Forecasting results. can be used as a. a future gauge for short and longterm. cash flows.

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1 Page 1 August/September 2003 Volume I Issue 4 Using SAP Editor's Note: Some SAP customers are still on the fence about SAP CRM. Their attitude might be described as: "Show me the ROI." SAP CRM Editor Scott Cameron knows how to do that. Scott has had the privilege of seeing SAP CRM in action on multiple projects, and he knows how important it is for customers to have specific "wins" and see results for each CRM initiative. In this article, Scott tells us about how SAP CRM, BW, and R/3 can work together to provide SAP users with enhanced sales forecasting abilities. And there's no question that better sales forecasts means more efficient manufacturing and order fulfillment. Of course, SAP CRM can only be as effective as the business processes it supports. So in this article, Scott ties the SAP CRM product into the seven steps of the sales and order fulfillment process. For years, companies have been looking for ways to improve their sales forecasting accuracy. This article will explore how SAP CRM can be used to improve a company s forecasting results. Forecasting can be broken down into two processes: unit CRM to Improve Forecasting Accuracy forecasting and revenue forecasting. Unit and revenue forecasting use the same process for data captures, but the results of these data captures can be interpreted in different ways. One is to use the data to capture the best possible estimate of unit sales. Companies can also use these results to estimate production requirements. EAST (Sales Director) EASTERN STATE REGION (Regional Sales Manager) Forecasting results can be used as a future gauge for short and long-term cash flows. FORECASTING HIERARCHY COUNTRY (Sales Executive) 2003 Klee Associates, Inc. By Scott Cameron, SAP CRM Consultant Also, these results can be used as a future gauge for short and longterm cash flows. In this article, we are going to outline a generic business process for forecasting, describe which components of the mysap family can be used, and outline which functions of the SAP CRM platform can be used to capture this data. One thing to keep in mind: forecasting is a reporting functionality that is driven from sales activities. These sales activities can be captured within SAP at different times of the sales cycle. The following diagram (Figure 1) and steps will outline a simple budgeting process, coupled with a sales cycle. This diagram outlines a standard hierarchy that revenue information and the chain of command follow. WEST (Sales Director) WESTERN STATE REGION (Regional Sales Manager) Sales Representative Sales Representative Sales Representative Sales Representative Figure 1: Forecasting Hierarchy and Chain of Command for Revenue Information Forecasting Accuracy continued on page 2

2 Page 2 August/September 2003 Volume I Issue 4 continued from page 1 The business process steps for the forecasting and fulfillment process are as follows: 1. Yearly sales targets are set by executives 2. Sales directors validate and refine the yearly targets. 3. Regional sales managers validate and refine the yearly targets/revenue numbers. 4. Sales representatives validate and refine the yearly revenue numbers. 5. Sales representatives start their sales cycle. 6. Representative closes a sale. 7. Sales order is processed by the company and an invoice is generated. Using our generic example, for each step of the sales and order fulfillment process, additional information is required. Here is a brief rundown with a key pointer for each step: 1. Yearly sales targets are set by executives: This revenue number represents an overall sales target for either the company as a whole, a specific country, or a territory, such as the tri-state area. 2. Sales directors validate and refine the yearly targets: Sales directors should validate that the sales targets are obtainable for their given region(s). 3. Regional sales managers validate and refine the yearly targets/revenue numbers: Regional sales managers should also validate that the sales targets are obtainable for their given region(s). 4. Sales representatives validate and refine the yearly revenue numbers: This same validation requirement holds true for the sales representatives. 5. Sales representatives start their sales cycle: Salesperson targets a company as a potential source of revenue. Sales person contacts this company and discusses the revenue possibilities. Some sales will eventually "fall off" the books, and the numbers will have to be refined. Sales person identifies possible products or services for the customer. Sales person provides a proposal for the products or services. Sales person obtains a sales order for the proposed product or service and closes the sale. 6. Representative closes a sale: This closing of the sale is a step that sounds simplistic, but we understand that a number of snafus may be encountered during the closing process, and some sales will eventually "fall off" the books, and the numbers will have to be refined. But for the purposes of this exercise, the closing of the sale is considered to be the point when an order is generated. 7. Sales order is processed by the company and an invoice is generated: This is the order fulfillment process. Let s just assume that in our example, the order has been fulfilled, delivered, and the invoice has been generated. We also will assume that the customer who was at one point just "revenue potential" has now ordered and received the product and also has paid the invoice. This process I have described is what is called a "top-down management and revenue forecasting approach." Most companies I have worked for have employed a combination top-down and bottom-up revenue forecasting approach. Within the next few sections, I m going to try to bridge the gaps between these two revenue-forecasting methods Klee Associates, Inc. Forecasting Accuracy continued on page 3

