Taking profitability insights to the next level: Cost-to-Serve on HANA

Michel Haesendonckx & Filip HanssensApril 20, 2016

Agenda

Approach & architecture

The case

Context

Concluding remarks

Get to know us

About Delaware Consulting

• Founded in 1981; has been part of Bekaert, Andersen and Deloitte

• Independent partnership since 2003 with 124 professionals

History

Suzhou

2005

Antwerp

Global Delivery Center Harbin

2006

2007

Atlanta

Delaware Consulting

International

Den Bosch

Lyon

2009

MergerAlliance

Consulting

Wavre

Shanghai

2010

2011

Singapore

Nantes

New partnership Netherlands

Luxembourg

2013

2014

New York

Paris

Manila

2015

1250

professionals

worldwide

HungaryDubai

Malaysia

BeijingHong Kong

2008

Delaware Information

Solutions

2003

Independent partnership

2012

MergerB&M

International Presence1250+

professionals

€155 miorevenue

24 offices 13 countries

USA FranceThe Netherlands

BelgiumLuxembourg

Hungary

ChinaSingaporeMalaysia

PhilippinesHong Kong

UAEBrazil

Value Clusters

Strategy & Transformation Business Controlling

Analytics Accounting

Strategy &

DisruptionDigital TransformationOmni-channel Experience

Lead-to-service processesInsights & Personalization

Enterprise Resource Management (ERP)

Process Integration

& MobilityEnterprise Information

Management (EIM)

Global Managed Services

(GMS)

Infrastructure

Services

Context

The business environment is dynamic and complex.

Higher manufacturing and raw materials costs,

shrinking margins and increased demand for service

require accurate revenue ,cost, net profitability and efficiency strategies

for products, services, customers and business models.

The business environment is dynamic and complex.

Higher manufacturing and raw materials costs,

shrinking margins and increased demand for service

require accurate revenue ,cost, net profitability and efficiency strategies

for products, services, customers and business models.

• Customer, product, vendor, channel and segment profitability

• Category management

• SKU rationalization

• Pricing

• Profit-based growth strategies

Maximize Profit

• Process improvement

• Capacity utilization

• Resource planning

• Staffing

• Benchmarking

• Best practices

• Reward efficiency

IncreaseOperational Efficiency

• Partner negotiations

• Allocations

• Unit cost

• Cost-to-serve

• Strategic sourcing

• IT chargeback

• Shared services

Decrease Costs

Cost to serve on SAP HANA

• Possibility to create full P&L if revenue, COGS,… is modelled

Including price waterfall(discounts, rebates, freegoods, …)

• Reflecting causality to a maximum extent

(multiple businessdimensions involved)

Model all customer and supply chain related processes

Standard costs On SAP HANA

• Easy to understand logic, applied on different business dimensions (customer, invoice, delivery, …)

• No fluctuations in costs across periods

• Supported by external benchmarking (per sales unit, country, region,…)

• Easy integration with ERP and other applications (as source and potentially as target)

• Connection to Lumira, Web Intelligence and other SAP BI Tools

• Real time reporting

The Business Case

The Business Case: Company specifics

Company

Mid sized

Sales unit in multiple European countries

B2B and B2CBelgian

Home equipment

Goal

Offer multi-dimensional profitability insightsPer product, product category, customer, customer group, sales unit,…By relying on actual transactions and business processes

Increase bottom-line through end-to-end reduction of costs

Increase topline through better use of trade terms & discounts

Concept: Differentiated standard costs(reflecting cause & effect)

Cost driver the factor that drives the consumed costs number of orders

Consumption (of capacity) per unit of cost driver 19 min per order via phone

Cost per unit of capacity (fully loaded, incl. HR, procurement, facilities) 3.5 euro per minute

