But first you need to get an perspective on what is on the forefront and on the horizon.

Cash is as vital for any business as the blood that flows through your body. And ensuring there is always a positive cash flow will eventually lead to a profitable enterprise. So only start a business when you have a clear idea what you customer wants at which price. And that is why the focus of the Sandbox Tycoon® will be on sales.
Any registered customer order will trigger the need for stock, replenishment and planning activities. Obviously your company wants to optimise supply and demand to keep the costs low while meeting customer expectations. So this requires an integrated system that allows proper planning and execution of logistical processes, which is also referred to as Supply Chain Management [SCM].

Your SCM network consists of:

• customers,
• vendors,
• manufactiruing facilities,
• warehouses and
• distribution centres.

Typical SCM business processes relate to:

• replenishment (push vs pull)
• stock control (either in-house or outsourced),
• delivery (direct shipments, third-party delivery, cross docking)
• modes of transport (truck loads vs individual parcels by road, rail, sea or air)
• transportation control (either in-house, using a carrier or outsourced)

As CEO you want to know how efficient your SCM has been implemented. The SCM key performance indicator is referred to as On Time In Full [OTIF] and covers the following queries:

• are we able to deliver the quantities ordered by customers?
• are we able to deliver these quantities ordered on the day requested by the customer?
• are we able to deliver the ordered goods with zero defects?
• are we able to invoice the ordered goods based on the agreed price arrangements?

You notice that SCM does cover a wide range of disciplines. Information, goods and money flows throughout the entire company. Any unexpected incident can be dealt with without disrupting the delivery to the customer. It also requires a strong trustworthy relationship with any supplier of goods and services.

A streamlined SCM operation will ensure customer satisfaction, low stock levels, high stock rotation, predictable cash flows and reliable information. Management intervention on the business processes will be a rare occurrance as the departments can cope with high volumes of data easily.

Only a integrated planning, replenishment, sales and distribution system can achieve this level of excellence. Only an Enterprise Resource Planning [ERP] system is able to control all business process, of which SCM is just one of the vital components. The SAP ERP Central Component [SAP ECC] has been selected by most multinational enterprises as their preferred ERP solution. SAP ECC is able to cover the majority of required SCM processes. It is important to know what is standard available. It allows your business to implement and maintain the system at a low cost. It allows your business to remain agile when embracing new functionality based on the industry best practice.

Whether your company is contemplating to purchase a SAP ECC as ERP system or preparing to upgrade SAP ECC, you might like to know what the latest version has to offer.
Maybe you are a consultant who wants to prepare for SAP ECC SCM certification or just want to refresh your SAP knowledge, you may want to experiment  in your own system.

No Tie Generation® developed a Sandbox Tycoon® prototype emulating SCM business processes commonly used in the chemical, food and pharmaceutical industries.
Isard Haasakker is able to demonstrate this prototype at your office. Alternatively, he can provide instructions how to build your own prototype quickly.

I want to know more about Isard Haasakker…

When starting to build a prototype system in SAP ECC, it is important to get ‘the bigger picture’ on the company’s main purpose for existence. Do not be surprised that it always boils down to the same answer, irrespective of the company in question: A company has to make a profit. And in order to do so, it needs to focus on customer satisfaction, innovation and risk aversion.
Customer satisfaction seems very obvious, as without consuming customers the company will have no inbound cash flow to pay for all the costs.
Innovation is important because the company needs to react to the ever changing surroundings. A satisfied customer today does not automatically result in a satisfied customer tomorrow.
Finally risk aversion is even more vital for long term success, especially because it tends to be neglected. A company has to comply with the laws and regulations, needs to insure against potential financial claims that cannot be paid from its cash reserves and focus on diversifying the product range.

Now that we know WHY a company exists, Supply Chain Management takes a closer look on HOW to achieve customer satisfaction by a) supplying a high quality product or service and b) deliver what has been requested ‘in full’ and ‘on time’.
Immediately it triggers the need for forecasting, manufacturing, storage and transportation strategies. These strategic decisions need to fit in an overall management of the associated information, goods and money flows.
Whatever is decided, keeping the overall costs as low as possible while remaining flexible within changing environment is the core challenge linked to Supply Chain Management.

