Introducing the SAP Ariba Solutions for Direct Spend

Direct materials are the raw materials or goods that are directly processed or used in a final product. They are an integral part of the product made and can be directly attributed to the cost of the product. Procurement of direct materials refers to the process of acquiring the necessary raw materials, components, and supplies directly from suppliers to support the production of goods or services. This process is crucial for businesses that rely on a steady supply of materials to meet their production demands.

SAP offers customers the possibility to cover their direct spend needs comprehensively by combining SAP S/4HANA functionality to that of the SAP Ariba solutions for direct spend.

SAP Ariba solutions for direct spend connect the people, partners, processes, and information needed to manage all the design-to-deliver activities in a simple, smart, and open way. SAP Ariba solutions for direct spend refers to the following solutions:

• SAP Supply Base Optimization : provides the decision support customers need to efficiently meet goals for direct spend savings. This cloud-based solution provides advanced predictive analytics, optimization, and simulation capabilities, so customers can negotiate effectively to meet local and global savings targets and make intelligent business award decisions.
• SAP Ariba Supply Chain Collaboration : enables customers to drive an efficient supply chain network. By connecting systems and aligning stakeholders and trading partners to a common plan, it can help customers orchestrate multi-tier supply chains to reduce inventory and improve customer service.
• SAP Ariba Strategic Sourcing Suite : is a single, integrated solution that covers the end-to-end, source-to-contract process for indirect, services, capital equipment, and direct spend categories.

SAP Ariba solutions for direct spend integrate with product lifecycle management (PLM), SAP S/4HANA, and SAP Integrated Business Planning systems. This integration results in the following key benefits:

• Faster time-to-market and time-to-volume: Integrate R&D and product design with sourcing, procurement, and supply chain management to accelerate innovation.
• Quick and accurate sourcing: Source all materials and services for multi-level BOMs on a single platform, and move smoothly towards volume production.
• Effective supplier collaboration: Identify any potential supply shortages before they occur.
• Better product cost management: Minimize contract leakage and realize negotiated savings when all purchase orders reflect supplier agreements.
• Stronger compliance: Tie supplier qualification and sourcing together to ensure selection of qualified suppliers and mitigate supply chain disruptions.

• Complete supply chain visibility: Collaborate with multiple tiers of suppliers to manage your non-linear and external supply chains, reduce inventory levels, increase fill rates, and increase team productivity.

SAP Ariba provides features for the sourcing of direct materials and collaborating with suppliers once the supply base is established.

SAP Ariba Direct Material Sourcing encompasses two primary scenarios: sourcing of direct materials for new product development and/or sourcing for direct materials that have already been identified as necessary for production.

You have the option to import your materials or bills of materials, which have been identified by the Engineering team, from SAP S/4HANA, to SAP Ariba Sourcing. Suppliers, whether they are new or already on the Approved Manufacturer List, can then be invited to participate in sourcing events. Suppliers can use their SAP Business Network (formerly known as Ariba Network) account to answer queries regarding material specifications and pricing. Once the material demand is confirmed, you can also imported it into SAP Ariba, and request vendors to submit quotes for the exact quantity you require. Additionally, the SAP Ariba Contracts software can be utilized to generate contracts digitally with the suppliers.

Essentially, SAP Ariba enables customers to request suppliers for information and costs of direct materials and choose the best candidate for their supply base.

Once appropriate vendors are engaged, after the sourcing process is completed, all relevant details regarding the materials or bills of materials are transferred to SAP S/4HANA as a purchase info record, a purchase order, or an outline agreement for the procurement activities related to the manufacturing of bicycles. Additionally, the SAP Ariba Contracts software can be utilized to generate contracts digitally with the suppliers. This means that buyers will use SAP S/4HANA to buy direct materials from their suppliers.

Alternatively, you have the option to utilize the SAP Business Network Supply Chain Collaboration as the primary method for purchasing direct materials. Your purchasing team can initiate the procurement process within SAP S/4HANA and communicate with suppliers electronically through the SAP Business Network Supply Chain Collaboration platform. This platform facilitates seamless collaboration between buyers and suppliers, ensuring that the supply of direct materials remains uninterrupted. The application enables buyers to schedule material deliveries based on pre-established agreements with suppliers and also provides vendor inventory management capabilities. Both buyers and suppliers can manage any necessary stock transfers efficiently. Suppliers can promptly confirm orders, ship goods, and invoice customers once orders are fulfilled.

Play the video for an overview of the direct material process in SAP Ariba.

The procurement of direct materials in SAP S/4HANA typically involves several steps. Firstly, the procurement team identifies the specific materials required for production based on the production plan and inventory levels. This involves analyzing the demand forecast, considering lead times, and evaluating supplier capabilities.

Once the materials have been identified, the procurement team initiates the sourcing process. This involves identifying potential suppliers, requesting quotes or proposals, and evaluating supplier capabilities, quality standards, and pricing. The team may also negotiate contracts or agreements with selected suppliers to ensure a stable supply of materials under favorable terms.

After selecting the suppliers, the procurement team places purchase orders for the required materials. This involves specifying the quantity, delivery date, and any other relevant terms and conditions.

The flow illustrated in the image shows the end-to-end source-to-pay process for direct spend. SAP Ariba Strategic Sourcing Suite supports the design, source, and contract part.

After the sourcing event is awarded and/or the contract is approved and signed, the results are transferred to SAP S/4HANA or SAP ERP.

A source of supply is created and is used in the operational direct procurement process.