Mapping Direct Materials Sourcing Processes to Customer Requirements

SAP Ariba Direct Materials Sourcing for Automotive and Industrial Manufacturing supports five direct materials sourcing processes:

1. New product introduction/forward sourcing
2. Demand-driven direct sourcing
3. Strategic sourcing
4. Contract renewal-driven sourcing
5. Periodic contract price renegotiation

This video provides a brief introduction to each process.

Now let's dive deeper into each scenario.

Forward sourcing for new product introduction (NPI) offers a native integration into advanced procurement planning capabilities that support complex, multiyear NPI program planning and tracking capabilities. In this scenario, the process is initiated from Procurement Planning, which ultimately creates bundles for the items to be sourced. Each bundle represents one sourcing project within the sourcing application.

Key details, such as demand info, target costs, invest items, or timelines are set in Procurement Planning. Actual dates (for example, sourcing publish date), the sourcing status, and actual awarding figures are synced back from sourcing to the planning application, enabling users to easily track progress from start to finish.

There are multiple steps in this process:

• Import BOM/part list: This represents the basis for the entire planning and sourcing process. You can import entire BOMs either via API or file upload into the Procurement Planning application.
• Project setup: Define the general project structure (Project & Subproject) and assign relevant BOMs to the subprojects.
• Package items: Group items within a subproject into packages as required for planning.
• Item processing and tracking: Maintain item data, define which items need to be sourced, request and set item target prices and investment figures, and define item demands.
• Scheduling: Schedule subprojects and items based on the start of production.
• Bundling and transfer to sourcing: Group items to be sourced across projects into bundles and send them to sourcing. Each bundle creates one sourcing project. Relevant details such as timelines, demand details, or target values are also transferred.
• Enrich sourcing project: Add more details in the sourcing project, such as relevant suppliers (via supplier lists), pricing details, and so on.
• Execute sourcing projects: Suppliers are invited to submit quotes via the Quotation Management app. Buyers monitor the quotation process and, if required, conduct multi-round supplier negotiations to ensure the best results.
• Track sourcing progress and monitor BOM changes: The progress and key figures, such as awarded prices, are synced back to project/program level within the Procurement Planning application, enabling you to compare planned vs actual values and identify potential issues early on.
• Create follow-on documents: Based on which supplier quotes were awarded, follow-on documents are created and can be further distributed into multiple back-end ERP systems.

The demand-driven direct sourcing scenario is used to aggregate demands (purchase requestions) from across ERP systems, create sourcing projects based on those demands, and ultimately create follow-on documents based on the sourcing project. The starting point for this process is the Process Purchase Requisitions Centrally app. Here, the buyer can pick items from various connected ERP systems and create a sourcing project based on those selections.

The main steps in this process include:

• Identify applicable demands: Select purchase requisition items across different connected back-end systems from within the Process Purchase Requisitions Centrally app.
• Create sourcing project: Create sourcing projects based on the selected purchase requestion items. All the relevant details are automatically carried over to the new project.
• Enrich sourcing project: Add more details in the sourcing project, such as relevant suppliers (via supplier lists), pricing details, and so on.
• Execute sourcing projects: Suppliers are invited to submit quotes via the Quotation Management app. Buyers monitor the quoting process and, if necessary, conduct multi-round supplier negotiations to ensure the best results.
• Awarding and follow-on document creation: Buyers review the final quotes and create awarding scenarios accordingly. Follow-on documents (either PO or central contract) can be created based on the award.

This scenario starts from the main sourcing project application: the Manage Sourcing Projects app. Here, buyers have the flexibility to create the entire sourcing project. They can copy content from a previous event, but also add more details as required. Buyers can, for example, add items directly from any connected material master, set milestones, define the respective yearly demands, add commodities linked to price indexes, enable cost breakdowns, and define pricing conditions.

When all sourcing project details are maintained and the supplier list is updated and approved, the project can be published (leveraging flexible approval workflows) to suppliers. If needed, buyers can trigger further quantity and price negotiations with specific suppliers to improve sourcing results. After the quotes have been compared and analyzed, and awarding scenarios have been created and approved, the buyer can trigger the creation of follow-on documents.