Let’s take a closer look on the various Supply Chain Management strategies.

The forecasting strategy is dependent on the type of product or service that the company is offering. Is there a trend in demand identified? Does demand have a seasonal influence? Is the trigger for buying linked to a marketed hype? Which product has reached which phase in the product life cycle? Are there any new products in the pipeline? Does a competitor aggressively gain market share?
It is obvious that forecasting requires a special skill to understand the current positioning of the company and to predict the future.
Of course you can also choose not to forecast and be totally responsive to received customer orders only. But that might be too much of a risk. Therefore it is important to know the manufacturing strategy.

The manufacturing strategy is primarily linked to the time a customer is willing to wait to get the finished product or service delivered. When you want to buy comfortable running shoes, you expect it to be available in the local sports store immediately. But when you order a brand new car, then it depends on your specific wishes whether to accept one available in the showroom or wait for your desired model to be manufactured and shipped to the dealer. Of course you are prepared to wait much longer when ordering a plane. It is important for the company to have an idea of the acceptable lead time between ordering and delivering.
An extreme short lead time requires a ‘make-to-stock’ attitude, resulting in building stock in anticipation of a sale.
When a finished product does not need to be available instantly, then it could be acceptable to implement a ‘assemble-to-order’ process. In this case the manufacturing of sufficient semi finished products prior to a customer sale is important.
When the product is so specific that it requires the customers input before manufacturing can start, then a ‘make-to-order’ approach is the only sensible option available.
Of course it is also possible to outsource all the manufacturing, leaving the appropriate manufacturing decision up to your supplier. But be sure you make solid contractual agreements regarding quality of the product and service provided.

Regarding storage and transportation strategies, the basic question is whether to outsource these activities. Normally the company needs to focus on its strengths and that is normally in the area of research and development, manufacturing and sales. So it is obvious that many companies do not want to become an expert regarding storage and transportation.
However, when the decision is made to do these tasks ‘in-house’ then it obviously requires the need for specific capabilities. For example, when you decide to take control over the storage of your products then you would need to control and execute warehouse management processes such as picking, packing and loading.

When demonstrating a very basic Supply Chain Management prototype via the model company called Sir Juke, the following decisions were made:

• No forecasting
  
• Manufacturing is outsourced
  
• Storage and transportation is outsourced

In the early days SAP functionality was grouped into modules which could be implemented separately.
The most important module was – and still is – Finance (FI) as you need it to set up a ‘company’ before you can use any functionality offered by the system. The main objective of the FI module is to allow the company to perform tasks linked to external financial reporting. When there is a need for internal reporting, then the Controlling module (CO) needs to be added. In essence FI and CO must be seen as the core of any SAP system.

SAP is an “Enterprise Resource Planning system”, offering the opportunity to integrate all data collected by all departments by using one single database. This has many benefits as there is no duplicated data in several independent systems that need attention.
Also linking the entire business into one pool of data trigger synergy. It makes reporting easier and more reliable. Also it makes it more effective to trace the information, goods and money flows throughout the company. In addition, you can link your customers and vendors to the system and take advantage of the efficiency when dealing with external partners.

Additional modules were introduced, such as Sales and Distribution (SD), Materials Management (MM) and Production Planning and Control (PP). Each module have specific subsets of functionality like sales (SD-SLS), billing (SD-BIL), consumption based planning (MM-CBP), purchasing (MM-PUR) and inventory management (MM-IM).

Throughout the years it became rare that a company would only purchase individual modules. Therefore SAP changed its vision to walk away from the modular approach and instead focus on integration. Now all the modules mentioned earlier are part of the SAP ECC Central Component and offered as one single product. This also resulted in an integrated approach regarding development of new functionality. Terms like “Logistics Execution” were introduced which focuses on inbound and outbound goods flow, directly linked with business processes shared with the traditional SD and MM modules.

Still SAP customers are referring to the traditional modules as it provides a quick and high level conceptual idea of the skill set required when in need of external consult. But it is important to understand that in future it will become more difficult to keep this simplified approach towards labeling the SAP functionality available. Therefore it would make more sense to focus on grouping processes (such as Order to Cash, Procure to Pay, Register to Report) used within a specific industry (such as Oil, Retail, Pharmaceutical, Food and Chemical industries).

