procurement transformation
As an organization prepares for the procurement
transformation journey, evaluating the full technical
and process landscape is a must. Sure, procurement
is naturally the foundational pillar of the journey, but
Finance, Product Development, Accounting, the wider
Supply Chain footprint and various other stakeholder
groups all have an integral role to deliver a fully
reinvented end-to-end solution. A fully integrated SAP
platform anchored by SAP S/4 HANA serves as the
anchor that converts material requirements planning
(MRP) requirements to purchase orders, including
digital collaboration across the entire supply chain
ecosystem with SAP Analytics Cloud (SAC), SAP Ariba,
Integrated Business Planning (IBP), Transportation
Management (TM), Extended Warehouse Management
(EWM), Global Trade Services (GTS), Open Text
Vendor Invoice Management (VIM), and the extended
suite of tax and regulatory solutions. Leveraging
our transformational experience and the EY view
of market-leading solutions offered by SAP,the
following outlines key foundational areas within direct
procurement and important components to assess
when planning for the futurestate.
Supplier
management
Sourcing and
contracts
Forecasting MRP
Inventory
management
Purchasing Logistics
Freight
procurement
Invoice
verification
Applications Process CapabilityValue driver
SAP Ariba
Source and negotiate
SAP S/4 HANA
Purchasing execution
SAP S/4 HANA
Reconcile and pay
SAP
transportation
management
SAP extended
warehouse
management
SAP vendor
invoice
management/
open text
Vertex/
onesource
SAPAriba
Supplier
life cycle
management
SAP Ariba
supply chain
collaboration
SAP Ariba
sourcing and
contract
management
SAP
integrated
business
planning
1 2
3
Direct procurement
End-user experience
Automation
Data integrity
Speed to market
Analytics
Get bestprice/product
De-risk business
Enable downstream
Managecash
Reduceadmin
Automate
4
5
needed for a fully integrated end-to-end direct Material
Solution: IBP, S4/HANA, EWM, Ariba’s full suite, Supply Chain
Collaboration, and the Ariba Network.
— Dan Kowal
From a solution perspective, only SAP has all the components
Figure 1 — Direct procurement digital transformation with SAP solutions
4 | Direct procurement digital transformation
Sourcing and negotiation compose the initial stages
that take place prior to the transactional procurement
of goods and services. The strategicsourcing
stage comprises three primary areas involving
Supplier Management, Sourcing and Contracting
processes — each playing an integral role in enabling
and streamlining downstream direct procurement
activities. Each of these areas requires not only
detailed strategic planning, but also a holistic view on
the organization’s people, processes, policies, data and
technology leveraged across the landscape. Ensuring
that master data have been fully sensitized for direct
and indirect tax reporting is an important part of this
exercise.
Supplier management
Supplier management can be defined as the
capabilities to develop and manage suppliers
throughout the entire supplier life cycle to ensure
that maximum value is received. This is inclusive
of supplier onboarding, performance, evaluation
based on set criteria, assessing and reducing supply
risk, and corporate responsibility. Ultimately, an
organization’s suppliers will have a major impact
on its business, goals and the bottom line — these
suppliers create goods and services for the business,
which, in turn, are directly or indirectly incorporated
into the organization’s end product that is delivered
to customers. In today’s world, global organizations
face the constant challenges of multiple back-end
systems and data, disparate onboarding procedures
5 | Direct procurement digital transformation
and inconsistent qualification processes. Organizations
struggle to analyze reliable vendor information
to assess performance and risk, and gain a true
comprehensive view for the benefits that the supplier
brings to the organization.
The EY approach to supplier management beginswith
establishing a consistent and structured approach
to the supplier management process and associated
data. It starts with a strong foundation of a clear
supplier life cycle process (onboarding, qualification,
disqualification, etc.) that fits the client’s industry
and organization, coupled with fully cleansed supplier
data to be leveraged throughout the organization. Our
experience in this area concentrates on a streamlined
process that brings accurate real-time data throughout
the organization, reducing bottlenecks, lowering risk
and arming procurement to make more informed
decisions.
SAP’s offering of SAP Ariba Supplier Lifecycle
Management provides organizations with the
platform to drive efficiency and reliability in supplier
data. With features addressing supplier onboarding,
registration, qualification and disqualification
processes, organizations can gain insights to accurate
and standardized data sets, which natively integrate
to back-end platforms, such as SAP MDGS. A single
point of supplier registration/onboarding, transitioning
into qualification and segmentation establishes the
base information to be leveraged to ensure that
downstream activities that are related to preferred
and qualified suppliers are adhered to and strategically
Source and negotiate
driven. Creating a single organizational source of
truth to originating and maintaining supplier data
and performance is an integral step when considering
how the direct procurement organization will
function in the future state and how the application
housing the data will interact with other applications
and supplier users themselves.
