Net Margin Analysis for Interactive, Graphical Analysis of Profit and Margins

Guidelines for Using SAP Net Margin Analysis for
Interactive, Graphical Analysis of Profit and Margins
Henner Schliebs
SAP

©  2014 SAP AG or an SAP affiliate company. All rights reserved. 1
Disclaimer
This presentation outlines our general product direction and should not be relied on in making a
purchase decision. This presentation is not subject to your license agreement or any other agreement
with SAP. SAP has no obligation to pursue any course of business outlined in this presentation or to
develop or release any functionality mentioned in this presentation. This presentation and SAP's
strategy and possible future developments are subject to change and may be changed by SAP at any
time for any reason without notice. This document is provided without a warranty of any kind, either
express or implied, including but not limited to, the implied warranties of merchantability, fitness for a
particular purpose, or non-infringement. SAP assumes no responsibility for errors or omissions in this
document, except if such damages were caused by SAP intentionally or grossly negligent.

Agenda
Introduction and Background
What is SAP Net Margin Analysis?
SAP Net Margin Analysis – Solution Details
Rapid Deployment Solutions
Wrap-Up

Increased Globalization
§  Expansion into new markets
§  Global process standardization
§  Localization requirements
Economic Volatility
§  Volatility in markets
§  Decreased stock valuation
§  Slow economic growth
Pressure on Margins
§  Profitability by segments
§  Decreased budgets and spending
§  Cost to serve, Shared services
Focus on Risk
§  Financial risk and fraud
§  Enterprise & Operational risk
§  Social sentiment affects brand value
New Business Models
§  Product/service mix
§  Internet-based business models
§  Third-party partnerships
Regulatory Changes
§  Increasing disclosure requirements
§  Country-specific regulations
§  Industry-specific disclosures
CFOs Need Help to Navigate a Changing Environment
Internal and External Pressures on Finance Organizations

Solution Explorer and Solution Explorer for Finance (https://rapid.sap.com/se/executive)
Financial Planning and
Analysis
Develop and
Translate Strategy
Profitability
and Cost
Management
Planning,
Budgeting, and
Forecasting
Monitoring
and Reporting
Accounting
Accounting and
Financial Close
Corporate
Close
Entity Close
Reporting and
Disclosure
Financial Close
Governance
Treasury and Financial
Risk Management
Payments
and Bank
Communications
Debt and
Investment
Management
Cash and Liquidity
Management
Financial Risk
Management
Commodity Risk
Management
Collaborative Finance
Operations
Receivables
Management
Travel
Management
Collaborative
Invoice to Pay
Financial Shared
Services
Enterprise Risk and
Compliance
Management
Risk Management Fraud Management
Controls and
Compliance
Audit Management
Achieve Financial Excellence
SAP Solutions Address Key Requirements

SAP Offers a Broad Range of Relevant Finance Solutions
Accounting and
Financial Close
Treasury and
Financial Risk
Management
Financial
Planning and
Analysis
EPM Unwired
Integrated
Business Planning
Collaborative
Finance Operations
Consolidation
& Disclosure
Collections
Disputes
Controlling
Payments &
Cash Mgmt
Planning
Forecasting
Budgeting
Profitability
Management
Strategy
Management
Electronic
Invoicing
Bank Comm. &
In-House
Banking
Process
Control
Accounting
Financial
Closing
Cockpit
A/P, A/R
Finance Innovations Advanced Finance Core Finance
Reporting
Financial Results Insight
Fraud Management
Commodity Risk and
Hedge Management
Cash Mgmt
on HANA
Financial Services
Network
Shared Services
Framework
Invoice Automation
TwoGo
Cloud for Travel &
Expense
Treasury &
Risk Mgmt
Audit Mgmt
Enterprise Risk and
Compliance
Management
Smart Accounting
Net Margin
Analysis
Access
Control
Global
Trade
Services
Risk
Mgmt
Visualizations

The following key Finance companies have already realized value through business transformation enabled by SAP
Customer Goal Highlights
Delivering
a
high-‐performing
and
agile

financial
model
with
SAP
solu;ons

•  200x
improvement
in
performance
of
audit
trail
analysis
with
real-‐;me
repor;ng

•  Faster
planning
and
consolida;on
processes
using
the
power
of
in-‐memory
technology

•  Fewer
data
points,
allowing
for
more
agile
planning
and
instant
insights
into
relevant
informa;on

Improve
financial
transparency
with
SAP

Business
Planning
and
Consolida;on

•  66%
faster
prepara;on
of
consolida;on
reports
(6
to
2
weeks)

