Supply Chain Integration

Data, information and knowledge are the critical factors to effective logistics and supply chain management on any scale, because they form the basis for planning of the logistic operations and supply chain processes, coordination of actions and communication with the business partners and running a successful business.

The significance of information has been reflected in the supply chain definition proposed by APICS, in which the supply chain is ”a global network used to supply products and provide services, from the level of the initial raw materials to the ultimate consumption of the finished products, using information processing, physical distribution and financial resources”.

In order to manage a supply chain in a large corporation with international operations, a huge volume of data are needed. Let’s just mention a few examples of actions associated with particular organizational levels:

  • execution of operations and transaction processing;
  • making routine decisions e.g. supplier evaluation;
  • strategic planning e.g. sales plans; and
  • strategic decision making.

In addition to organizational levels, the directions of information links also need to be taken into account. Companies implement, for instance, planning and control actions linking them with the clients operating in the so called ‘bottom section’ of the supply chain. Such activities are generally referred to as the customer relationship management (CRM).

Similar activities concerning the relationship with suppliers (supplier relationship management, SRM) link the company with the operators engaged in the “upper section” of the supply chain.

In view of the large volumes of data and multiplicity of directions and organizational levels, effective management of information links requires appropriate IT tools which should be systematically integrated, in keeping with the growing maturity of the enterprise. Both inside organizations and in the entire supply chain, integration should also be cultivated in the personal dimensions and relationship development.

The opportunities and problems arising from globalization encourage companies to enter into partnerships with new types of suppliers.

Time pressures and continuous efforts to cut down the costs mean that internal barriers have to be removes and more effective relations between functional units have to be built. Companies with the best supply chains in the world make a much wider use of new technologies, innovations and thought processes than the companies who do not have such an advantage. The result is benefits in almost all areas of operations having impact on the shareholder value, such as the costs, customer service, return on assets and revenue generation.

From ERP to GTM

The first integration stage involves the use of a uniform, integral IT system facilitating the exchange of information, particularly between geographically distant locations. An ERP system may be employed to manage the purchasing and inventory processes, settlements with counterparties and tracking the location of supplies.

The system ensures unification of the data format and presentation structure, integrates logistic modules with a uniform database and offers the users access to numerous, standardized functionalities.

Thanks to that, it is possible to integrate a number of applications operated by various trade partners executing the same transactions.

The integration may initially apply only to exchange of information, but with time and the development of the business relationship, may be extended to include definition of the supply agreement terms and review of its performance.

It could be seen as a partnership with such main goals as savings of costs and resources (e.g. cutting down the cost of production, distribution, packaging or information processing), customer service improvement, marketing benefits and a growing or stable profitability.

The example of an application supporting such processes is SAP Global Trade Management (SAP GTM) which provides information from all areas engaged in by such a partnership.

SAP Global Trade Management

SAP GTM is an SAP ERP-based solution addressed mainly to companies with international operations. The likely users of the application are large, multinational corporations with branches in different parts of the world and trading contracts signed with a wide network of partners. SAP GTM may also be used by organizations seated in one country and without any branches abroad, but having important foreign business partners.

The goal of SAP GTM is to increase the efficiency of the supply chain through close integration of all its elements and provision of information about the whole range of key indicators (e.g. margin, fluctuation of the FX rates, volume of the planned demand) concerning both sides of the chain.

It is an application which consolidates in a single place the information from the area of logistics, accounting and settlements with counterparties, which are equally important for the sellers and the buyers.

The key processes of SAP GTM include:

  • domestic sales;
  • domestic sales with receipt to the warehouse;
  • foreign sales.

The processes consist of four stages: enquiry, trading contract, delivery and settlement. Each of the processes starts with an enquiry, on the basis of which a draft contract and, ultimately, the final contract is created. The trading contract triggers the creation of a sales order on the one side and a purchase order on the other side (counterparty).

The next stage is the delivery. In the case of a delivery with receipt to the warehouse, delivery confirmation is also used. In the final stage, the transaction is settled and the invoice is generated.

All those operations are executed from the level of the SAP GTM application i.e. all information necessary to make a business decision is available in a single place, without the need to go through a number of different modules. This obviously translates into the savings of precious work time which can now be used more effectively than jumping all over the system to find the required data.

SAP GTM application works with two other solutions dedicated to the specific needs of commercial companies:

  • SAP GTS (Global Trade Services) which supervises conformance with legal regulations, including the customs laws, throughout the entire process of purchasing and sales; and
  • SAP FSCM (Financial Supply Chain Management) which facilitates the management of FX risk.
  • SAP GTM is an SAP ERP-based solution addressed mainly to companies with international operations

The basic document in SAP GTM is a trading contract which links the necessary data concerning the purchasing process, sales process and accounting information and offering a detail insight into every single transaction, from the purchase order, through delivery, until the receipt of goods and settlements.