Order entry type

Belgium France

Telephone 19 min 22 min

Sales rep 45 min 50 min

Website 7 min 9 min

EDI 5 min 7 min

Email 22 min 25 min

Cost per min 3.5 eur/min 3 eur/min

Cost for one order placed via telephone

to the Belgian sales unit is 66.5 euro

Concept: building up the P&L

Process Cost Object Cost influenced by Driver Differentiation

Net Turnover Invoice LineEUR amount provided by ERP on the

level of an invoice lineNet turnover None

Cogs material Invoice LineEUR amount provided by ERP on the

level of an invoice lineCogs material None

Sales Back Office -Order entry

OrderPenalisation based on number of

orders per entry type and sales unit# Orders

Sales unit and order entry type

Penalisation working capital

InvoicePenalisation based on number of days

outstanding combined with net turnover (WACC driven)

Days overdue * net turnover

None

Sales Representative

CustomerPenalisation based on number of

customer visits depending on sales unit

# Customer visits Sales unit

…

How to obtain ?

Cost driver the factor that drives the consumed costs number of orders

Consumption (of capacity) per unit of cost driver 19 min per order via phone

Cost per unit of capacity (fully loaded, incl. HR, procurement, facilities) 3.5 euro per minute

Differentiated standard costs

• Ad hoc analysis based on actual resources spent:

– business process analysis

– ad hoc calculation of cost per unit capacity available

• Excluding any over or under capacity (link with pricing)

• Fully loaded cost

• External benchmarking

– E.g. 3rd party logistics provider, carrier, forwarder,…

Cost per unit capacity

• Historical primary cost registrations increased with support costs from HR, facilities, corporate communications,…

– By introducing internal service catalogue

• => Upfront reservation of capacity @ stable rate

• => leverage controllability & planning for capacity

Standard cost can be validated by checking for variances on the cost center providing capacity

Which insights ?

1. Whalebone

2. Top 10 - BE

3. High level comparison customers

4. Comparison customers product category

5. Bottom customer

What did the customer learn ?

• Revisit sales process - centralize order intake

• Overcapacity

• Deliver to central DC

• Take initiative to define a standard product portfolio at the client

• SKU rationalization – Reduce number of SKU’s in BE

• Align discount policy with order complexity

Defin

ing actio

ns !

Approach and architecture

Project phasing

Intake value chain

Define business dimensions

Business processworkshops

Data requestdefinitions

Setup of standard cost model

Transform & Load

Calculate & Validate

Value ID

1 2 3 4 5 6 7 8

Project phasing

Focus on customer driven processesUnderstanding of • Revenue components

Gross turnover => Net turnover (discounts on invoice, off invoice)

• Direct costs: driven by order line, customers

• Indirect costs

Inventory of processes executed within departments

Intake value chain

Iterations based on• Data structures• Processes interviews to introduce

cause and effect correctly• Required insightsDefine business

dimensions

With key users• Which processes?• Cost drivers and differentiation in

complexity triggered• Differentiated standard times• Standard cost per unit capacity

supplied

Business processworkshops

Setup of standard cost model

• Activities/processes• Business dimensions • Differentiated standard times

& standard costs

Value ID

• Identify profit potential by benchmarking internally

• Best in class comparison

• Which attributes are required to model processes?

• Data type• Expected valuesData request

definitions

Transform & Load

• Low risk on typical data integrity pitfall

• Load data

Calculate & Validate

• Run the model• Validate outcome and check

for variances• Iterative calculations

1 2 3 4 5 6 7 8

Architecture

FIORI(incl Delaware specific apps)

Business Objects WebI & Design Studio(Reporting & Dashboards)

BO Analysis for Office(Excel)

DSO by Region

DSO

BO LumiraSelf-Service

S/4 HANA (or SoH)

HANA

HANA Live / Custom views

SAP BW

HANA

Views

Additional sources

CTS logic

DATA MERGE WITHOUT PHYSICAL TRANSFER

DATA TRANSFER DATA TRANSFER

Concluding remarks

Stable multi-dimensional actionable insights based on true complexity encountered

In a quick-start framework without typical resource to activity allocation

Leveraging available data and the SAP HANA development platform

Based on what Experience ?

Thank you!

Michel Haesendonckx Filip Hanssens

Performance Management Expert

Finance & Performance Management LeadSolution Lead SAP S/4 HANA Program