6 | Direct procurement digital transformation
Sourcing
Sourcing is the process of identifying, assessing
and selecting the appropriate supplier that offers
the best value to the organization to support
business operations for a given need. Within direct
procurement, this can involve analyzing the category
and market, benchmarking against competitor
products, obtaining bids through competitive events,
conducting third-party due diligence, and analyzing
and tracking results. Many organizations today are
challenged with manual and inefficient processes
when it comes to direct sourcing. Poor collaboration
between the procurement organization and other
stakeholders, such as product development and
finance, often lead to a “black hole” of cost creep in
the product development life cycle. Organizations
need efficient processes, policies, and mechanisms
to share accurate and real-time data to ensure an
efficient and reliable strategic sourcing process.
Technology is only half the battle; therefore,
the EY organization leads to examine and
update processes and policies that may
currently be leading to inefficiencies in
existing processes. The transformation to
digital in direct procurement is an opportunity
for EY people and the organization tovisit
often long-standing policies and procedures,
and implement and revise them to be a more
efficientand comprehensive fit for the
organization. In addition, standardization of
processes and templates further enables the
organization to gather more consistent and
structured data, allowing for further insights
into product costs and analytical capabilities.
Within the SAP product suite, the SAP AribaSourcing
module (including Product Sourcing) provides
organizations with the ability to transform their
strategic sourcing processes and enable state-of-
the-art sourcing features. The OnDemand Ariba
module enables visibility and collaboration across the
organization, including the sharing of an accurate
Bill of Materials (BOM) between Ariba and PLM or
SAP ERP back ends, such as S/4 HANA via Material
Master. Additional features, such as Cost Breakdown
Analysis (CBA), enable organizations to quote at a
consistent detailed level and gain complete visibility
into suppliers’ hidden costs. The ability to arm
procurement with accurate and reliable information,
advanced bid analysis and negotiation tools —
coupled with minimizing manual data entry — drives
process efficiencies across all spend categories
and often leads to decreased time to market and
cost savings. Digitally capturing quoting against an
accurate BOM further provides procurement with
analytical visibility to track pricing over the course
of the life cycle and improve the ability to accurately
predict the final product cost.
Contract management
Contract management is the process of managing
contract creation, negotiation, and execution to
drive the operational and financial performance
of an organization while concurrently protecting
the organization from inherent risk. Contracting is
an integral piece of the procurement process that
creates the base legal agreement to pricing achieved
via sourcing, but, equally important, it ensures
that appropriate legal language is leveraged to
protect the organization’s interests. Organizations
need a clearly defined set of standardized, legally
approved contract agreements and clauses — a lack
of this fundamental base can be detrimental to an
organization, creating unnecessary, extended review
cycles and extended inefficiencies.
Direct contracts are complex in nature and difficult
to negotiate; therefore, collaboration between
Procurement and Legal (as well as additional
stakeholders) is required on clause language toensure
an efficient process and lead to shorter negotiation
cycles. Often, organizations hold these agreements
throughout multiple tools, creating a lack of visibility
throughout procurement and the inability to leverage
the information within downstream applications.
EY teams brings a structured and client-oriented
approach to the complex world of contracting. A
detaileddesign process brings with it an intuitive
approach toestablish the right processes and policies
for the organization and negotiation playbooks to
ensure the lowestrisk for the organization. Clients
often benefit from the removal of unnecessary
approvals, consolidation of agreements and language,
aligned procedures and policies, and a clear and
understandable processthat brings further
efficiencies to procurement.
Within the direct procurement space, the SAP Ariba
Contracts module enables organizations to streamline
and standardize the way that direct agreements are
authored, reviewed and transferred to downstream
applications. The use of features such as Enhanced
Contact Authoring and clause libraries, coupled with
cleansed and standardized client agreement templates,
enables organizations to truly automate the authoring
and review processes, which can be cumbersome.
The interconnected platform automates information
initiated from Ariba Sourcing and passesthrough
to downstream applications, such as S/4 HANA,
enabling scheduling and outline agreements and
accurate pricing for compliance via Contract Line Item
Document integration. A proper deployment of SAP
Ariba Contracts, coupled with standardized processes
and agreements, enables organizations to further de-
risk legal and financial exposure to the organization.
