Product Sourcing Reins in Complexity of Sourcing Highly Engineered Products

Traditional sourcing solutions fail innovative companies that are creating highly engineered products. SAP is filling this critical gap with solutions that cover direct material sourcing needs, from product development and mass production to contract renegotiation.

With new product sourcing solutions, SAP shines a spotlight on the unique direct material sourcing needs of automotive and industrial machinery and components (IM&C) manufacturers.

When things get complicated, human nature can be to walk away quickly. Unfortunately, sourcing products across supply chains — especially for highly engineered products — is overly burdened with complexity.

An airplane has more than 6 million parts. An automobile engine alone has more than 200 parts. Creating sourcing agreements for raw materials, components, and assemblies is no easy task. To source these parts, there are dozens of possible breaking points and any one can prevent a new product from going to market on time, cause projects to go over budget, or lead to losing best possible price points or locating better materials.

In working closely with leading automotive original equipment manufacturers (OEMs) over the past 50 years, SAP got a firsthand look at how traditional systems that rely on manual processes and disconnected systems are hurting companies that develop highly engineered products.

SAP dug into all the unique sourcing requirements that these companies have and created an end-to-end way to manage their specific needs. Sourcing and commodity management teams at leading automotive OEM and IM&C companies will find our solutions prove their value in multiple ways.

The benefits of product sourcing solutions from SAP include:

  • Accelerating time to market while achieving better team alignment
  • Increasing efficiency and automation in the direct material source-to-contract process
  • Improving operational compliance and accuracy without the cost and complexity of system and master data integration
  • Supporting better management of raw material cost volatility through automated integration with commodity indexes during the entire source-to-pay process
  • Increasing efficiency in annual contract negotiations with pricing changes and reductions automatically updated in contracts
  • Improving sourcing efficiency and reducing material costs through aggregation of demand
  • Providing better supplier experiences through flexible collaboration options

The newly released product sourcing solutions offer an incredibly robust suite of new features. There are three key features to highlight:

  • They run natively on SAP S/4HANA. The solutions provide comprehensive sourcing program management and native access to procurement, material master, and contract management functions. They also offer centralized operational contract management across key connected procurement systems, even if a company has multiple enterprise resource planning (ERP) systems, legal entities, and company codes. They also provide direct access to material masters and back-end systems without complex integrations, data replication, or homegrown connectivity solutions.
  • Commodity index-based pricing capabilities save hours of work normally spent using manual processes to operationalize index-based pricing. Product sourcing solutions from SAP smooth the process that allows users to obtain commodity content inputs from suppliers in the sourcing process. They automatically add and manage pricing formulas in contracts and make it easier to simulate and calculate pricing using market data through integration and system-triggered lookups to commodity indexes.
  • Mass contract renegotiations, which are typically done on an annual or quarterly frequency, require manual creation of sourcing projects at massive volumes in these industries. The work is repetitive and time consuming. However, these solutions automate mass renegotiation of existing contracts, including price concessions and changes due to fluctuating commodity pricing, annual pricing reviews, and so on. In addition, they automatically update new terms in the contracts once renegotiation is finalized. This helps ensure that price changes are automatically updated and executed.
SAP S/4HANA for procurement planning: Manage key procurement milestones for timely product launch. Click to enlarge.

New Features Deliver More Functionality, Less Complexity

Other features to highlight include automated project initiation, supplier management, supplier collaboration, automated negotiation processes, access to material masters, and compliance support. Altogether, these solutions support:

  • Robust procurement project management to support significant product launches two to three years before product launch
  • Flexibility to import part lists from different product lifecycle management (PLM) systems into procurement planning
  • Sourcing project and event creation, management, and execution for materials that are part of available material masters
  • Demand-driven sourcing projects triggered by purchase requisitions that are acquired from multiple back-end systems
  • Management of preferred supplier lists based on multiple material groups and company codes, which improves compliance by making it easier for users to invite the right set of suppliers to bid
  • Flexible options for obtaining quotations from suppliers in multiple currencies, as well as supplier collaboration options such as integration with SAP Business Network or an existing supplier portal
  • Ability to evaluate and compare supplier responses, select and award suppliers, and flow this information to a contract repository and other legal documents
SAP S/4HANA for product sourcing: Compare supplier quotations. Click to enlarge.

Even with the incredible excitement about what is new today, SAP plans to add features that help organizations track the sustainability of products during sourcing. Teams will be able to make decisions based on a product’s overall carbon footprint or greenhouse gas (GHG) emissions in addition to price comparisons. All of these planned improvements can help companies make smarter decisions about the products they purchase so they can release products into the market that meet customer needs for a more sustainable future.

There is a lot to unpack in this new solution suite. For more information about the full feature set, read this white paper.


Salvatore Lombardo is senior vice president and chief product officer for SAP Procurement.