•  50%
fewer
data
errors

•  50%
reduc;on
in
headcount
required
for
consolida;on
ac;vi;es

Managing
risk
with
SAP
solu;ons
for

governance,
risk,
and
compliance

•  15%
reduc;on
in
risk
and
loss
events

•  15%
increase
in
efficiency
of
central
risk
and
control
management
processes

•  50%
reduc;on
in
the
average
;me
required
for
loss
documenta;on

Payment
efficiency
with
SAP
Treasury

•  400%
ROI
on
a
5-‐year
project

•  Efficient
processing
of
payments

•  Full
FTE
savings
by
automa;ng
rejected
payment
processing

•  92.9%
faster
transfer
of
material
ledger
data
(7
hours
to
30
minutes)

•  3
days
reduc;on
to
month-‐end
forecas;ng
cycle

•  4
and
8
week
implementa;ons
of
profitability,
finance,
and
controlling
solu;ons
(respec;vely)

Improving
financial
business

processes
with
SAP
HANA

•  Instant
access
to
real-‐;me
ERP
back-‐end
data
for
cost
centers
and
internal
orders

•  10
minutes:
Time
taken
to
train
an
end
user
to
navigate
the
product
func;onality

•  3-‐day
implementa;on
of
the
enterprise
resource
planning
(ERP)
back-‐end
add-‐on
and
ac;va;on
of
SAP
RealSpend

Makes
beêr-‐informed
decisions
on
the

go
with
the
SAP
RealSpend
mobile
app

•  85%
reduc;on
in
;me
to
complete
expense
reports
(US
$750,000
in
annual
savings)

•  90%
less
;me
required
for
managers
to
approve
expense
reports
(US
$500,000
in
annual
savings)

•  $3.35m
overall
annual
savings
with
no
reduc;on
in
travel
volume

Saving
millions
on
travel
expenses
with

SAP
Cloud
for
Travel
and
Expense

SAP Drives Value for Finance Organizations

Products
Customers
Net
Profitability
Channel
Companies Struggle With ...
Providing the insights to
enable cost reduction
Differentiating customers: The
customers with the highest
revenue are not always the most
profitable
Understanding the best
product/channel mix

Vendor
Process
OrderProcessing
… But Need to Shift the Paradigm to Understanding True
Profitability
Gross Revenue Net Revenue
DiscountoffInvoice
Sustainability
ChargesOff
Invoice
Distribution
COGS
SellingCost
FreightDirectOI
Net Margin
Marketing
Gross Margin
Returns&Warranty
Surcharge&ChargeInv
Financial
Management
Marketing
Campaigns
DiscountonInv
General
Administration
Proﬁt
crea*ng
vs.
proﬁt
destroying

and

Knowledge
of
“bo:om
line”
contribu*on
by
mul*ple
dimensions

Old Way: Profit Makers Against Each Other?
“My team hit their
sales targets”
Increase Sales
Right
Product portfolio
“I launched the
new range with the
higher gross
margin”
“I increased
customer retention
– and hit my target
for new customers”
Increase
Marketing Awareness
Delight Customers
“We achieved
every fulfillment
and customer
satisfaction target
we were set”
+ + + =
“Nobody knew how
our decisions
impacted the
bottom line!’”
INDIFFERENT
PROFITABLITY
?SalesBuyer Marketing Operations
þþþþ ý

New Way: Drive Net Margin Across Your Enterprise
Text
Finance Product ManagementOperations Sales/Marketing Maximize Profitability
Optimizing manufacturing
cost, product mix/
alternatives requires a
sound understanding of
operational margins
Deep insight into the cost
structure and drivers of
(activity/process) cost for
optimization initiatives
Breakdown of net margin
to allow focus on
optimization and changes
to business practices/
incentives
Focused target market
management for profit
(net margin) and growth
optimization
Shared insight for active,
continuous net margin
improvement+ + + =

What Is SAP Net Margin
Analysis?

What Does SAP Net Margin Analysis Do?
Turning Profit Destruction into Profit Creation
Expose
§  Identify net margin improvement opportunities by customer and product
§  Uncover cost reduction potentials
Explore
§  Develop tactical/strategic transformation
initiatives to improve profitability

What Is SAP Net Margin Analysis?
A New Analytical Application for Margin and Cost Analysis
Analytical Application
Ÿ  Predefined – Includes data service, data model,
reports, and dashboards
Ÿ  Purpose-built for margin and cost analysis
Single source of cost data
Ÿ  ERP CO-PA Profitability Analysis
Ÿ  PCM data
Ÿ  BW or any external cost data
Built on SAP HANA
Ÿ  End-to-end HANA business process
Ÿ  High performance for high data volume
Ÿ  Direct impact and business outcome

