SAP S/4HANA for Retail - 7 Questions Answered

SAP S/4HANA Retail for merchandise management is SAP’s first industry solution for the retail sector developed natively on the SAP HANA platform. Daniela Khalaf, an expert from the SAP Industry Business Unit Retail, answers some pressing questions.

1. What can the new retail solution do?

SAP S/4HANA Retail for merchandise management is SAP’s new industry-specific solution for the retail sector. Developed natively on SAP HANA, it has a new, SAP Fiori-ized user interface, features a simplified data model with embedded analytics functions, and supports retail core processes end to end – from master data entry and product listing, through promotion execution and price maintenance, to point-of-sale accounting.

SAP S/4HANA Retail for merchandise management replaces the traditional SAP Merchandising solution, known also as SAP IS-Retail and SAP ERP Retail), which will continue to be supported by SAP until maintenance ends in 2025. As the digital core, SAP S/4HANA Retail for merchandise management will form the transactional backbone for the entire retail scenario in the SAP S/4HANA suite of the future.

2. How will this change the underlying omnichannel reference architecture? Have customers’ past investments been in vain?

SAP’s mission is to offer customers a complete and integrated scenario that supports both omnichannel processes and the digital transformation. The reference architecture, with its core elements of SAP Hybris , SAP Hybris Marketing, SAP Customer Activity Repository, and SAP ERP, isn’t actually changing, except that SAP S/4HANA Retail for merchandise management can replace the traditional application.

In this constellation, all the online transactions are executed in the e-commerce solution, while SAP Customer Activity Repository, for example, connects and consolidates online sales data and point-of-sales data. Combining this with insight about “customer journeys” – bundled in SAP Hybris Marketing from sources such as customer emails, Facebook entries, information from CRM, and marketing data – the reference architecture offers a 360-degree view of the customer. The ERP system performs the role of the executing system.

3. What fundamental benefits does the new SAP S/4 HANA retail system offer?

Aggregates and indexes are replaced by central tables, such as for inventory management and valuation (1.). Operational insight into the systems is possible at all times, without data having to be prepared in the data warehouse first (2.). Cockpits, in customer processing, for example, ensure that steps are transparent from order through to delivery and they enable ad-hoc course corrections (3.).

SAP S/4HANA Retail for merchandise management: overview of the reference architecture Graphic: SAP

4. To what extent does the new solution support the digital transformation in the enterprise?

The digital transformation is impacting every aspect of a company’s operations, from HR and talent management, through business partner connectivity and collaboration, all the way to consumer processes. It is becoming increasingly important for retailers to embrace sensor technology as part of Internet of Things strategies to create seamless and highly personalized business processes across all channels.

In SAP S/4HANA, all these areas are integrated. The omnichannel reference architecture mentioned above (see question two) is part of this. It gives customers in the retail sector a solid foundation for master data, enabling smooth processes in logistics and in digital channels end to end from order to payment – both online and in-store.

The next step to entering the SAP S/4HANA world involves an implementation project to swap the SAP Merchandising solution in the existing architecture for SAP S/4HANA Retail for merchandise management.

5. What specific functional benefits does SAP S/4HANA Retail for merchandise management offer?

Here are three examples:

  • Fewer markdowns: Fashion and consumer electronics retailers deal with highly seasonal goods. It is crucial that these products are available in stores in good time. The new solution offers more efficient season management and optimized ordering (including distribution curves) across the entire lifecycle of a product.
    •    Benefit: Between 5% and 10% fewer markdowns.
  • Fewer stock-outs: Supply chains – especially those involving suppliers from the Far East – are typically complex and, with short product lifecycles the norm, they require a high level of agility. The new solution makes it possible to track procurement journeys and to intervene ad hoc and in an automated manner.
    •    Benefits: Revenue loss due to seasonal goods arriving too late is between 3% and 5% lower. The reduction in overall supply chain planning costs ranges from 10% to 20%.
  • Lower inventory costs: Whereas stock information used to be spread across many tables and was not up to date, it is now harmonized in a single “journal”. If stocks of a product are running low, a retailer can intervene centrally and place a repeat order in good time. Bottlenecks occur much less frequently.
    •    Benefits: Significantly greater inventory accuracy (between 30% and 40%) means higher inventory turns. Inventory carrying costs fall by between 10% and 15%.
  • From marketing and sales, through procurement and the supply chain, to the omnichannel experience, the new SAP S/4HANA Retail for merchandise management solution covers a broad spectrum of key retail processes.

6. Which types of customers will the solution appeal to?

Type 1: The “Clean Slater”
Long-standing customers have often modified their ERP applications so much over the years that maintaining, enhancing, and updating them has become a highly complex undertaking. For these customers, it makes sense to wipe the slate clean and start afresh with the SAP S/4HANA industry solution.

Type 2: The SAP HANA Fan
Customers who are currently running competitor databases but want to tap into the benefits of the SAP HANA in-memory platform can migrate their traditional system. A range of tools and reports help companies prepare efficiently for potential custom code conversions. For example, they help customers identify which custom code objects need adjustment for SAP S/4HANA; this work can generally be completed over a single weekend.

Type 3: The Innovator
Enterprises wishing to deploy cloud solutions from SAP – like SAP Ariba, SAP SuccessFactors, and Concur – and companies looking to link sensor technology and the business world in the Internet of Things will benefit from the increased integration offered by the new digital core.

Type 4: The ERP “Rookie”
The SAP S/4HANA-based industry solution is the recommended application for companies that do not yet have an ERP system, the so-called “greenfield” customers.

7. Which new business models are possible for companies using the digital core for retail?

Verticalization: Based on an “industry-to-core” approach, various cross-industry scenarios are possible. Retailers wishing to sell private-label products benefit from greater flexibility because they are no longer restricted to using their retail-specific functions. The harmonized data objects and models in SAP S/4HANA open up potential for synergies and cross-industry scenarios.

In the past, for example, gas stations that operated a specialized solution for oil and gas (because they traded chiefly in fuels) had to deploy an extra retail instance if they wanted to sell potato chips, beverages, newspapers, and baked goods as well. The story is similar for the telecom and mail service sectors, whose stores no longer just handle cell phone contracts or transport letters and parcels.

The next two versions of the solution will include the fashion-specific distribution and production processes that are familiar from the SAP Fashion Management solution.

Role-based processes: The user experience in the new solution is based on an employee’s role (“store associate,” “store manager,” and so on). A positive user experience and responsive design for mobile devices help with managing the high fluctuation rates that are typical in the retail industry by ensuring that new employees are onboarded fast. The user experience is also critical for stock checks that involve monitoring stock levels at the shelf with a mobile device. The result: a 10% reduction in stock-outs, an improvement of around 30% in employee productivity, and 5% more revenue per employee.

Inventory management and valuation: Inventory quantities and values are stored in a universal journal table that allows analytic views in real time. Finance personnel and controllers no longer waste time pulling figures from the system that are out of date only seconds later anyway. With access to the same base of data in real time, they can trigger course corrections whenever needed, such as when business drops off and there is a risk that the company may not be reaching the required profitability level. Thanks to this new degree of access to the latest figures, increases of up to 20% in inventory turnover are possible.

Neil How
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Neil How

Neil ran his first SAP transformation programme in his early twenties. He spent the next 21 years working both client side and for various consultancies running numerous SAP programmes. After successfully completing over 15 full lifecycles he took a senior leadership/board position and his work moved onto creating the same success for others.

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