A valuable functionality is the possibility of generating cost and time simulations at any stage of the transaction based on the earlier mentioned data and on the exchange of information between all the participants in the supply chain thanks to online access to the trading contract.

Easier, Faster and No Risk

SAP Global Trade Services (SAP GTS) supports the management of a number of crucial areas from the legal point of view:

  • SAP Compliance Management facilitates the review of conformance of the executed transactions with the foreign trade rules and regulations, to avoid any sanctions due to non-conformance. It is also a component which supports compliance with the provisions of the Sarbanes-Oxley Act (SOX) in the scope of foreign trade;
  • SAP Customs Management is a tool which supports the company’s interaction with the customs agencies and reduces time needed for all the customs procedures thanks to appropriate product classification (based on, for instance, the Harmonized Tariff System, the Export Control Classification Number – ECCN, the European Customs Tariff or the Integrated Tariff of the Community – TARIC), calculation of customs fees and generation of trading documents which can be exchanged with the customs authorities using SAP NetWeaver and the EDI standard with XML format. The component is currently prepared to operate under the EU NCTS customs systems, AES in the United States and ICS in Australia);
  • SAP Risk Management helps to mitigate the financial risk and ensures transparency of costs at each level of detail. The component offers two important functionalities: preference processing – support of the trading of goods at preferential terms and the settlement of subsidized export goods in the case of food manufacturers who settle their contracts on the basis of the European Union Common Agricultural Policy.

Due to its specific nature, SAP GTS is a solution which is most useful in the purchasing area thanks to a close integration with SAP SRM purchasing application, among other things. For example, at the time of generating a purchase order (PO), the import control functionality checks whether the counterparty is not on the list of embargoed suppliers (important in the case of strategic goods, such as weapons or dual-use technologies and goods which are perceived as economically sensitive e.g. chemical and biological substances, nuclear technologies, optical and laser equipment used in avionics and certain types of software) and whether the terms of the planned transaction are in line with the customs rules.

Finance in the Global Supply Chain

In the common understanding, the supply chain is associated with the physical flow of goods or, less often, services. In the actual fact, however, the supply chain should also be associated with the financial flows between the parties to a transaction.

To this end, SAP Financial Supply Chain Management (FSCM), an enhanced version of the SAP Treasury and Risk Management, facilitates the control of financial flows between the trade partners The SAP FSCM components support a reduction of the global supply chain costs, provide the pertinent financial information and, as a result, allow for a more effective use of unallocated funds:

  • SAP Biller Direct and SAP Billing Consolidation allows for the preview of settlement accounts and the payment status which means that regardless of their geographical location in the world, the counterparties may directly execute their mutual settlements (in combination with SAP Cash Management);
  • SAP Dispute Management supports the management of overdue or disputable payments by providing classification of particular transaction types and transaction stages. For example, if the dispute concerns a customer complaint, the SAP FSCM user may check whether a given complaint has already been evaluated and what the outcome is;
  • SAP Cash and Liquidity Management ensures daily information about the balances of all bank accounts, taking into account the settlement information from all branches and all banks providing services to the corporation;
  • SAP Collections Management supports the work of departments responsible for the settlement of amounts receivable from the customers by producing a hierarchy of receivables from the risk management perspective. The components helps to select the customers whose payments are of key importance to the Company’s liquidity and to identify overdue payments. Additionally, the component offers a possibility of recording the complete history of payment interactions with each counterparty;
  • SAP Credit Management supports the processes associated with credit lines sanctioned to customers. By consolidating the financial and non-financial information, SAP Credit Management facilitates mitigation of the credit risk (which is quite crucial in the case of international operations, due to a varied economic situation in different countries in the world)) and optimization of the credit line terms. For example, when a new sales order is generated, the SAP Credit Management application automatically checks the settlements with the supplier and their credit history and, if necessary, blocks the potential transaction. An important functionality is a possibility of using data of this kind coming from other software thanks to theuse of the SAP Exchange Infrastructure (XI) platform;
  • SAP In-House Cash (IHC) is a so called ‘virtual bank’. Companies with extensive international operations usually settle their payments through a wide range of banks. SAP In-House Cash centralizes the payments and organizes them into batches which results in considerably lower service costs;
  • SAP Treasury and Risk Management contains functionalities which support the liquidity and cash management. As a result, the decisions concerning orders can be based on projections of the present and future financial situation of the company, taking into account the FX rates, interest rates and the cost of security against FX risk.

SAP GTM, together with the advanced FSCM functionalities, is not an application to be used by all companies having foreign business partners. Greatest benefits will be observed by companies for whom global trading is the major part of their business.

The advantages will certainly be appreciated by managers from multinational corporations and the largest Polish enterprises operating on international markets, with annual turnover in the order of billions of euros and numerous business partners all over the world, operating in diverse economic, legal and cultural environments.