Manufacturers often have heterogenous systems to accommodate different processes in a manufacturing cycle. From procurement and inventory management to calculating overhead, these systems carry critical financial data and information that are necessary to determine profitability, establish product cost and drive productivity of finance operations. With rising costs of disparate manufacturing ERP systems and increasing compliance and regulatory changes, manufacturing organizations are looking for a solution that will provide better financial insights to proactively address changing market demands.
SAP Central Finance (CFIN) can be a significant tool for the manufacturing industry, bringing the organization’s back office and embedded financial data into one centralized ERP. By establishing a bridge from legacy systems, organizations can realize the benefits of S/4HANA with much lower risk, initial cost and overall effort than a typical ERP implementation while retaining core operations in current ERP solutions.
How it works
Central Finance is a global system with a common reporting structure that maps accounting entities in upstream systems to one common set of master data. Common reporting structures enable CFOs or finance organizations to be more proactive in managing financial decision-making and can lead to reduced time to close the books. From a technical perspective, Central Finance is an S/4HANA system complemented by the SAP Landscape Transformation replication server (SLT) to replicate finance transactions posted in source ERP systems in the target S/4HANA finance system (Central Finance system) using a set of standard interfaces. The legacy ERP can be an SAP or non-SAP system, however use of the SLT is mandatory. Central Finance enables Universal Journal, which combines financial and controlling information in one place, including master data rationalization, as well as harmonization and governance for finance master data. The centralization of financial insights in Universal Journal benefits manufacturing organizations with instant financial insights and scalability. With Universal Journal in Central Finance, there is no need for reconciliation.
What does this mean for manufacturing organizations?
Manufacturing organizations can integrate legacy financial and operational systems across different geographies, plants and business units. A single global instance with Central Finance provides an improved platform for financial planning, resulting in real-time planning and analysis data. This immediate access to data facilitates proactive and predictive financial reporting capabilities, enabling manufacturing organizations to quickly assess the impacts of inflation, supply chain disruptions and spend analytics to adjust to changing market conditions. Most primary accounting processes (cost accounting, general ledger, accounts payable, accounts receivable, reserves/provisions, etc.) are managed from Central Finance. Individual transactions can be traced back to the original source system as needed and appropriate. Manufacturing organizations should leverage SAP Central Finance to gain economies of scale, extending or adding processes to achieve capability transformation and/or finance transformation.
By centralizing finance processes, CFIN facilitates instant data reporting between the source ERPs and Central Finance within S/4HANA, enabling continuous accounting. This includes:
- Management reporting and analytics
- Financial consolidations
- Financial planning
- Shared services – central collections
- Shared services – central payment
- Intercompany reconciliation
- Credit analytics
- Cash management
- Treasury management
Some considerations for CFIN implementations
We have seen manufacturing organizations that suffer from inconsistent data or poor data governance. Central finance can drive data cleansing to harmonize data with multiple master data standards using SLT mapping and transformation functionality to bring consistency to legacy data. The Material Master is one of the key master data elements that can be used to harmonize master data, along with legal entities, chart of accounts, vendors, customers and assets. When considering and implementing Central Finance, manufacturers should look beyond financial harmonization and consolidation toward more tangible benefits for the business including centralized payments, receivables management, procurement with Ariba and group reporting. This could help a manufacturing organization identify true product cost, allocate cost where it belongs and determine the bottom-line margin.
CFIN supports centralized processes to help businesses with intercompany reconciliation (ICR) and provide increased efficiency. This allows organizations with heterogeneous systems to simplify complex system landscapes where there is a large volume of intercompany transactions between business units from different environments. The image below illustrates the Central Finance concept:
Source: SAP Central Finance – SAPinsider
CFIN also brings great value as a mergers and acquisition (M&A) platform and can serve as a single source of truth for M&A process orchestration and execution, while providing consistent insights throughout the M&A lifecycle. SAP CFIN provides an opportunity to centralize financial records into a single general ledger for multi-entity manufacturing organizations with an acquisition-focused growth strategy. The SAP Central finance environment operates as an M&A hub of information for both non-SAP systems and SAP systems, serving as a platform for detailed analysis before, during and after M&A. Benefits include:
- Acceleration of integration and consolidation (synergies) without disruption
- Consolidated financial and management reporting: roll-up and growth extrapolations
- Central processing and planning
- Assurance of compliance with existing and new standards
Central Finance as the hub for M&A
Let’s talk benefits
An organization’s leadership expects finance to serve as a true business partner, to provide predictive and prescriptive insights to drive optimal business performance and real-time decision-making. Here are just some of the benefits that a manufacturing organization could expect from a Central Finance solution:
- Streamline an organization’s ERP into a single integrated system, bringing together several disruptive M&A technologies for process orchestration and execution
- Increase efficiency and reduce costs by performing more standardized operational processes
- Accelerate reconciliation of financial processes
- Enhance analytic insights to predict the impact of changes your company may need to make
- Automate service delivery in heterogenous corporate landscapes, reducing period-close processes, enabling on-demand analysis and broadcast reporting
- Combine the power of technologies for data modeling and data capture (SAP HANA), and visual and predictive reporting (SAP Digital Boardroom, SAP Analytics Cloud) without requiring custom applications or heavy data integration
- Provide digital enterprise transformation within the technology ecosystem
- Simplify IT environments and business processes by serving as the digital core for transaction processing
- Provide faster, more efficient access to data, enabling processing power to better serve internal and external customers
- Provide a digital core that allows for the consolidation and elimination of previously disparate systems
- Leverage other SAP financial solutions with Central Finance to provide additional tools for global shared service organizations
- Leverage SAP Shared Services Framework in SAP Central Finance as an innovative technology with advanced capabilities supporting many businesses objectives
- Improve working capital with Central Payments and Collections in a shared services setting
Leaders in various roles within the finance organization can reap specific benefits from a Central Finance solution. For example, a Vice President of Finance will experience more collaborative enterprise planning, faster M&A integration, rapid design of new business models, closed-loop real-time planning, predictive forecasts and dynamic simulations with real-time visual analysis of financial statements. Ultimately, Financial Planning & Analysis leaders could experience a 50 to 100 percent reduction in financial reporting errors.
Heads of corporate reporting should see gains in the accounting and financial close process. CFIN offers a foundation for a soft close and enables instant profit-and-loss insights and real-time cost control. With one universal, single source of truth, embedded real-time consolidation, the ability to access multidimensional, integrated reporting on the fly, and reduced reconciliations, leaders are likely to see a 40-50 percent reduction in days to close annual books.
Finance operations leaders will experience simplification, harmonization and improved collaboration in operations. Finance leaders will also see improved budget and spend tracking. Ultimately, finance operations leaders should see a 10 to 25 percent reduction in accounts receivable management costs.
There are many advantages that manufacturing organizations can gain by leveraging CFIN to elevate their S/4HANA transformation. With the ability to integrate legacy financial and operational systems across different geographies, plants and business units, Central Finance provides an improved platform for financial planning, resulting in real-time planning and analysis data. If you are interested in incorporating CFIN into your S/4HANA journey, Protiviti’s experts are prepared to assist you with realizing these benefits today.