7 | Direct procurement digital transformation
EWM
Strategic
sourcing
Manage
contracts
Collaboration via the
Ariba network
Via the AribaNetwork
Confirm
goodsand
services
Procurement execution
Purchase
order (PO)/
managePO’s
Create
PO
GR INV
PR PO
PO
Create
PR
Manage
RFQs/quotes
SAP
fieldglass
INV
Manage
invoices
Supplier
andcategory
management
SAP MDG-S
(Master datagov.
for suppliers)
Guided buying
Tax Engine
ThomsonReuters
OneSource
Vertex
COA
Hr MiniMaster
Limits of authority
SAPTM
Supplier
lifecycle
management
Contract
management
Manage
purchasing
inforecords
Manage
sourcesof
supply
MRP
material
requirement
planning
IM
inventory
management
Project
system
asset
management
and Cost
allocation
PM
plant
maintenance
IBP
SAP Portal
(i.e., Aribanetwork)
Commerce
automation
SCC
SAPVIM
OpenText
SAP Ariba
Punch-out
catalogue
Supplier
Supplier
redlining
RFxand
quotes
Business
planning
POprocess
Invoice
process
SAP S/4 HANA
Output
management
(Adobeforms)
Figure 2 — S2P Direct procurement SAP solutions landscape
8 | Direct procurement digital transformation
Following the foundation set by the source and
negotiate phase, purchasing execution is where
further strategic and tactical actives within the
direct procurement process transpire. Various
activities, such as forecasting, supplier collaboration,
material resource planning, freight procurement,
and warehousing and inventory, take shape in the
execution of ordering and procuring goods and
services. Highly complex and integrated across the
direct landscape, these processes are the backbone
of the execution component of direct operations
procurement.
Forecasting
Predicting future customer demand enables a business
to make informed decisions downstream in supply-
chain planning processes, including production and
inventory planning. Due to ever-changing variability
in product demand, as well as reliance on historical
data, forecasting is often a time-consuming,
unreliable process. Forecasting is frequently done in
spreadsheets, or in multiple tools, creating a lack of
visibility and coherence in a single set of numbers.As
a result, there is a business value in an interconnected,
digital forecasting solution to increase accuracy
in revenue projections and improve supply chain
efficiency.
EY teams not only focuses on the digital
implementation to improve efficiencies, but it also
brings along an IBP planning framework to define the
end-to-end planning processes right from long-term
planning to short- term execution. Defining these
planning horizons and handoffs for each process is
key to the success and the operating model of the
organization, along with defining a groupwide
standard template for demand planning and supply
planning, as well as sales and operations planning.
Purchasing execution
SAP IBP is a robust supply chain solution that
features a Demand Planning module with a wide
range of forecasting capabilities. IBP offers a
multitude of statistical forecasting algorithms to
improve accuracy on mid- and long-term demand
planning, as well as Demand Sensing, a short-term
forecasting solution capable of reacting to real-
time changes in order to drive improved fulfillment.
Additionally, with exception management and
embedded analytics, IBP performs real-time analysis
identifying trends and pain points to drive proactive
decision-making. With an Excel front-end interface,
the change management effort and overall learning
curve for IBP are low, allowing planners more time to
focus on value-add activities.
9 | Direct procurement digital transformation
Supplier collaboration
As an organization transforms to the digital platform,
naturally moving from paper to electronic processing
can expedite and automate collaboration internally
within the organization, but also externally with
suppliers and vendors. Collaboration enabled
via a digital network provides real-time insights
and information to better manage procurement,
inventory, replenishment and material quality. Digital
collaboration of sourcing, planning/forecasting and
inventory can strengthen supplier relationships
by providing a robust framework to communicate
organizations’ supply planning needs to suppliers.
Organizations today commonly struggle to gain
visibility into accurate and trustworthy data to
provide true insights to the organization. They hold
manual and outdated processes collaborating with
external partners to gain forecasting insights, and
manage inventory, purchase orders, advanced ship
notices, invoices and various other components
across the supply chain. Furthermore, the lack
of a digital collaboration can lead tounnecessary
inventories, poor working capital, poor goods
tracking and higher overall supply chain risks.
EY teams are highly qualified to support supply chain
collaboration transformations due to deep-rooted
experience in direct planning and procurement
capabilities. Our SAP Procurement & Planning
capability groups possess deep implementation
knowledge in designing and implementing business
process improvements focused on demand planning,
and on PO execution and supplier collaboration
areas. In addition to standard integration methods
provided, EY consultants have gained technical
acumen in solving custom integration requirements
to integrate products, such as the Ariba Supply Chain
Collaboration (SCC) solution with varied customers’
ERP landscapes (e.g., TIBCO, JDE, Informatica
integration with Ariba SCC solution). Additionally,our
supplier enablement approach (defined by category/
operating locations/supplier capability) assists
customers with a successful and sustainable supplier
onboarding journey.
