The Life Science client has embarked on a strategic digital transformation by moving from the existing SAP ECC based environment to the SAP S/4HANA platform. Driven by strong acquisition-based growth over the past decades, the company adopted a comprehensive multi-brand and -channel strategy covering various market segments and supply chains. Being invested in these business fields, the company operates 20+ production sites and 40+ sales subsidiaries to serve customers in more than 100 countries.
Challenges and Objectives of the S/4HANA Transformation
Challenged by considerable level of organizational complexity, on the one hand, the S/4 transformation has to provide a foundation by standardizing and harmonizing global end-to-end processes, increase the level of automation, and improve overall customer experience. On the other hand, the new platform still needs to enable agility to support the remaining diversity of existing and future businesses.
Supporting the client in a Pre-Study & Prototype project, the primary objective was the creation of a value-based blueprint that would establish a solid foundation for efficiently operating the current business architecture, to facilitate the integration of future business models, and thereby enable the growth ambition to double revenue mid-term.
To inform this blueprint objective, the project team conducted an Operating Model review at the start of the project, focusing on the main dimensions Governance & Organization, Performance Management, Business Process Model, Material & Value Flow Model, Legal & Tax Model, and Enterprise Architecture. Assessing the current state, the Operating Model review identified two main areas for optimization to better support the client’s strategy. A redesign of the client’s Performance Management model and further streamlining the company’s Material & Value Flow model have become integral part of the Pre-Study and subsequent S/4 transformation.
Performance Management model
When approaching the redesign of the Performance Management model the project team set out to address several critical pain points including:
- Complexity: Multidimensional steering structures driven by a multifaceted organizational setup and responsibilities across various levels
- Compatibility: Manual adjustments and high efforts during cross-entity analysis due to low/moderate level of harmonization and standardization
- Data compilation outside transactional system: Generation of certain steering KPIs outside the primary transactional system, leading to fragmented data and slow insights-to-actions
- Reporting flexibility: Considerable manual effort to create profitability insights for different businesses due to their heterogeneity
The goal was to translate the multidimensional Performance Management needs into a S/4HANA solution that enables the company to derive management level cross-entity profitability insights from the different business models and reduce the level of complexity.
Performance Management Model: Developed Solutions and Achievements
During the six months of Pre-Study, the project team has developed a holistic performance management concept including the Finance architecture to enable visibility of critical KPIs, flexibility in management reporting and the provision of robust internal benchmarking. By this means, the Performance Management concept sets the standards for the S/4HANA-based finance transformation covering among others:
- Target concept for future Finance architecture, including a comprehensive analysis of advantages and disadvantages, and clearly delineated scope for primary performance management and secondary reporting objectives
- Concept for a uniform profitability analysis framework based on profit & loss statement using cost-of-sale method and, in this regard, introduction of the new standardized Functional Areas structure enabling a functional perspective beyond the single-entity-oriented view
- Profit center and segment structure designed to promote harmonization and simplification, while ensuring flexibility for the future
- Target design for the margin analysis to generate additional business insights in the transactional system and thereby enhance transparency and accelerate insight-to-action process
- Customer profitability analysis throughout entire customer lifecycle to emphasize revenue and costs directly associated with serving customers
As a result, the project team successfully developed a Performance Management concept that addressed the inherent business complexity while ensuring technical feasibility to maintain robust and scalable processes.
Material & Value Flow model
When reviewing the Material & Value Flow model, the project team focused on the evaluation of sub-optimal flows and inventory ownership along the value chain with the aim to unlock more supply chain flexibility and eliminate inefficient inter-company flows.
The project team considered and evaluated different alternative options and their feasibility from a Logistics, Customs, Regulatory, Tax, and IT perspective. The preferred solution has been based on change of legal and financial inventory ownership in regional distribution centers resulting in tangible benefits for the company’s supply chain:
- Flexibility and late-stage market allocation of inventory
- Efficient inventory replenishment process between regional distribution centers without inter-company transactions
- Elimination of back-and-forth inter-company sales transactions when inventory is destined for other markets
- Enablement of new returns processes reducing inventory scraping and write-offs
Ultimately the newly defined Material & Value Flow model will result in increased service level, inventory reduction, reduced transportation cost, and internal efficiencies in handling the respective inter-company processes.
Conclusion
With the above-described redesign of the client’s operating model, cbs Consulting has helped to set fundamental guardrails and input for the S/4HANA transformation, creating sustainable benefits and contributing to the enablement of the company strategy.