SAP ECC functionality in scope for Sir Juke prototype

When demonstrating a very basic Supply Chain Management prototype, the following decisions were made:

• No forecasting
  
• Manufacturing is outsourced
  
• Storage and transportation is outsourced

So in terms of the traditional SAP modules, the focus will be on the integration between the traditional modules SD and MM.

Here a list of grouped sets of functionality that will be part of the basic Supply Chain Management demonstration for the model company called Sir Juke:

• Consumption based planning (MM-CBP)
• Purchasing (MM-PUR)
• Inventory management (MM-IM)
• Invoice verification (MM-IV)
• Sales (SD-SLS)
  
• Customer billing (SD-BIL)
• Inbound and outbound shipments (LE-SHP)

Regarding purchasing, both regular purchase orders as subcontracting purchase orders are taken into account. With regard to the subcontracting, these purchase order created within the MM module can trigger outbound shipments which are commonly associated with SD module related transactions. This is a perfect example why ‘Logistics Execution’ cannot be solely associated to either SD or MM.

Also it is inevitable that there is integration with FI, but that is kept to a bare minimum to allow financial postings triggered by goods movements, customer payments and vendor payments.

Three types of data that need to be considered when building the prototype system:

1. Configuration data; Necessary to build the company structure as well as controlling the process flows and company specific codes required for process execution and reporting purposes.
2. Master data; Used to assign default values when you want to avoid repetitive data entry during process execution. It requires configuration data to be maintained first.
   
3. Transactional data; The recording of actual data linked to process execution. It requires both configuration and master data to be available.

In order to compile a list of configuration data necessary for Sir Juke model company, we need to review the scope the basic Supply Chain Management demonstration:

• No forecasting
• Manufacturing is outsourced
• Storage and transportation is outsourced

These restrictions result in the need to examine following sets of SAP ECC functionality:

• Consumption based planning (MM-CBP)
• Purchasing (MM-PUR)
• Inventory management (MM-IM)
• Invoice verification (MM-IV)
• Sales (SD-SLS)
• Customer billing (SD-BIL)
• Inbound and outbound shipments (LE-SHP)

Configuration data

Regarding the configuration data, the standard system only needs to be tweaked in certain places such as the company structure and company specific codes for reporting purposes.

As the demonstration is focused on the integration between the traditional SD and MM modules, only the bare minimum of the required company structure is set-up. There is only one company, sales organisation, purchase organisation and plant maintained for Sir Juke per country. Several storage locations are defined within a plant to trace the process from raw material to finished goods.

Regarding the reporting requirements, these are minor enhancements to the existing codes and not worthwhile to discuss in this article.

Master data

We distinguish several types of materials: raw materials, packaging materials, semi-finished goods and finished goods.

The raw materials and packaging materials are purchased from a regular vendor. As the decision is made to outsource manufacturing, the semi finished and finished products are purchased from a subcontracting vendor.

We use the ‘assemble-to-order’ manufacturing strategy, and therefore multi-level Bills of Material need to be defined to determine which components are required to manufacture semi-finished goods and finished goods.

The next step is to link which materials are procured from which vendor. That will allow the automatic assignment of the ‘source of supply’ when executing the consumption based planning by means of exploding the available Bills of Material. It requires the definition of source lists and purchase info records. The purchase info records will include the purchase price details.

In order to receive goods in stock, some require the recording of batches prior to goods receipt.

You need customers when you want to sell the finished products. When you want to supply the subcontracting vendors with the required components by means of Logistics Execution functionality, these vendors also need to be created as customers. Also the plant needs to be made available as a customer when you want use Logistics Execution to transfer stock.

When customers are always ordering the same products, then maintaining an item proposal speeds up the order entry process.

Finally, sales prices need to be maintained in order to be able to sell the finished goods to customers.

Transactional data

When focusing on transactional data, the base documents are the sales order and purchase order. The information maintained in these documents will determine the process that needs to be followed.

Within a sales order document the sales document type, item category and schedule line category will provide the details of the type of process that needs to be followed. This could be for example a standard sales, customer return or credit note.

Within a purchase order document the purchase document type and item category are important to understand the process required. This could be for example a standard purchase, subcontracting or stock transfer.