Digital advancements for procurement execution
activities and collaboration between buyers and
suppliers have historically been primarily focused
on indirect spend via the Ariba Network — enter
SAP Ariba’s SCC module. SCC is tailored specifically
to address the aforementioned open pain points
within the direct space. Easy collaboration is
enabled between buyers and suppliers via the SAP
Portal (aka Ariba Network) to increase visibility and
more effective planning. Standard integration is
also offered to products such as SAP IBP and SAP
S/4 HANA to create a fully integrated and global
planning environment for the supply chain. SCC
enables forecasting collaboration and reduces the
uncertainty between trading partners, leading
to consolidated supply chain inventories and
optimization of inventory levels. Organizations
gain not only visibility into supply with continuous
monitoring, benchmarking and enhancement of
supplier performance, but also the ability torespond
intelligently to changes in supply and demand with
real-time visibility into supply chain metrics.
MRP
Direct procurement is mainly controlled byMRP
as the source of most direct requirementsfrom
production or sales. As customer demand changes,
there are high pressures around accurate and
efficient MRP to guarantee material availability, and
determine the requirements in term of assemblies,
individual parts and raw materials for fulfilling the
agreed demand. MRP defines the required quantity
and the requirement date based on consideration
of multiple elements, such as forecasting, existing
inventory levels, demands, supplies and planning
parameters.
EY teams have the experience from advanced
manufacturing and S/4 HANA engagements to set a
strong foundation for strategic discussions, and to
challenge and transform end-to-end Source-to-Pay
processes and modernize old mainframe systems.
EY teams deploy an S/4 HANA-based, user-friendly
solution, streamlining procurement processes with
Supplier Collaboration, Forecasting, MRP, Inventory,
Warehousing and Transportation activities. Our
procurement transformations ultimately lead to
buyer efficiency and an increased visibility across
your supply chain to support growth.
Using MRP Live on S/4 HANA, MRP controllers can
benefit from improved performance and execute
the planning run in much shorter cycles — allowing
for matching demand and supply more efficiently
and reacting to issues far faster than before. S/4
HANA MRP functionality helps production managers
accurately plan production and put together a
reliable production schedule. Thus, management
can stay on top of processes and follow how the
customer orders or operations are carried out from
a master production schedule. With full visibility
of the manufacturing process from vendors to
finishing the end products, MRP helps to empower
decision-makers, simplifying production and efficient
downstream purchasing to optimize the customer
service level and minimizing costs and capitallockup.
10 | Direct procurement digital transformation
Freight procurement
Companies, especially those with manufacturing
operations, have evolved direct materials sourcing
and freight procurement from an administrative
function to a strategic procurement process.
Strategic freight procurement helps an organization
identify and negotiate the best rates from carriers
to transport items between specific locations
and then agree a contract (agreement) with the
carriers. Transportation management solutions
automate administrative tasks and make smarter
decisions. They supply the tools needed to request
rate quotations, evaluate responses and award the
transportation business to carriers to maximize your
operational efficiency and service excellence while
minimizing transportation cost.
Our experience in this space combines highly specific
transportation management systems knowledge with
the broad spectrum of digital supply chain solutions
to be able to work with organizations on the vision
of end-to-end planning, logistics and fulfillment
excellence. With a high emphasis on transportation
improvement opportunities, EY clients have achieved
harmonized and streamlined processes across
regions; appropriate governance models supporting
the business; and end-to-end visibility across
customer services, logistics and finance, as well as a
global integrated and scalable TMS solution.
SAP TM aids with the planning and execution of
the physical movement of goods across the supply
chain. TM enables organizations to manage the
transportation logistic network with a holistic view,
reduce operational costs, maximize assets utilization
and meet customer service expectations while
remaining agile responsive about the unexpected
events. The product offers solutions to minimize risk
factors across an organizations’ entire supply chain
and ensure compliance with regulations and policies.
TM has experienced significant growth in the recent
year, with 200+ new customers, as they migrate to
S/4 HANA. TM developed innovative capabilitiesin
carrier rating, contract management and appointment
scheduling, as well as SAP Logistics Business Network
(LBN), launching in 2019 providing partnerships with
Uber Freight.
SAP GTS helps facilitate global trade and customs
compliance activities by automating the processing
and screening of import (procure-to-pay) and export
(order-to-cash) transactions to detect sanctioned
parties and embargoed countries, determine import
and export controls and licensing requirements, and
facilitate electronic Customs filing.
Additionally, GTS can be configured to generate
global trade, Customs, transportation and shipping
documents, which can lead to reduced brokerage
and service provider fees and expenses. When GTSis
integrated with TM, companies benefit from seamless
end-to-end compliance with international trade
regulations from order processing through proof of
delivery while ensuring that Customs Declarations
reflect the most current transportation data, reducing
filing errors and Customs clearance times.
Warehousing and inventory
To guarantee customer expectation or a production
process, or to avoid delays, various goods need to
be held in stock. Inventory management is allabout
knowing what goods you have, where they arestocked
and how much you will require to meet your customer
or internal production demand. The inventory and
warehouse management system helps an organization
manage and intelligently execute the operations
of a warehouse or distribution center. Warehouse
management (WM) applications offer capabilities
such as receiving, put-away, stock locating, inventory
management, cycle counting, task interleaving,
wave planning, order allocation, order picking,
replenishment, packing, shipping, labor management
and automated materials handling equipment (MHE)
interfaces.