3 Page 3 August/September 2003 Volume I Issue 4 continued from page 2 Within SAP, there are three places where forecasting data is stored: SAP CRM, SAP Business Warehouse (BW), and the R/3 (or legacy) system. The actual forecasting for both revenue and products will occur within the BW system. SAP CRM and R/3 will be the data entry points for the forecasting/reporting summary. The simplified architecture will look something like the illustration in Figure 2. We are now going to explore which SAP CRM functionality can be used to give you the visibility you need early in the forecasting cycle, and we'll also look at the functionality that can be used to CRM (contains Middleware) meet your reporting needs. For most of the forecasting data entry, the Opportunity functionality within SAP CRM can be used. SAP CRM is not like SAP R/3 SD (sales and distribution), where you need a customer, product, and order type. SAP CRM Opportunities can record revenue only, revenue with a specific customer, revenue for a specific product only, or a combination of all three. Unfortunately, with SAP CRM versions 3.1 and lower, Opportunities cannot be linked together, but in version 4.0 you will be able to do this. This linking would be important if you wanted to show a tree diagram of the revenue rollup from the upper BASIC SAP CRM, R/3 AND BW ARCHITECTURE BW Figure 2: Typical Forecasting Data Flow for R/3, BW, and CRM systems SAP R/ Klee Associates, Inc. level of management down to the sales person. Currently, the only way to achieve this is from within BW. CRM Version 4.0 will also have some other forecasting functionality from a mobile sales perspective, but this is a topic for another article. In this section, we are going to focus on what type of functionality SAP CRM, BW, or R/3 can map to the desired business process piece, and where the data flows to. In order to do this, we'll go back to our seven steps in the sales and order fulfillment business process, and we ll comment on how SAP CRM functionality relates to each step in turn. 1. Yearly sales targets are set by executives: This data may be entered as an Opportunity in SAP CRM, but more than likely, it would be entered directly into BW (through SEM) for forecast reporting. In the future, this could also be set as the "master opportunity" within SAP CRM version 4.0 and the subsequent levels could be linked directly to the Opportunity. The unique feature of Opportunities is that they can be entered only once, with one sales record being created and distributed to many people. This is a great feature if you have sales teams that are using the Mobile Sales piece of the SAP Forecasting Accuracy continued on page 4

4 Page 4 August/September 2003 Volume I Issue 4 continued from page 3 CRM platform. All future edits to the Opportunity are immediately distributed to the sales team after they have been saved. 2. Sales directors validate and refine the yearly targets: In the same manner as step 1, this may be entered as an Opportunity, but more than likely would be entered directly into BW (through SEM) for forecast reporting. 3. Regional sales managers validate and refine the yearly targets/revenue numbers: A sales manager can enter his or her sales representative s data directly within an Opportunity in SAP CRM. This Opportunity can be for the whole year, and a sales person could manage his/her sales area against that Opportunity, or could piece the overall revenue target into specific customers. This choice completely depends on the business. If managers know of possible product numbers, they can also enter them here. This is the point where the first units could be forecast. Another unique feature of SAP CRM is that material master numbers do not need to be used here. A couple of companies for whom I have implemented this process have created SAP CRM products that only reflect product groups or product types, in order to reflect a material grouping so that forecasters can see product visibility early in the sales cycle. Another keynote: all information entered and changed within an Opportunity will be reflected within BW for up to date reporting of revenues. 4. Sales representatives validate and refine the yearly revenue numbers: (This step is where the top-down ends and the bottom-up begins). It would be a great if the sales managers entered in the sales quota number for their representatives for the year, but more than likely this will not happen. Regardless, this is the point where a sales representative enters in his/her sales forecasting numbers into the SAP CRM system. This is also the point where we can identify the "GAP" between what a rep knows as reality for his/her territory versus the projected numbers for the area. What a rep will enter within an Opportunity is all known possible revenues for the year. For example, a rep might indicate that "Company X is going to do $Y for the year," or "I m going to sell $Y of product XYZ for the year." The difference from the top-down and the bottom-up approach is a "GAP," and it can be entered in an Opportunity as such. With each Opportunity, there are many fields to enter additional data. One field we have used successfully on our projects is the "type" field. For example, we have configured the "type" field to include a "GAP" placeholder. This field can then be replicated to BW for reporting. Another unique feature of SAP CRM is that material master numbers do not need to be used here. As a sales rep moves through his/her sales cycle, the GAP within the revenue for each Opportunity should be reduced. This Opportunity can then be updated, and the revenue assigned to it can be reduced as new sales revenue potential is realized. Since all Opportunity changes are automatically reflected in BW, the new sales opportunity, when entered, will be reflected within the salesperson s revenue forecasts, and the "GAP" opportunity will also be reduced, thus ensuring forecast accuracy. 5. Sales representatives start their sales cycle: As salespersons move through their sales cycle, they will realize and refine a customer s revenue and product potentials. An example could be as follows: Starting with step four, a sales rep. is projecting to bring in a million dollars in revenue from company Y. She may not know how she is going to get that million, but she realizes that company Y has a million dollar potential. So, an Opportunity for $1,000,000 has been entered for Company Y Klee Associates, Inc. Forecasting Accuracy continued on page 5