The strategy of the Sir Juke prototype is to take full advantage of the configuration and master data to ensure that only a minimum of manual transactional data entry is required.

Before you consider the potential complications regarding printing pricing data on document, you need to take a closer look at the currency and pricing procedure configuration.

Document currency versus reporting currency

Multiple currencies may be at play on the billing document, especially when you operate within the European Union.
When your business resides in the United Kingdom, then you need to report to the tax authorithy in Pound Sterling. But when you sell to customers on continental Europe, then you may decide to invoice them in Euros. So the document currency differs from your reporting currency. You then may decide to print the VAT amount in both document and reporting currency. If so, then you also need to display the used exchange rate details.

Currency and decimal notation

The majority of currencies will have two decimals. That is the reason why the internal storage of pricing data also uses two decimals, also for those currencies that deviate from that default. So when you look in the SAP database you always see the pricing data two decimals, even for values in Indonesian Rupiah that have no decimals or Tunisian Dinar that uses three decimals.
Even though your European business might not deal with the (for them) more exotic countries such as Indonesia and Tunesia, you can prepare your output in case you might want to invoice in currencies that do not use the default two decimal notation. Of course SAP has a solution for this by offering a function module called CURRENCY_AMOUNT_SAP_TO_DISPLAY that converts the internal format (the value in the database based on an assumed two decimal notiation) into an external format (the value based on the actual currency decimal notation).

For reference:
The definition of the alternative decimal notation can be viewed via the configuration transaction oy04. Alternatively, you can also view them directly in the table tcurx.

Pricing procedure

Not all information available in the pricing procedure may be of interest when printing documents. Therefore a print indicator is available within the pricing procedure to allow a print program to only retrieve the relevant pricing data for output.
When the print indicator is correctly maintained within the pricing procedure, then the SAP standard function modules RV_PRICE_PRINT_ITEM and RV_PRICE_PRINT_ITEM_BUFFER should be used to collect pricing data for the output of sales documents.

For reference:
Read also the OSS note 216150 for more details.

One important GDP guideline is to ensure that medicine are only delivered to those licensed to receive them. In order to verify whether a computerised system is obeying this basic rule, just answer the following questions:

• Does the system allow medicine to be shipped to recipients who are not licensed to receive them?
• Does the system allow medicine to be shipped to recipients with an expired license?
• Does the system allow invoicing a customer for medicine shipped to a competitor?

If any of the questions listed above can be answered with ‘YES’, then the system is non-compliant and runs the risk to cause a product recall.

When your company is using SAP ECC to record Supply Chain Management business transaction, then do not hesitate to contact Isard Haasakker when there are GDP compliance concerns and ask for a ‘SAP ECC GDP Compliance Check’.

His SAP ECC GDP Compliance Check focuses on the creation and maintenance of sales order, delivery, shipping and billing documents.
The system customising, master data and custom developments are analysed.
The traceability of stock and the completeness of the paperwork associated to deliveries to customers are verified.

The aim of the SAP ECC GDP Compliance Check is to find the root causes for potential product recalls and to propose a feasible resolution to fix the problems.
By default standard SAP ECC functionality will be the basis for any proposed resolution, as that normally provides the fastest Return On Investment along with the lowest cost for on-going support while ensuring maximum scalability.
Any proposed resolution will also aim to increase visibility on the goods flow and information flow regarding the delivery of medicine to customers.

Please visit the FAQ when you want to read more about the SAP ECC GDP Compliance Check.

The only available control that influences the entire sales order is the complete delivery indicator. When marking this in the customer master, the delivery is created when there is sufficient stock allocated to all sales order items. Normally this is only useful when there is a legal requirement that enforces this restriction. For most companies this functionality is not used as it could delay the delivery considerably. It is more likely that customer would like to receive partial deliveries, or just receive the stock that is available.

Regarding ‘partial delivery’, the standard SAP system only allows control on sales item level.
You can decide that complete delivery is required for individual sales items.
Alternatively you can force that only one delivery is created for the sales item. This can be triggered as soon as there is stock available for that item and therefore not taking into account other sales items. Another option is that you allow a zero-quantity delivery item when there is stock for other sales items.
In case of allowing partial deliveries, you can restrict up a specific maximum or else allow unlimited number deliveries for the sales order item.  In addition you can set under-delivery and over-delivery tolerances.