The main steps in this process are:

• Create sourcing project: Buyers create new sourcing projects from the Manage Sourcing Projects app.
• Enrich sourcing project: Add more details in the sourcing project, such as relevant suppliers (via supplier lists), pricing details, and so on.
• Execute sourcing projects: Suppliers are invited to submit quotes via the Quotation Management app. Buyers monitor the quotation process and, if necessary, conduct multi-round supplier negotiations to ensure the best results.
• Awarding and follow-on document creation: Buyers review the final quotes and create awarding scenarios accordingly. Follow-on documents (either PO or central contract) can be created based on the award, and can be further distributed into multiple back-end ERP systems.

In the Process Central Purchase Contracts app, buyers can identify which existing central contracts should be renewed.

If the contracts identified are long-term agreements where existing prices with the same supplier need to be renegotiated, buyers can leverage a purpose-built solution: the Contract Price Renegotiation app.

If the goal is to renew an expired contract or to re-source contracted items in the market, including different suppliers, new terms and conditions, or cost breakdowns, then buyers also have the ability to trigger a complete sourcing project based on the existing central contract. The outcome of this scenario can either be a new central contract or an update to an existing contract.

Main steps in this process:

• Create sourcing project from existing central contract: Using the Process Central Purchase Contracts app, buyers can choose contract line items and create a new sourcing project based on these contracts. The contract item details are copied to the new sourcing project. Users can choose whether they want to update the existing contract or create a new one.
• Enrich sourcing project: Add more details in the sourcing project, such as relevant suppliers (via supplier lists), pricing details, and so on.
• Execute sourcing projects: Suppliers are invited to submit quotes via the Quotation Management app. Buyers monitor the quotation process and, if necessary, conduct multi-round supplier negotiations to ensure the best results.
• Awarding and contract creation/update: Buyers review the final quotes and create awarding scenarios accordingly. Then, based on which contract scenario is chosen, an existing contract is updated or a new contract is created.

Contract price renegotiation offers the ability to renegotiate prices of long-term contracts (agreements) with suppliers. In this scenario, a buyer initiates the process from central contracts in SAP S/4HANA, leveraging the Contract Price Renegotiation app. They create a renegotiation event with a new price validity period and the applicable pricing condition. Buyers also have the ability to conduct pricing simulations to define a potential renegotiation strategy to meet a savings target.

Suppliers can review these renegotiation events in the Supplier Quotation Management app and submit new prices. Buyers can review the new prices, and the system will seamlessly update the awarded prices in the linked central contracts.

Main steps in this process:

• Creation of a renegotiation event: Buyers can use either the Process Central Purchase Contracts app or the Manage Renegotiations to start a renegotiation event. They do this by selecting central contract line items from different contracts that belong to the same supplier. Then, they set a new pricing validity period and specify the pricing conditions for the new prices they're seeking.
• Price simulation: Buyer can do price simulations by providing the expected new prices for each line item. They can then review the savings potential against the target savings in the price improvement charts.
• Publishing of renegotiation event: Buyers can publish these events to the supplier in the Supplier Quotation Management app.
• Bid submission: Suppliers can view the renegotiation event and create a quotation. In the quotation, the supplier can review the current contracted prices and submit new prices.
• Multi-round negotiation: Buyer can review the prices, compare them with planned savings target values, and identify potential deviation early on. They send the line items that require further negotiation to the supplier using the Request New Quote option.
• Awarding and contract update: Buyers can review the prices and accept them. The accepted prices are updated in the linked central contracts. The new prices can be distributed into multiple back-end ERP systems.

• SAP Ariba Direct Materials Sourcing supports multiple direct materials sourcing scenarios for automotive and industrial manufacturing.
• Key processes include new product introduction, demand-driven sourcing, strategic sourcing, contract renewal sourcing, and contract price renegotiation.
• Each scenario follows structured steps, such as project creation, supplier engagement, quote evaluation, and follow-on document or contract creation.
• Integration with procurement planning and ERP systems enables seamless tracking, negotiation, and contract management in sourcing projects.