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Evaluate Contracts, Secure Resources!

Supply bottlenecks coupled with sharply rising material prices are affecting production in many companies. With the right strategy, SAP-based purchasing can cushion this negative trend and secure the required resources at an early stage.

According to a survey by the Association of German Chambers of Industry and Commerce (DIHK), 83 percent of companies in Germany are complaining about supply problems and price increases for raw materials and intermediate products. Many companies have already scaled back their production or even stopped it altogether, and the hoped-for economic upturn this year appears to have been put on hold.

The problem of faltering supply chains, missing materials, and rising purchase prices will continue to occupy the global economy for some time to come. Companies should therefore act quickly and adapt their strategic and operational procurement processes to more stringent requirements. As a short-term measure, it is advisable to set up a strategic task force comprising representatives from purchasing, IT, logistics, supply chain management, and the legal department. Efforts should focus on building an integrated system landscape consisting of SAP Ariba, the Ariba network, and innovative third-party tools. These tools provide companies with several effective approaches to counter the threat of supply risks, allowing them to stay competitive.

Transparency is everything. This is especially true for businesses that purchase a wide range of materials or services from different suppliers. If certain supply bottlenecks or price increases become apparent, it is helpful to quickly identify the relevant suppliers and supply agreements.

With Ariba’s supplier and contract management, the required information is available in a timely manner. In addition, because Ariba is seamlessly integrated with enterprise-wide SAP ECC and supply chain planning applications, the impact of anticipated replenishment issues on the supply chain can be analyzed at the touch of a button. This quickly enables the company to initiate effective countermeasures.

Hedging volumes and prices

One of these countermeasures is to proactively approach affected suppliers with the aim of securing agreed delivery quantities and delivery prices. The supplier and contract data stored in Ariba provides the basis for targeted negotiations to adjust existing agreements or jointly seek new solutions. By connecting suppliers digitally, both sides can communicate with each other without media discontinuity.

For the remaining supply problems, it is advisable for companies to allocate the available raw materials and intermediate products to selected production units of their own – keyword: allocation. Who is awarded the contract in each case should be based on pure business criteria, such as existing customer contracts or the margins that need to be achieved.

To counter the growing volatility in the purchasing market in general, it is a good idea to establish alternative sources of supply. Ariba users are well positioned to do this. As part of the new SAP Business Network, Ariba provides companies with a unified B2B portal. They can use it to find new partners among millions of global suppliers, network with them seamlessly, and process orders quickly and easily.

Those who want to search specifically for suitable suppliers should extend their SAP procurement platform with special third-party tools, for example AI-based software solutions that sift through millions of supplier profiles available on the web and billions of data records. This not only supports the search for suitable suppliers, but also evaluates their trustworthiness. Companies receive well-founded market information, enabling them to purchase more strategically.

Purchasing organizations can find other useful SAP add-ons within the SAP.iO innovation program. With this fund, SAP supports internal and external startups worldwide in developing products and services that expand and diversify the SAP ecosystem. One example is the Archlet bidding tool, which can be used to solicit and validate bids from suppliers and negotiate prices.

Integrated IT

The deployment of an SAP-based procurement platform provides purchasing organizations with the agility they need to address the supply crisis, but it comes with a number of challenges. For example, IT departments face the mammoth task of integrating the new tools into existing IT system landscapes as well as SAP purchasing processes and solutions. Furthermore, the innovations must be established and sustainably supported in the company with a change management approach.

Buyers, in turn, are spoilt for choice when it comes to identifying precisely those innovative solutions and add-ons in the Ariba environment that are suitable for their company. To ensure that companies can master these complex tasks, they should engage an experienced SAP and Ariba consulting partner. This is because only specialists are able to selectively filter out the tools that support a company’s individual purchasing requirements.

Likewise, the consulting partner can ensure seamless integration of the new solutions into the Ariba platform, making application and operation noticeably easier. Users are provided with an SAP-based purchasing solution from a single source instead of having to switch between individual programs in a time-consuming process. In addition, they have access to high-performance technical support in day-to-day IT operations to assist them with questions, problems, and incidents.

In addition to a short-term task force, the link between procurement and IT in the organization should be ensured in the long term, in the form of a procurement excellence team. This idea is not new, but in the supply crisis, it is more topical than ever. To derive the right measures and make purchasing processes more robust in the long term, it is a necessary step to take.

The procurement excellence team should combine purchasing and IT competencies. Its central task is to constantly review the integrated system landscape consisting of Ariba and the selected special solutions for optimization opportunities. Therefore, team members should be curious by nature and open-minded towards technical innovations. After all, only through constant further development can the Ariba platform unleash its full potential, which lies in a congruence of the real business world and internal purchasing processes.

Digitalization is an ongoing task

Since purchasing plays a key role in business success, its digitalization should be understood as an ongoing task. In concrete terms, this means that even if the current supply problems may lead to a shift in priorities, purchasing organizations should not continue to postpone this issue. Those responsible are thus well advised to learn the right lessons from the current “stress tests” and to drive forward the digital transformation of procurement processes in suitable initiatives.

E-3 Magazine November 2021 (German)

About the author

Ferhat Eryurt, Apsolut

Ferhat Eryurt is Partner at Apsolut.

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