You would think that the standard SAP system offers enough flexibility. But there is a specific requirement that is particularly essential for the Fast Moving Consumer Goods (FMCG] industry. They require that only one delivery is created for the sales order, delivering whatever is possible and closing the sales items that cannot be delivered in full. This requirement is also referred to as Fill or Kill. As the standard SAP system does not offer a solution at the moment, a custom made solution is necessary. The customer specific Fill or Kill resolution depends on the configuration of other sales processes as well as the operational and management reporting requirements.

Ever since January 1st 1993 a single European market exists for the member states of the European Union. However, there is a need to record movements of goods across the borders of the member states to a) assess the international competitiveness and dependency regarding import and export of products and b) monitor price developments in foreign trade. Therefore there is a need to collect information on goods movements within the EU, hence the introduction of Intrastat.

Please note that Intrastat reporting should not be confused with EC Sales lists which are used to collect information on all sales from UK VAT registered traders to VAT registered traders in other EU Member States.

Intrastat: When?

A company has to submit information to the local authorities when it trades within the European Union. It is enforced by law. Business within the United Kingdom need to supply a monthly report when the export value exceeds £250,000 or import value exceeds £600,000 annually. Else reporting is done every quarter.

Intrastat: What?

The level of detail in the report may differ for each member state, but the following data seems mandatory for all member states:

Dispatches and Receipts:

• Mode of transport when crossing the border (i.e. road, rail, water, air)
• Type of business transaction (i.e. regular trade, sample sale, consignment, intercompany stock transfer, customer returns)
• Commodity code (grouping of products to allow uniform reporting within the European Union)
• Value (the value should also include the costs for transport; a statistical value must be determined in case of sample sale or intercompany stock transfer)
• Weight

Receipts:

• Country of origin of the goods received (the country where the goods have been manufactured; when manufacturing has taken place in multiple countries, then use that country to which the most value has been added during the entire manufacturing process)
• Country of despatch

The SAP R/3 system uses billing information to compile the intrastat report. Therefore virtual billing documents have to be issued in the system for sample sales and intercompany stock transfers.

It is assumed that billing documents are issued on the day that goods leave the warehouse. However, the customer may negotiate that billing can only be triggered when the goods have been received at the customer site (proof of delivery scenarios). In those cases a delay regarding billing could make Intrastat reporting more complex when the goods issue is on month x and goods receipt in month x+1.

Handling of customer complaints and the impact on Intrastat reporting

For example, goods are delivered to a customer in another EU member state. When the goods are received and inspected, your customer discovers that part of the delivery is damaged. For the subsequent damaged goods regulations or warranty process, the following possibilities exist:

1. The damaged goods are returned for a credit memo
   For the returned goods, you need to submit an INTRASTAT declaration for receipts. The values in the credit memo must be paid.
2. The damaged goods remain with the customer and a credit memo is issued
   You need to create a declaration for the dispatch. The amount of the credit memo for the damaged goods must be included.
   If the INTRASTAT declaration for the dispatch has not yet been submitted, the credit memo can be excluded immediately.
   If the INTRASTAT declaration has already been submitted, the original declaration for the dispatch must be corrected.
3. The damaged goods are returned and you deliver a cost-free replacement
   You need to submit an INTRASTAT declaration for receipts for the returned damaged goods. For the replacement delivery, you need to submit an INTRASTAT declaration for dispatches.
4. The damaged goods remain with the customer and you deliver a cost-free replacement
   For the delivered replacement goods, you need to submit an INTRASTAT declaration for dispatches (again).

As shown in the examples above, sometimes debit and credit notes need to be included when a financial correction was necessary linked to a business transaction involving import or export of goods. Complexity regarding Intrastat reporting may occur when the goods were delivered and invoiced in month x and the financial correction was registered in month x+1.

Intrastat: Executing the report in SAP R/3

In order to execute the INTRASTAT Declaration in SAP R/3, you need to perform three main steps for receipts and dispatches:

1. Collect transactional data from the SAP system and store them in a worklist.
   During this phase you can analyse and correct missing data necessary for INTRASTAT Declarations while executing a test run.
   When you execute an update run, then the worklist is created that is necessary for the second step.
2. Prepare INTRASTAT Declaration by deleting, changing and/or adding entries in the worklist.
3. Issue the INTRASTAT Declaration based on the data in the worklist.

