Introducing Direct Materials in the SAP Ariba Strategic Sourcing Suite

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 with that of the SAP Ariba solutions for direct spend.

• 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 Sourcing, when enabled as part of the Strategic Sourcing Suite, allows for additional features for the sourcing of direct materials. The SAP Ariba Strategic Sourcing Suite includes a layer of innovations to support the sourcing of direct materials. It includes a product sourcing functionality. It enables product costing and sourcing activities throughout the lifecycle, facilitating collaboration with trading partners:

• Co-ordinate with suppliers on new products.
• Drive spend reduction across your enterprise.

It provides companies with a better understanding of costs by removing the walls between engineering, sourcing, and suppliers by exposing materials and components of a BOM in an early stage to the supplier. This capability is essential during the new product development process, facilitates cost breakdowns and it increases the speed to get products quicker to market and stay in cost control.

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 account to answer queries regarding material specifications and pricing. Once the material demand is confirmed, you can also import it into SAP Ariba, and request vendors to submit quotes for the exact quantity you require. Additionally, the SAP Ariba Contracts application 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 required procurement activities to be conducted accordingly. 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 the SAP Ariba landscape.

• Direct materials are raw materials integral to a product's cost, acquired through procurement to support production demands.
• SAP Ariba Strategic Sourcing Suite supports direct material sourcing with tools for cost control, collaboration, and faster product launches.
• Product Sourcing functionality enables BOM management, supplier collaboration, and lifecycle costing for efficient direct material sourcing.
• Direct Material Sourcing introduces user groups with specific permissions for managing tasks like cost estimates and quote requests.
• SAP Ariba integrates with SAP S/4HANA for purchasing, ensuring smooth transfer of purchase info records, purchase orders, and agreements.