Supply Chain Management

SAP Central Finance: A Lower-Risk Path to S/4HANA

If your company uses SAP as its ERP system, you’re probably aware that SAP has announced it will stop supporting ECC (the version that most electronics companies are using) in 2025. The new version, S/4HANA, is a true upgrade, in almost every sense of the word: a better user interface, improved functionality, even a completely new database that enables faster performance. At the same time, implementing the new version is likely to be a bigger project than many of the straightforward technical upgrades of the past. So it is understandable that many companies haven’t rushed forward with projects to move to S/4HANA.

Although it isn’t really a new option, more and more companies are looking at “Central Finance” as an attractive option for deploying S/4HANA. This is especially true for electronics companies, which often have multiple ERP systems (due to mergers and acquisitions, operations in other regions of the world, etc.). Central Finance offers a way to begin getting the benefits of S/4HANA at much lower risk to the business, combined with lower initial cost and effort (than trying to move an entire organization and its current ERP system(s) over to S/4HANA at once). When implementing Central Finance, an organization’s current ERP system(s) (which may be SAP and/or non-SAP) are connected to an SAP S/4HANA Central Finance instance. Financial documents are replicated from the source system(s) to the Central Finance instance in real time.

When Central Finance has been installed, most of the organization’s primary accounting processes (Cost Accounting, Financial Accounting, Accounts Payable, Accounts Receivable, Reserves/ Provisions, etc.) are managed from the Central Finance instance. Individual transactions can be traced back to the original source system as needed & appropriate. Central Finance gives the Finance organization at a company access to the latest (S/4HANA) finance functionality without requiring the entire organization shift to S/4. Thus they may be able to improve efficiency/ overall effectiveness of the Finance organization earlier than otherwise.

Moving the Finance organization over to S/4HANA takes some of the pressure off the need to migrate other ERP systems to the latest version. Using a step-wise approach (first Central Finance, then individual ERP systems) may also expose other issues (that would impact a “Big Bang,” all-at-once project) in a non-catastrophic way. So it may also help organizations better plan the rest of their migration efforts, preventing surprises and keeping costs under control. If issues can be exposed early, they usually can be solved more cost-effectively.

When should an organization give serious consideration to the Central Finance approach? It makes a lot of sense when all or many of these factors exist:

  • The organization has a complex ERP landscape (multiple ERP systems, perhaps not all SAP, with different configurations).
  • The organization’s business model often has led to M&A activity in the past, and is likely to lead to new M&A activity in the future.
  • The organization is unwilling, or unable, to make the investment of time, effort and money to move all of its ERP systems to a consolidated S/4HANA instance at once.
  • The organization would benefit greatly from common reporting, common financial processes and policies, etc. The organization would like to take advantage of the improved accounting functionality in S/4HANA.

Thus — for many electronics companies, the Central Finance approach is worth serious consideration. There are, however some factors that the organization should consider before making a decision:

  • If a company has multiple ERP systems with significant differences and inconsistencies between them, implementing Central Finance will likely require some effort to harmonize those systems.
  • If a company has multiple master data standards (e.g. supplier, customer, part number, BOM, etc.) and/or legacy data is inconsistent, a data cleansing effort will improve the quality of a Central Finance implementation.

Finally, companies need to remember that Central Finance will ultimately be the first step in a larger migration program. It’s tempting to put all the focus on the financial transactions; but they need to keep the long-term goal in mind as well — and that means that they should implement Central Finance with a ‘whole-company’ mindset. The goal isn’t just to get a finance instance installed: the goal is to get a finance instance installed that will support your company’s operations, both as they currently exist and as they are likely to change in the future. It’s important, therefore, to make sure that your project staff includes people with deep subject-matter knowledge of your industry and your company’s own operations. That usually means that you need some veterans from within your company’s procurement, manufacturing, customer service, and distribution operations, as well as true industry experts from your systems integrator who can provide you with benchmark information and perspective across your industry.

Especially for industrial clients, a Central Finance implementation must be done with an understanding of the business environment and long-term goal. Your organization will need to pay attention to the processes by which you integrate the various source systems to the Central Finance instance, especially if those source systems are from multiple software providers. Using cognitive tools for data cleansing, at an early point in the project, can make a big difference as well. In complex environments, it may well be that there is no single authoritative source of data; instead, multiple data sources may need to be consulted. A complete master data record for an individual part number, for instance, may require data that resides in a PDM system, the source system’s part master, and historical purchase orders. Tools and algorithms that can efficiently and effectively find this data, interpret it and synthesize a complete part record from those multiple sources will make a tremendous difference in data quality and help to assure the project’s long term success.

The Central Finance approach both provides a good foundation for a longer-term enterprise S/4HANA implementation; and it reduces the size and complexity of moving individual legacy systems over to S/4.

 

Sr. Managing Consultant, Electronics Center of Competence at IBM

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