11 | Direct procurement digital transformation
EY people are highly qualified to support warehouse
transformation due to the firm’s deep WM functional
and technical experience, coupled with a wide variety
of successful WM deployments. EY has a leading
global and integrated supply chain network solving
clients’ most complex supply chain issues and
delivering high-quality and sustainable results. The
EY supply chain and operations practice has core
capabilities to provide specific business process/
warehouse design capabilities, including business
process improvement, logistics operations, warehouse
design, labor management and experiencewith
third-party logistics. In addition to our pioneering
experience with warehouse management applications,
our team and the project and solution leaders hold
deep roots in WM implementations, and our collective
experiences date back to the late 1990s, supporting
hundreds of WM site deployments around the world in
various industries.
SAP has two main warehousing solutions: SAP EWM
and SAP WM — its legacy solution. Help optimizing your
inventory means the right products in the right
warehouse without tying up too much capital in
inventory. Inventory optimization takes seasonality and
campaigns into account, as well as supplier lead times
and demand. Furthermore, integration with demand
planning offers the ability to adjust your stocks based
on patterns in demand. Organizations that have
transformed business processes enabled by SAP EWM
have achieved key benefits of increased scalability,
reduced costs from lower maintenance efforts and
globally streamlined business processes, and they have
enabled themselves to leverage digital technologies in
a “plug and play” manner.
Industrial materials
To maintain competitiveness in today’s market,
manufacturers must control their industrial materials
costs, which may, at times, account for up to4.5%
of total revenue. The impact of poorly managed
industrial materials processes can result in increased
maintenance costs, inventory levels and freight
costs, adversely affecting plant performance. The
industry today is aspiring toward integrated standard
processes that cross lines of business to plan, design,
and execute capital and O&M work, which can then be
easily managed and produce consistent and verifiable
results. The starting point is not a blank sheet ofpaper,
and there are typically many challenges to overcome
from the onset, such as determining insource vs.
outsource strategy for managing materials. Many
organizations additionally often struggle with alack
of demand plan/visibility by procurement, inadequate
material traceability capabilities, unclear supplier
performance expectations and no clear system of
record for inventory. These issues can additionally
be further compounded with non-standardizeditem
masters, non-user-friendly buying channels, and
cumbersome accounting processes or structures.
Digitalization and enabling information integration
mechanisms between ERP/EAM and procurement
applications would be a welcome step forward in
driving this change and helping overcome challenges
that are faced. The aim to drive toward a closer
integration between EAM/ERP and digital procurement
applications may offer various benefits to the
organization, such as enhanced business unit visibility
of material availability, increased ability to match
inventory levels with demand signals and an improved
business user consumer experience. This digitalization
and integration further benefit the organization
by creating a lesser need for field employees to be
working in multiple systems, and it further alignswith
a digital and mobile strategy.
12 | Direct procurement digital transformation
Through this transformation,
organizations hold the opportunity
to augment procurement’s skills and
processes through effective change
management, global interaction, and
analytics to improve cloud processes and
the organizations future direction.
Through engagement experience, the
makeup of a company’s business units,
organization structure and specific
requirements, among other factors,
can also drive toward different solution
design answers. EY teams have worked
with many of the leading automotive and
advanced manufacturing organizations to
define their industrial materials strategy
and implement supporting technology
solutions. Outlined below are key solution
options that organizations could consider
to drive close integration of industrial
materials management with supplychain.