5 Page 5 August/September 2003 Volume I Issue 4 continued from page 4 After a sales meeting, the salesperson confirms that she could sell X units per model of a configurable product to Company Y for a total of $1.1M. At this point she does not know the configuration of the product, but she does know the model family. The rep would then update the original Opportunity, changing the $1,000,000 to $1,100,000, and adding the model family of the configurable product with X units. This would then be reflected within BW. (Note: we are only scratching the surface of some of the robust functionality, such as advanced pricing capability, that is now available in SAP CRM, and which the salesperson might be utilizing at this point in the process. Pricing in CRM is another topic to set aside for a future article). As a salesperson moves through the sales cycle, she determines that the product configuration for the Opportunity will be a customization called We can enter this information in two places. One is within the Opportunity, where we can change the generic product model as entered earlier to the material number for the configuration. Another way to enter this product information is to enter a sales document with a link directly to the Opportunity. This linkage can then be reported within BW. What this means is that the refined unit requirements can be up loaded into BW, and the generic product family numbers can be backed out. The same holds true for the revenue. This works particularly well when you have variant configuration implemented. Keep in mind that these documents are only entered once, and then they can be shared across sales teams when using the Mobile Sales functionality. This is an important feature that helps companies avoid double and triple counting possible revenue sales opportunities. 6. Representative closes a sale: This is where a sales order is entered within a system. A sales person has now closed the deal, and an order has been generated. If you are using SAP R/3, an order can be generated there as well. Or, if you are using an "outside in" data strategy, a sales order can be entered within SAP CRM and communicated to your order fulfillment system. The sales order entered within SAP CRM can also be linked either to the Opportunity directly or to another sale document, and this will also update BW. If you are using R/3 to enter your sales orders, you can link the sales order to another sales document, such as a quote. This will also update BW for sales forecasting. This sale order, once entered into your system, is now ready for shipping and billing. 7. Sales order is processed by the company and an invoice is generated: This process is completed and updated via your order fulfillment system. If you are using SAP CO- PA functionality, this can also be tied directly to the BW system. If you can show your completed forecasted revenue versus your actual sales revenue, coupled with your profitability analysis, then this will be a very powerful report! In conclusion, SAP CRM can be used as a data management entry point to ensure revenue forecasting accuracy between all management levels and sales team members. This system can provide the base for funnel-up and drill-down forecasting numbers for the BW system. This system will be realtime, similar to SAP R/3, with accuracy up to the last time a representative saved his/her Opportunity or sales document. This also provides management with a vital missing piece by providing visibility for accurate sales revenue forecasting that can encompass actual sale revenue, net invoice sales revenue, and profitability. In this past, this has been a major ROI factor for the CRM implementations that I have been associated with. All in all, the SAP CRM system provides superior sales forecasting for the SAP user. In my opinion, upgrading your sales forecasting capabilities is one of the most compelling arguments for implementing SAP CRM. The tight integration among BW, CRM, and R/3 provides an excellent basis for sales forecasting, revenue analysis, and customized reporting. Scott Cameron is a former Big Five Consultant who has spent the last three years managing the sale and implementation of the SAP CRM application, up through the current 3.0 version. In addition, Scott has eight years of SAP implementation experience, which includes a deep track record in SAP R/3. His R/3 background includes SD, MM,. and Workflow configuration, and he is an expert on SD Pricing and Variant Configuration processes as well. Scott's address is Scott.Cameron@.com Klee Associates, Inc.

6 Page 6 August/September 2003 Volume I Issue 4 The information in our publications and on our Website is the copyrighted work of Klee Associates, Inc. and is owned by Klee Associates, Inc. NO WARRAN- TY: This documentation is delivered as is, and Klee Associates, Inc. makes no warranty as to its accuracy or use. Any use of this documentation is at the risk of the user. Although we make every good faith effort to ensure accuracy, this document may include technical or other inaccuracies or typographical errors. Klee Associates, Inc. reserves the right to make changes without prior notice. NO AFFILIATION: Klee Associates, Inc. and this publication are not affiliated with or endorsed by SAP AG. SAP AG software referenced on this site is furnished under license agreements between SAP AG and its customers and can be used only within the terms of such agreements. SAP AG and mysap are registered trademarks of SAP AG. All other product names used herein are trademarks or registered trademarks of their respective owners Klee Associates, Inc.