- On 5 May 2021
Very often, customers ask themselves what SAP Central Finance is, how it works and what it is for, or what is the difference between Central Finance and S/4HANA.
To clarify this aspect, the following points can be identified:
- SAP Central Finance (CFIN) is a function activated within an S / 4HANA system. This CFIN function allows the S/4HANA system to receive financial accounting transactions in real time from SAP or non-SAP ERP source systems.
- This real-time integration is achieved through System Landscape Transformation (SLT).
- As part of the SLT integration referred to in the previous point, the master data of the downstream system are enriched with the master data of the equivalent central financial system.
- Each downstream financial transaction document is then replicated with an equivalent CFIN document.
Many customers claim that consolidated reporting is possible with already installed Business Intelligence systems. But if centralized reporting can be achieved in a BI system, why would they need an S / 4HANA-based central finance system?
The answer is that Central Finance is not just about central reporting but goes further, going as far as scalable integration of business processes.
In the example above we have three subsidiaries within the group operating in three SAP and non-SAP ERPs. The ERPs of these branches replicate financial transactions and balances in the group’s central financial system.
As these companies operate in their respective ERPs, all logistics processes, such as Order to Cash or procurement, are performed in each of the same originating ERP systems. However, financial processes such as intercompany reconciliation, consolidated cash flows and budget monitoring are performed in the central financial system.
This centralization of financial processes, which can be done in stages, is one of the main advantages of CFIN is that it allows for this centralization of processes.
Central Finance as a catalyst and centralizer
In this scenario, we have multiple subsidiaries operating in multiple ERPs. These ERPs can be both SAP and non-SAP. Sometimes organizations choose to have an additional Business Intelligence layer at the group level to analyze the data coming from these different ERP systems.
In such a heterogeneous landscape, each subsidiary can use its own ERP; the personal data and the organizational structure within each ERP are different. Such a landscape makes reconciliation at the corporate group level very difficult, because the master data and organizational hierarchies are different.
The recommended approach in these scenarios, in order to reach a rationalization and an efficiency of the processes, is to start with a central financial system, the Central Finance. Each of the upstream branches of the ERP can be linked to the central financial system. Real-time replication via SLT records all originating ERP financial transactions in CFIN. The advantage is that real-time replication also maps the branch’s ERP organizational structure and master data into the central finance organizational structure and master data.
Converting such a project to a CFIN-enabled central reporting system can be quite fast. It is usually done within 3-4 months.
In this scenario the process will still run in the source ERP belonging to the branches and central finance serves only as a central reporting solution. The only other benefit provided by central finance is that in addition to group-level reporting, certain closure processes such as intercompany reconciliation can also be performed, perhaps some cost allocation management reporting processes but nothing else.
Evolutionary scenarios: all processes managed via S / 4 HANA
After the implementation of Central Finance, the centralization of the other processes can follow. This migration of other processes, not just financial, must be guided by a strategic implementation vision of the company. This may differ depending on the type of company, for example:
– A private equity firm could choose to keep each branch’s ERPs; Furthermore, these subsidiaries will very often continue to operate as separate legal entities.
– A normal corporate could choose to withdraw multiple ERPs belonging to each branch and move to a central ERP instance. Subsidiaries also often cease to exist as separate legal entities and become Business Units of the Parent Company.
The process centralization strategy within the CFIN system must be aligned with the ERP vision of the group.
If the Group chooses to have a single ERP, the centralization of financial and logistic processes can take place within the S / 4HANA system.
If the Group chooses to have a multilevel ERP as a model, the financial processes can be centralized. While the Business Operation or logistics process continues locally in the respective ERPs.
You can therefore opt for a scalable execution of local and central processes in multilevel ERP
In the beginning, both the financial and logistic processes are carried out in the ERP belonging to each branch. However, financial processes can be shifted to scale in the central financial system. The main value derived from centralization is the shared service between organizations which opens up to economies of scale.
The following are the processes that can be centralized as a first step:
- Monitoring and reporting
- Planning, budgeting and forecasting
- Profitability and cost management
- Liquidity management
- Credit management
At a later stage, processes such as for example can be centralized
- Financial governance
- Payments and bank communications
- Shared financial services
- Governance, Risk & Compliance.
Additional processes that can be centrally consolidated can be:
- Debt and investment management
- Financial risk management
- Real estate management
- Management of international trade
Central Finance can also be connected to other Business Network Procurement or Traveling systems such as Ariba, Concur, SAP Analytics Cloud and others.
The migration to Central Finance represents the so-called “Bluefield”, which joins the “GreenField” (new implementation) and “BrownField” (technical system conversion) scenarios. It can therefore be considered a gradual and progressive transition to the overall S/4HANA scenario, starting from the administrative / financial processes of the company up to the production and logistics processes; a logic is therefore followed not of pure technical conversion of the system, which in any case enables the company the potential of the S / 4HANA platform, but of adaptation, rationalization and improvement in the evolutionary perspective of the technical and application landscape of the company, making this realization possible in subsequent steps of measurable and therefore adaptable effectiveness and efficiency, in a pure perspective of Agile methodology, which in the case of SAP is called SAP Activate.
Over the years, PL3 & Partners has developed design skills related to S/4 HANA steps on technical conversion scenarios, new implementations and financial and administrative centralizations and is able to carry out quick assessments to help evaluate which can be the best choice for digitization of business processes from an S/4HANA perspective.
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