Spend management
Supplier
management
Sourcing
Purchase requests
(indirect)
Purchase
orders
Receiving
(indirect)
Invoice
processing
Contracts
Purchase requests
(inventory)
Receiving
(inventory)
Payments
Inventory
management
Spend management
Supplier management
Contracts
Sourcing
Purchase
requests
Purchase
orders
Invoice
processing
Receiving
Payments
Purchase
requests
Receiving
Purchase
orders
Inventory
management
Invoice
processing
Upstream
Indirect
Direct
Spend management
Supplier
management
Sourcing
Purchase
requests
Purchase orders Receiving
Invoice
processing
Contracts
Inventory
management
Payments
ERP Procurement application EAM/EWM systems
Figure 3 — Industrial materials management
Option A — Purchasing in eProcurement
Application
• Buyers have to work in one application only
• Broader ability to leverage supplier networks
• Complex interfaces and integrations to connect
with work and asset management processesand
records
Option B — Hybrid
• Direct purchasing in EAM application, indirect
purchasing in eProcurement application
• Preserves integration with asset records for direct
spend, but leverages functionality and supplier
networks for indirect spend
• Broader ability to leverage supplier networks
• Complex interfaces and integrations
Option C — Purchasing in EAMApplication
• Purchasing history is more easily tied to asset
record
• Fewer systems for business to work within
• Limited support for indirect spending
• More limited supplier network options
13 | Direct procurement digital transformation
Succeeding the purchasing execution phase is
reconciliation and payment. Two large components
and considerations of this area surround how
an organization will handle invoice management
and indirect and direct tax compliance leading to
the payment of the vendor via S/4 HANA. Given
the complex areas of exception management
within procurement, we discuss the followingtwo
components in this section:
Invoice management
OpenText™ VIM optimizes and simplifies the process of
receiving, managing, routing, and monitoring invoices
and related documentation. Stakeholders involved
in any invoice problem quickly and efficiently access
invoice information. Additionally, VIM has the ability
to further extend its capabilities to archiving and
automating capture and extraction of invoice data. For
most companies, invoice processing requires too much
manual effort, causing a drain on resources internally
and for the vendors involved. Manual keying of invoice
data and resolution efforts involve time-consuming
historical research, communication with the vendor,
documentation and involvement of multiple parties,
etc. With that, invoice processing is wrought with
many opportunities for error, loss and delay.Lengthy
invoice cycle time results in missed paymentincentives
and discounts due to untimely payment. Audit and
compliance concerns arise as well due to contradictory
documents or user error.
EY people have the experience deploying the
OpenText VIM solution to optimize the process of
receiving, scanning and managing incoming
supplier invoices. We recently teamed with a
leading agribusiness company to streamline its
accounts payable function. Our solution
automated invoice processing, transforming a
legacy paper-based solution to a 100% digital
invoice operation, reducing manual entries and
decreasing invoice processing costs more than
50%.
With VIM, invoices are routed automatically to the right
person for resolution, approval and payment. Cash
flow can be significantly improved by streamlining
workflows, initiating reminders and shortening the
payment cycle. It also enhances vendor relations
with better access to current and accurate vendor
information. With build-in reports, VIM provides
accurate and on-time financial reporting with
automatic access to accounts payable information.
Organizations enabling VIM additionally promote
regulatory compliance with a well-managed process
using preconfigured rules, roles and actions.
Reconcile and pay
14 | Direct procurement digital transformation
Tax compliance
Tax compliance is the degree to which a company
complies (or fails to comply) with the tax rules of
the country (e.g., by declaring income, filing a
return, paying the taxes due in a timely manner).
Indirect taxes, such as value-added tax (VAT),goods
and services tax (GST), and customs duties/tariffs
represent a significant revenue component for many
governments worldwide. While direct corporate
income tax rates have fallen in many countries, the
combined tax burden represents a significant expense
and compliance responsibility. Given this changing
environment, it has become more critical than ever to
manage indirect taxes with a view to optimizing cash
flow and reducing risk.
Tax authorities are driving changes for transparency
reporting, requiring filing through digital methods,
requesting more information provided, increasing real-
time filing, and employing the use of dataanalytics
for risk profiling and auditing. This means that the
compliance process model needs to become quicker,
more efficient and more streamlined. As tax reporting
becomes increasingly closer to real time, a key
consideration for indirect tax is streamlining the flowof
source data for purchasing between the procurement
tool and the ERP/tax engine to aid accurate reporting
and reducing manual effort downstream.
With over 400 dedicated tax technology resources
throughout all major markets around the world, EY
brings a dedicated tax network and skill set to address
tax. EY supports its clients in their development of
global tax policies and the translation of thosepolicies
into consistent finance processes across jurisdictions,
helping them optimize the balance between insourced
and outsourced processes/resources, and frame
control policies and procedures around finance
processes to facilitate the completeness and accuracy
of financial data.
Simplification of period-end processes, as well as
streamlining reporting processes, places organizations
in an improved state to be integrated into the overall
SAP landscape.
Automating tax determination leveraging third-party
tax engines (such as Vertex and Thomson Reuters’One
Source) can reduce under- and overpayment errors,
further driving the concept of touchless procurement.
The solution should have the capability to validate tax
charged by a vendor before an invoice is processed for
payment. On top of location and addresses are other
factors, such as status of the vendor, established vs.
VAT registered and country VAT/Tax ID validation. The
higher level of accuracy achieved by automating VAT/
GST/SUT within the solution will reduce significantly
the risk of manual errors and related tax recovery
opportunities.
SAP tax compliance delivers a complete cycle covering
the detection and investigation of tax issues, and it
can help reduce compliance issues in tax processes
going forward. Automating tax-checking processes
with a unified, standardized set of rules reduces time
and effort, and allows anomalies to be identified more
accurately. The solution provides the ability to view
and analyze country- or sector-specific data and drill
down to individual tests and transactional data. This
enables organizations to manage compliance, focuson
major cost drivers, and develop an Indirect tax strategy
on a local and global basis.
