Leveraging Standard SAP and EDI to Achieve the Perfect PO

By Kevin Wilson June 2, 2016 by Kelly Kuhlman

In late June, I will be talking on this topic at the SAP Insider Supply Chain Management conference to be held in Vienna, Austria. I thought I would just share a few highlights before we get into the details at the conference.

The topics I will cover in the talk include the following:

1. Techniques to improve the Procure to Pay (PTP) process
   – Unlock the capabilities of standard SAP solutions
   – Identify issues with the PTP process
   – Match the PTP process with the “Perfect PO”
2. Learn best practices for fully consuming the EDI X12 and EDIFACT standards for Carrier and Supplier.
3. Show where to leverage SAP Event Management (EM) for interconnected end-to-end visibility and exception management.
4. Show where to integrate carrier notifications into the PTP process to provide real-time exception management and meet your on-time delivery commitment to your customer.
5. Show how SAP Smart Business for SAP EM (HANA Analytics) provides measures for on-time delivery measurement.

Procure to Pay (PTP)

The characteristics of a mature PTP process can be described as follows:

1. Close to 100-percent perfect orders
2. Minimal compliance errors
3. Minimal supply chain process gaps — Collapsed supply chain
4. People, process, information, and system are aligned
5. An accurate plan is in place and being followed
6. End-to-end process visibility available to all stakeholders
7. People are managing supplier data and relationships
   – The system has the business rules loaded.
   – The system does the “heavy lifting” to determine the plan, based on the data it receives as input.
   – Exceptions are managed in the system.
8. Vendors are held accountable for their performance.

The Perfect PO

There are many versions of the “Perfect PO,” and our take on it may differ from most. We consider not only the shipment and product but also the process as well. Each one of these needs to function according to the plan to be considered “perfect.”

In the next three sections, I will go through each and describe the criteria for a “Perfect PO.”

The “Perfect PO” process can be described as follows:

1. Order steps are:
   – Processed automatically
   – Processed without exception
   – Processed according to the planned execution time
2. Orders
   – Meet the customer’s expectations
   – On-time, in-full delivery
   – Price and terms
3. Match corresponding contract and master data
4. Are paid within the terms period
5. Status is visible to all players at all stages of the process
6. Statistics form part of the KPI analysis data

The “The Perfect PO” shipment has the following characteristics:

Shipments are:

1. Accurate to the order
   – On time
   – Correct quantity
   – Complete
2. Communicated to customer
   – Timely communication
   – Electronically (EDI)
   – Communication matches actual shipment detail
3. Packaged correctly
4. Labeled correctly
   – Legible
   – In support of customer process

The “Perfect PO” product has the following characteristics:

Products are:

1. Good quality
   – Damage-free
2. Correctly labeled
   – Legible
   – Damage-free
3. Comply with regulations:
   – Comply with safety regulations
   – Comply with social and environmental regulations
   – Comply with legal terms and conditions

Process Automation

I will also talk a lot about how traditional EDI should be leveraged to automate this process with your suppliers and carriers.

Click image to enlarge

The key areas that are needed for implementation are:

• PO: 850/ORDERS
• PO Confirmation: 855/ORDRSP
• ASN: 856/DESADV
• Error-handling: 824/APPADV
• Carrier Status: 214/315/240
• Invoice: 810/INVOIC

Of secondary importance are the following:

• PO Change: 860/ORDCHG
• PO Change Ack: 865/ORDRSP

How do we get there?

The path to the “Perfect PO” will take the following journey:

1. Business justification
   – Determine how much an “imperfect” order costs you.
2. Decide
   – This is a journey — It’s not going to be easy.
3. Design with automation and reporting in mind:
   – EDI – PTP process
   – Workflow — Exception handling
   – Reporting visibility — BW, SAP HANA Analytics, and SAP Event Management
4. Normalize/standardize your PTP SAP process:
   – Use standard SAP transactions to match your process.
   – Use standard IDoc interfaces to match the standard process.
   – Manage your vendors — Ensure they are compliant with your process.
5. Develop Vendor EDI specifications that match the business process.
6. Execute — Let the system do the heavy lifting; use its power.
7. Monitor — Manage by exception! Leverage analytical views to further understand where potential changes need to be made.
8. Adjust — Make the changes and continue to monitor for improvements.

This is just a short introduction, highlighting some of the talking points we will discuss at the SAP Insider SCM conference. If you are able to join us, please feel free to attend our presentations and get the details firsthand.

Tags: EDI, Perfect Order, Procure to Pay, PTP, Purchase Order, SAP, SAP EM, SAP Event Management