Data Sources for Planned and
actual Cost
SAP Net Margin Analysis, powered by HANA
Solution Architecture
Application layer
Presentation layer
SAP BusinessObjects
Simulations
Data layer
SAP HANA
SAP Profitability &
Cost Management
(Optional)
SAP ERP CO-PA
(Actual & Plan)
Export using SLT
Non-SAP data
(Optional)
SAP BusinessObjects
Universe
Export using data services
SAP Net Margin Analysis
Actual + Target (Plan)
SAP BusinessObjects Web Intelligence –
Desktop and Mobile
SAP BusinessObjects
Explorer for ad hoc
analysis
Cost Element
Hierarchy
Performance Index
model
External Configuration Files
Localizations stored hereSingle source of all cost metrics
Model is extendable and
configurable

Why SAP Net Margin Analysis?
Analytics “Pay Back $10.66 for Every Dollar Spent”
An investment in analytics represents one of the richest
investment opportunities (NUCLEUS Research)
Focus on revenue-related data
Ÿ  The more analytics was used to learn about revenue drivers,
including who the customers are, what they buy, and their price
sensitivities, the more line-of-business managers were able to
increase their top lines
Focus on cost-related data
Ÿ  By gaining more knowledge about margins of the different products
and services within a company’s offering, the better able an
organization was to dedicate efforts towards higher-margin activities

Extend Your Analytics Capabilities Where You Want to Be!
Sense & Respond Predict & Act
Raw
Data
Cleaned
Data
Standard
Reports
Ad Hoc
analysis &
OLAP
Generic
simulation and
Predictive
Analytics
Predictive
Modeling
Optimization
What happened?
What action can I take?
What will happen?
What is the best that could
happen?
CompetitiveAdvantage
Analytics Maturity
The key is unlocking data to move decision making from sense and respond to predict and act
How and why did it happen?

SAP Net Margin Analysis —
Solution Details

Understand Your Net Margin and Drive Profitability
ECC
FI CO PA
HANA
COPA
Accelerator

ERP
Opera*onal
Repor*ng

Net
Margin
Analysis

Analytical application powered by SAP HANA
Ÿ  Predefined – Includes data service, data model, reports/
dashboards, ad hoc analysis, and simulations
Ÿ  Purpose-built for margin and cost analysis
Single repository of cost allocations from:
Ÿ  ERP CO-PA Profitability Analysis and PCM
Ÿ  BW or any external cost data
Ÿ  Works seamlessly with Finance Accelerator and other
operational reports
Business Value
•  Help stakeholders discover cost structure issues
across customer, product, and channel
•  Reduce indirect costs through optimizing business
practices
•  Simulate tactical or strategic cost-saving initiatives
across the company
•  Boost profits by transforming profit destroyers and
leveraging profit creators
CO
Accelerator

ML
Accelerator

FI
Accelerator

Full Cost Analysis of Margin and Profitability
Enterprise view of margins and profit across customer, product,
service, and channel. What are the year-over-year trends in each
of these metrics?
Margin Summary Profit Waterfall analysis
What are the cost components causing margin erosion? Where
can I find the most effective cost-savings potential?

Understand Profit Creation and Destruction
•  Who are the most profitable customers? Who are the profit destroyers?
•  What are the top 10 costs for the profit destroyers that erode margins? And how do they compare
to those of creators?
Whale Curve Analysis

Simulations to Drive Profit
•  Select a cost that needs to be controlled and see the effect of
each cost influencer, like order size, sales channel, etc.
•  Perform what-if analysis to identify steps that would maximize
the cost savings
Cost savings simulator Transform non-profitable customers
•  Classify your least profitable customers into four segments and
compare to the winner
•  Identify actions to transform each customer into a winner by
controlling costs and driving revenue

Operational Cost Analysis — Ad Hoc Analysis into All Costs
Across All Dimensions
•  Drill down into the cost details for each customer, cost, or even one day
•  Identify root-cause across all the dimensions – Product, customer, sales organization, distribution
channel, and profit center

In the System
P&L Reports
Ÿ  Detailed Profit & Loss components for financial reports by customer and customer segment
Ÿ  Profit waterfall displays individual cost components leading to net margin

Configuring Cost Model to Your Business
•  Ability to completely configure the cost
components in a three-level hierarchy
that aligns with the configurability of
SAP CO-PA as well as additional
sources of costs
•  All customers across various industries
will be able to get visibility into their
costs based on their unique scenarios

Demonstrating SAP Net Margin Analysis

Rapid Deployment Solutions
How Soon Can My Business Users Get This?