15 | Direct procurement digital transformation
As organizations look to transform processes and
move to advanced digital platforms, oftentimes
they can lose track of the true end-user experience.
Within direct procurement, there is a wide range
of stakeholders that will interact with the solutions
and adopt new processes implemented. Creating a
seamless environment for these individuals across
integrated applications and job functions will
ultimately lead to stronger adoptions and better
return on investment. End users need their voices to
be heard — involving cross-functional stakeholders up
front early in the process and ensuring that proper
communication and training plans are established are
imperative to success. Often, the key foundational
aspect of the enhanced user experience can be blurred
by stakeholder groups with competing interests and
complex requirements. A choppy interaction among
drastically different user interfaces, inconsistent
metadata and duplicative tasks can lead to lower
adoption, unrealized savings and, ultimately,
unrealized return on investment. EY teams approaches
the end-user experience with a persona-based
approach throughout the design process. This user-
centric-based approach brings representation from
various personas into account and emphasizes the
importance of the “voice of the customer” and user
satisfaction.
Creating the “ideal” user experience may, at times,
seem to be a stretch; however, organizations that
are successful in enhancing the everyday working life
of their workforce will ultimately lead to increased
productivity and satisfaction. The SAP Fiori user
experience creates an integrated and seamless
interface to provide a consistent and intuitive
experience for end users. Understanding how users
will interact with various applications and leveraging a
persona-based view during the design process ensures
that the voice of the customer is heard. EY people
workhand in hand with the organization through the
persona- based approach to ensure that the optimal
design for the end users is tailored to the
organization’sgoals.
Organizations must consider not only how userswill
interact with the tool itself, but also how the rollout
will be communicated, trained and transitioned,
ensuring no disruption to the business. Not only willEY
support the digital transformation from a process and
technology perspective, but it will also bring leading-
class change management resourcing and perspective
that are tailored to align with an organization’s
culture and new ways of working. Managing change
while equipping end users with the right tools and
streamlined processes will translate into a successful
impact to the organization, driving further savings and
return on investment for the program.
End-user experience
16 | Direct procurement digital transformation
As more information becomes readily available in
the digital age, a key question for any organization
is — What can we do with this data to further drive
proactive decision-making and gain a competitive
edge? Analytics is the use of data, statistical and
quantitative analysis, explanatory and predictive
models, and fact-based management to drive
decisions and actions within an organization to create
strategic value. Today, analytics is used by world-class
procurement organizations to create insights and drive
decisions. Analytics enables a procurement function to
identify and prioritize purchasing savings opportunities
and then take action upon those bringing increased
negotiation power to procurement. Today, many
organizations struggle with a lack of visibility over
general spend due to a lack of consistent classification
and poor master data quality. Procurement continues
to wrestle with an unknown range ofopportunities
to leverage cost savings, performance improvement
and risk mitigation. When moving digital, clients have
the opportunity to further transform themselves by
available data and advanced analytical tools.
SAP Analytics Cloud provides the analytical tool
within the SAP family that integrates seamlesslywith
the suite of SAP products and allows individuals to
discover, visualize, plan and predict in a single solution.
Leveraging the Analytics Cloud, organizations can
create dashboards that provide insights to spend,
and arm the procurement function with data to make
quicker and more educated decisions. Working with
clients, EY teams have helped enable organizations to
understand what their people need, and how they are
looking to see it — all while streamlining the process
andremoving the manual efforts previously required to
mine data.
With advanced analytics, EY clients have helped data-
driven communications to all stakeholders, improved
compliance with policies and contracts, and a more
robust and productive sourcing function providing
increased savings and return on investment.
Analytics
17 | Direct procurement digital transformation
With the high-paced flow of business and operations,
organizations need to pause and ask themselves —
Where is the organization now, and where do we want
to be? An important aspect of any company is having
a detailed technical road map outlining the technology
of the future. This road map will be unique for a given
organization based on its complexity and set of defined
goals and technology landscape. Understanding
where processes can be improved, and then enabling
new processes with the right technology, can lead to
new ways of working and increased productivity and
satisfaction among the user base.
Consider the following questions associated with
their subtopics. Are there better ways of working and
efficiencies to be gained to make direct procurement
run more effectively in the digital age?
Conclusion
Direct procurement process Key questions for the organization
Supplier management
• How are onboarding, qualification and master data associated with the supplier managed across
applications and shared with relevant internal stakeholders?
• How is the organization measuring and providing visibility into a supplier’s performance, compliance
and external risk factors?
• How is the organization ensuring that preferred suppliers for given categories are being properly
leveraged within downstream activities?
Sourcing
• How can procurement better collaborate with product development/engineering and other
stakeholders?
