Issue

Currently Syensqo track the performance, business benefit and recharges to global divisions and calculate performance related pay of the procurement teams by using a custom tool built into the Convergence system. As Convergence is a heavily customised system we would like to remove it and replace the current functionality with improved standard tools from SAP.

This document evaluates the options for removing Convergence and replacing the Buyer Performance Functionality tools with standard SAP.

Decision

Either

1) Keep Convergence and the current Expected Savings Calculation,

2) Remove Convergence, replace the with Standard SAP tools but keep the same calculation approach

3) Remove Convergence  replace the with Standard SAP tools and expand the scope of the calculation,

Background & Context

Syensqo Tracks Buyer performance by measuring how much discount they have achieved on contracts.

This is used to do two things

• The reduction is used to prove the business value that the Procurement Team are bringing to the global divisions and calculate a value to charge the divisions for the provisions of this service. This charge therefor has tax implications and may have to be justified to tax authorities.
• To calculate the Buyer Performance related pay to be paid to Buyer teams.

These are important functions that cannot be simply removed. If we are to turn off convergence then we need to find replacement way to calculate these performance figures.

Source of data and validity

The data that is entered into Convergence based on the contracts that they have setup for that year – looking forward for the expected discount, it does not look at the lowered prices on the POs created against the contract.

The data is entered manually by Procurement Staff but is verified by Finance staff checking the expected discounts.

Assumptions

• SAP Standard reporting tools (eg Procurement Overview Fiori App) can replace the data used in the Convergence tool using live data from the S4 HANA system
• The Recharge Calculation to the Divisions will continue to be required and will have a tax impact and so will need to be justifiable if questioned by tax Authorities.
• The Recharge Calculation to the Divisions will continue to be used to drive performance related pay
• We can adjust the calculation used to provide a more holistic view – including supplier performance (eg quality & reliability of deliveries, accuracy of Invoicing etc.

Constraints

The Performance related pay calculation is made on the year the contract is agreed – so they cannot/do not wait for the contract to actually be used, ie have lower prices paid on the POs and so with this approach cannot factor in supplier performance that will only happen in the future – unless we can significantly change the approach we use.

Impacts

Process Changes

We aim to replace the manual calculation and entry of discounts achieved in an non-integrated system with actual data coming from SAP Reports/KPIs.

Ideally we would like to be able to use the supplier performance as well as simple discounts to work out the Buyer Performance.

This would necessitate a change away from the current project model.

Change Management

Changing the mechanics of performance related pay could result in disagreements within the organisation.

Business Rules

The decision may translate into business rules which enforce the decision and will require configuration. List these business rules here. For example, "An Outline Agreement cannot be created via the RFQ process. An awarded RFQ can only result in a Purchase Order". 

Options considered

SAP can provide this information based on transaction data – including wider supplier performance. Should we use this information to expand the remit of the report/process?

Option 1: Maintain the current process on Convergence

Maintain this As Is process on the current system – as its manually entered data that does not get integrated anywhere else it could have no impact on the S4 HANA implementation..

Advantages:

• No disruption to current operations or need for process changes.
• No potential conflict with staff re performance related pay changes.
• Consistent data approach for Tax Authorities with questions.

Disadvantages:

• Have to continue to maintain Convergence system.
• The performance data is not system driven - so can be inaccurate.
• The potential to monitor performance against real performance data from actual transactions in the business is lost.
• Continued effort of manual entry and validation

Option 2: Use Standard SAP reports to track Contract discounts and use these to project savings (As Is model)

We keep the current calculation approach but use data from SAP taken from standard reports to calculate the performance.

Advantages:

• Reports are based on actual transaction data that is verifiable in SAP
• No manual entry and validation
• No disruption to current operations or need for process changes.
• No potential conflict with staff re performance related pay changes.
• Consistent data approach for Tax Authorities with questions.
• No longer have to maintain Convergence for this functionality

Disadvantages:

• Doesn’t utilise the system to widen the criteria for the performance reports to include actual supplier performance rather than just discounts
• Doesn’t motivate Buyers to focus on more than just price
• Doesn’t let use factor in additional factors in evaluation like increasing sustainability, correct handling and logging of hazardous materials etc

Option 3: Use the SAP standard reporting tools and change the data covered in the report to include actual performance data rather than just expected Discounts

Advantages:

• Links Buyer performance and value of buyers to the company to company goals, suppler effectiveness and real pricing achieved not predicted
• Allows for expansion of factors for Buyer performance into new areas in the future (eg  supplier policies for DEI, reduction in master data errors, performance in cost reduction against industry benchmarks)
• Leverages the better reporting tools in SAP to drive business benefits
• No need for manual entry and validation of data

Disadvantages:

• Some disruption to current operations or need for process changes.
• Potential conflict with staff re performance related pay changes.
• Change of approach/calculation for Tax Authorities with questions.

Evaluation

Based on the evaluation of the solution options, it is recommended that the organization should aim to utilise the much improved reporting in S/4 HANA to drive stronger and better performance evaluation.

The reporting required is available as standard SAP so there is no development effort required. The change and effort will be in the change management area as this has the capacity to affect Buyers performance related pay – particularly the change from a forwarding looking approach running on Predicted Savings from Contract engagement to a backward looking approach looking at Actual Savings and real-world performance.

Next Steps

• Work with the business to assess impact and buy-in needed to gat acceptance on change to performance related pay
• Review standard reporting options in S/4 HANA and share with business to show the improved options

See also

Insert links and references to other documents which are relevant when trying to understand this decision and its implications. Other decisions are often impacted, so it's good to list them here with links. Attachments are also possible but dangerous as they are static documents and not updated by their authors.

Change log

Workflow history