Blueprint
up to 95% savings
Ÿ  Business blueprint ready to use
Ÿ  Best practice processes modeled and
described
Realization
up to 50% savings
Ÿ  Best practices processes already configured
and documented
Ÿ  High degree of business configuration
automation
Ÿ  Education material included
Testing
up to 30% savings
Ÿ  Test case template supplied
Ÿ  Operations support template
available
Rapid Deployment Solution Implementation Methodology
Go-Live in 12 Weeks with SAP Net Margin Analysis!
Go-liveTestingRealization
0 10 20 30 40 50 60 70 80 90 100
Traditional
Project
Rapid
Deployment
Solution
Preparation
Business
blueprint
At least – 40% time and
effort compared to similar scope
of traditional projectDiscover Deploy RunStart
Shorter time to start, deploy, and run through best practices

New Technologies Help CFOs Better Address Their Challenges
MobilityCloudIn-Memory
FINANCE ANALYTICS

Faster Insight into Financial Performance and Results with
In-Memory Computing
Before in-memory With in-memory
13 seconds
77 minutes
Please refer to the latest SAP HANA Hardware sizing for the latest certified hardware sizes for maximum storage size of SAP HANA 1.0.
Above tests were done in the SAP Lab with customer datasets.
Runs
355x
faster
0.04 seconds
analysis response time
On any device
anywhere, anytime
70
retailers
460
billion records
50
terabytes of data

Empowering More Efficient Finance with SAP on HANA
The Most Modern Platform for Real-Time Financial Excellence
Real-Time Financial
Close
Real-Time
Finance
Operations
Real-Time
Treasury
Management
Real-Time
Compliance
Real-Time
Performance
Management

Mobile Finance Is Already a Reality Today
Payment
approvals
Manage departmental spend
Customer credit and
payment information
Dashboard analysis,
including net margin
Travel expenses
Approve system access
Manage KPIs and
strategic initiatives

Where to Find More Information
Analytics applied to Finance: www.sap.com/analytics
Experience it yourself at our new CFO and Finance Leadership Center by visiting:
www.sapcfo.com
And subscribe to our monthly newsletter:
www.sap.com/finance-newsletter
Follow us: https://twitter.com/sapanalytics
Follow me: https://twitter.com/hschliebs

SAP Net Margin Analysis — sap.com/solutions
www.sap.com/pc/analytics/applications/software/net-margin-analysis/index.html
http://service.sap.com/rds-nma-hana *
* Requires login credentials to the SAP Service Marketplace

Product Video — sap.com/solutions
www.sap.com/asset/index.epx?id=8ed40d62-b216-42bb-aba6-55e790c433be

7 Key Points to Take Home
1.  Help your CFO love you – Net Margin Management is one of the best ways to outperform your
financial goals
2.  Help your product/service teams appreciate you – Visibility and guidance support making their
area profitable
3.  Help your sales teams reach out to you – Either have them turn around unprofitable customers or
drop them and focus on new customers
4.  Help your Payroll department feed you – A successful project might end in lots of $$$
5.  Help your IT department forget you – You can manage this solution all by yourself
6.  Help your Financial Planner call you – Your employee stocks most likely will increase value
7.  Help your favorite solution provider (SAP off course) – Send me your feedback and any ideas of
improvement

© 2014 SAP AG or an SAP affiliate company. All rights reserved.
No part of this publication may be reproduced or transmitted in any form or for any purpose without the express permission of SAP AG or an SAP affiliate company.
SAP and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG (or an SAP affiliate
company) in Germany and other countries. Please see http://global12.sap.com/corporate-en/legal/copyright/index.epx for additional trademark information and notices.
Some software products marketed by SAP AG and its distributors contain proprietary software components of other software vendors.
National product specifications may vary.
These materials are provided by SAP AG or an SAP affiliate company for informational purposes only, without representation or warranty of any kind, and SAP AG or its
affiliated companies shall not be liable for errors or omissions with respect to the materials. The only warranties for SAP AG or SAP affiliate company products and services
are those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an
additional warranty.
In particular, SAP AG or its affiliated companies have no obligation to pursue any course of business outlined in this document or any related presentation, or to develop or
release any functionality mentioned therein. This document, or any related presentation, and SAP AG’s or its affiliated companies’ strategy and possible future
developments, products, and/or platform directions and functionality are all subject to change and may be changed by SAP AG or its affiliated companies at any time for
any reason without notice. The information in this document is not a commitment, promise, or legal obligation to deliver any material, code, or functionality. All forward-
looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their dates, and they should not be relied upon in making purchasing decisions.

Net Margin Analysis for Interactive, Graphical Analysis of Profit and Margins

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Net Margin Analysis for Interactive, Graphical Analysis of Profit and Margins