• How can procurement better track pricing over the course of the product development life cycle?
• How can the organization better communicate BOM information and documentation across
procurement and product development?
Contract management
• How are contract agreements stored across the organization today?
• Does the organization hold and maintain unnecessary or duplicative contract agreements and
clauses?
• What is the process for negotiation and clearly defining alternate and fallback clauses to incorporate
when needed?
Forecasting
• How would you rank your products in terms of importance and predictability?
• What are the quality and consistency of your historical sales data?
• How frequent is forecasting needed and over what period of time?
Supplier collaboration
• How is the organization collaborating with external stakeholders to align on supply and demand
planning?
• How are suppliers being provided with transparency into long-term and near-term demands?
• How is the organization anticipating and resolving supply assurance problems?
Material resource planning
• How you do manage your planning horizons?
• How integrated and accessible are you to shop floor, inventory and quality data?
• How do you balance production objectives, resources and capacity?
Freight procurement
• How accurate, forward-looking and aligned is your transportation and demand planning?
• Do you have access to disaggregate spend data and visibility into a detail overview of your freight
rates and charges?
• Do you have the flexibility in your freight procurement process to quickly leverage spot ratesor
negotiate discounts with carriers?
18 | Direct procurement digital transformation
Direct procurement process Key questions for the organization
Warehousing and inventory
• In which environment do you operate: a pull system (based on demand/customer orders) or a push
environment (stock to prepare for future orders)?
• How do you monitor and manage safety stock?
• How do you avoid overstocking certain items by stocking based on currentdemands?
Industrial materials
• What internal resources and processes are used to plan and manage industrial materials inventory,
and what percentage of industrial materials are managed externally?
• When the reorder process is run, does it consider WM service and materialneeds?
• Does your supplier place materials in the customer’s possession, but not charge for the inventory
until it is consumed?
Invoice management
• What is the organization’s average invoice processing cycle time?
• What is the common bottleneck in invoice processing?
• How does the organization monitor invoice processing steps?
Tax compliance and planning
• Are there any internal data/information points that you are not getting today that result in
organizational process inefficiencies and elevated financial risks?
• What planning opportunities may be available through better leverage of enterprise analytics?
• Has the organization captured the full tax value case — enterprise-wide — from enhanced automation
across direct and indirect tax?
User experience
• Is your organization considering how your digital transformation and the applications and user
interfaces leveraged will affect productivity and user satisfaction?
• How will the individual behaviors and needs of end users be addressed to increase useradoption?
• How do you ensure the proper level of engagement across the organization to support and drive
purposeful change?
Analytics
• Where are your biggest areas of risk throughout the supply chain, and what is the current exposure
for each area?
• How can procurement decipher which finished products are leveraging the same specific raw
material component, and who is your most strategicsupplier?
• What type of information and analytics would allow buyers to think more strategically?
Don’t underestimate both the effort
to make significant improvements and
value gained with transforming this
part of your business. With the right
solution and partner, you’ll have a
sustainable foundation and leading-
edge platform for the long term.
— Brad Durst
19 | Direct procurement digital transformation
Organizations today are global and
complex, and are evolving with
innovative technology at an accelerated
pace. Selecting the right team for a
digital transformation who knows the
industry, processes and technologies
is crucial to ensuring programsuccess.
Our approach to direct procurement
transformations brings not only
accelerators and experience within the
technology and data aspects of SAP,
but highly talented professionals from
procurement, manufacturing, risk,tax,
change management and otherfunctions
to provide the most comprehensive
approach to fit an organization’sneeds.
EY | Building a better workingworld
EY exists to build a better working world, helping
to create long-term value for clients, people and
society and build trust in the capitalmarkets.
Enabled by data and technology, diverse EY teams in
over 150 countries provide trust through assurance
and help clients grow, transform and operate.
Working across assurance, consulting, law, strategy,
tax and transactions, EY teams ask better questions
to find new answers for the complex issues facing
our world today.
EY refers to the global organization, and may refer to one or more,
of the member firms of Ernst & Young Global Limited, each of which is a
separate legal entity. Ernst & Young Global Limited, a UK company limited
by guarantee, does not provide services to clients. Information about how
EY collects and uses personal data and a description of the rights
individuals have under data protection legislation are available
via ey.com/privacy. EY member firms do not practice law where prohibited
by local laws. For more information about our organization, please visit
ey.com.
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This material has been prepared for general informational purposes only and is not intended
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advisors for specific advice.
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Contacts:
DanKowal
Principal
Ernst & YoungLLP
+1 248 7092132
Bradley T. Durst
Managing Director
Ernst & YoungLLP
+1 312 9255186
Hamish McKechnie-
Sharma
Associate Partner U.K.
Ernst & YoungLLP
+44 (0) 77 1897 1987