It is advised to perform a material consistency check regularly to avoid incomplete transactional data in the SAP system.
It is possible to execute a Material Master Consistency Report (transaction code VE81). Issues may be found in the maintenance of weights, commodity code, country of origin and various codes to identify and control import/export processes.
During the processing of the Intrastat report also missing transactional data may trigger the need for manual intervention (transactions MEIS, VI99, VEFU). Apart from the missing material specific master data, also incoterms and (statistical) value might not be captured during the purchase or sales process. This needs to be maintained before the Intrastat report can be submitted.

Some companies have special business triggering import/export within the EU for which data cannot be collected via billing documents. This normally happens when the standard SAP R/3 system has been enhanced. Special custom made programs have to be created to allow reporting of these exceptional business transactions.

Conclusion

Pay close attention to the quality of the master data. That would speed up the lead time for collecting and submitting the Intrastat report.
In addition the company needs to be aware of exceptional transfer of goods between the member states of the European Union when they are not identified by collecting billing information.

• Create invoices based on deliveries of goods and/or services
• Issue credit and debit memos
• Create pro forma invoices
• Cancel billing transactions

The special billing processes are:

• Create billing plans
• Create instalment plans
• Create rebate agreements
• Issue retroactive billing

Billing plan

A billing plan is a schedule of individual billing dates in a sales document that can be applied to the whole document or for a specific item. With a billing plan you are able to control periodic billing, milestone billing and down payments.

Periodic billing activates the creation of billing documents on a period basis until an optional horizon is reached. This billing process is useful for rental contracts.

Milestone billing activates the creation of billing documents when an event is about to start or is finished. This billing process is useful when using projects such as the assembly and delivery of customer specific projects.

Down payments are payments made before completion of the product, with no interest. They represent short or medium term outside capital procurement and therefore improve the company’s liquidity situation.
The SAP system handles a down payment as a variant of milestone billing.

Instalment plan

The instalment plan allows the customer to pay in instalments. With the instalment plan the system creates one invoice for all instalments. On the basis of this billing document you can print an invoice listing all the instalments with the relevant payment dates and amounts to be paid by those dates.

The instalments are calculated by the system by taking a percentage of the total invoice amount for each instalment. The system takes into account any rounding differences for the last payment date.

For each instalment the system creates a customer line item in financial accounting.

The instalments are defined by the payment terms, which are controlled by the payment terms key.

Rebate agreements

A rebate is a special discount that is paid retroactively to a customer. This discount is based on the customer’s sales volume over a specified time period. Details concerning the possible discount are settled in rebate agreements. In the agreement you specify, for example who receives the rebate payment, on what criteria the rebate is based (customer, customer and material, and so on) and how long the rebate agreement is valid.

Within the rebate agreement you create separate pricing condition records for each product the customer buys. These records specify the rebate amount or percentage for each product. You can also specify a pricing scale so that the customer can earn a better rebate by ordering more. Because rebates are always paid retroactively, the system keeps track of all billing documents (invoices, credit and debit memos) that are relevant for rebate processing. The system can, if you wish, automatically post accruals so that the accumulated value of a rebate is recorded for accounting purposes.

A rebate agreement is finally settled when you issue a credit memo to the customer for the accumulated rebate total.

Retroactive billing

Retroactive billing refers to additional billing documents issued after re-evaluation of billing documents that have already been processed and settled based on new pricing agreements made with the customer.

Example: An invoice has been created for a product using the historical net price of £10 each when the current net price is £9 each. Therefore a correction needs to take place.
The system calculates the difference between the net value of the invoice (£10) and today’s net value based on the new price (£9). It then creates a credit memo with the net value of £1 to be credited to the customer.

The system calculates retroactive billing values for primary documents. It can use secondary documents to help calculate this value.

Invoices are always primary documents. Debit or credit notes can be classified as primary or secondary documents, depending on the order reason assigned. Examples of order reasons include price changes, poor quality or ruined material. Depending on how the order reason you entered is customized, the debit or credit note becomes relevant for retroactive billing.