Oil flowing through a subsea pipeline is easier to control when it emanates from a single source. This concept also holds true for data, where trusted data in one system can be better analyzed and reported on than a patchwork for multiple systems.
A manufacturer of flow and pressure control technologies for the oil and gas industry, Cameron, a Schlumberger Company, understood this idea well. Cameron had legacy systems that stored and pulled data from different locations, creating a manually intensive series of processes for users. The company sought to shore up financial reporting processes in line with a business reorganization that resulted in a reduction in the number of profit centers.
In 2010, Cameron embarked on a company-wide standardization project that aimed to simplify and streamline both its SAP ERP and reporting processes. This project involved consolidating to five profit centers on five business units, resulting in an altered reporting structure to have manufacturing plants roll up to profit centers for reporting purposes, such as creating profit & loss (P&L) statements. With this structure, senior managers had an aggregate view of profit center data with which to see the overall financial health of the company, but controllers did not have insight into actuals at a facility level. Data was uploaded via a flat file to be aggregated in a central consolidation application, making it difficult for controllers to review without a lot of manual effort.
“The level of granularity was not enough to provide the end user, the business units, and the people at the plant locations with enough data so that they could run their everyday business,” says Tony Hsu, Senior Manager of Finance Systems at Cameron.
To have clear visibility and accurate reporting for plant-level financials, controllers and senior managers would need to have the same access to information in the central consolidation application. Cameron sought to mitigate this reporting challenge by embarking on a proof of concept for SAP Business Planning and Consolidation (SAP BPC) version 7.5. Previously, the business had been using a non-SAP consolidation application for consolidations and estimates. The goal of the implementation was to roll out the new SAP solution to users on five continents — providing controllers the ability to input estimate and budget data out of SAP ERP and have some measure of plant-level reporting autonomy.
Where previously business users were frustrated by having to input data in one system and review it another, they quickly saw the merits of the implementation, according to Hsu, the project manager. But first senior management had to be convinced that the solution was a better alternative to its existing tool. “Senior managers wanted to make sure that users liked it, that it would be easy to maintain, and that it would be dynamic enough to adapt to any metadata changes,” he says. “Only then would they consider using it as Cameron’s primary consolidation application.”
Building a Winning Strategy
Cameron evaluated several planning and consolidation solutions at the outset of the project, and the evaluation process began with a roundtable discussion of the pros and cons of each solution being considered. Because the business was already running SAP ERP, SAP BPC was the clear choice due to its easy integration with SAP solutions.
“We started talking to business users, and they told us they liked the front-end Microsoft Excel tool in SAP BPC, and asked to review data directly in the solution,” says Shyam Ayyar, Senior Technical Analyst at Cameron, who was the functional lead on the project. “This led to looking at delivering a fully absorbed P&L statement at the plant level.”
This specific fully absorbed P&L was available previously only at the profit-center level, not at the plant level, according to Rajan Erande, Senior Financial Analyst at Cameron, who was the solution architect for the project. “Before, finance had to go into SAP ERP or SAP Business Warehouse (SAP BW) and get detail at a line-item level and then aggregate the data themselves and somehow try to explain why there’s a variance,” he says. “So ultimately, two ends were trying to talk to each other without seeing the same report.”
With SAP BPC providing plant-level visibility, each plant was able to see its P&L and any variances that occurred as well as the same aggregated data that management was looking at. Improved data analysis was an important goal for the project. According to Ayyar, the business went as far as to create a data and analytics hub to purely focus on analytical work as soon as the decision was made to move to SAP BPC.
To implement the solution, Cameron first rolled out SAP BPC to US locations and ran it in parallel with the legacy solution for a set period. “We did a parallel rollout where we matched the data for two months because we had to ensure the financial close data was right and under audit purview,” says Ayyar. “After two months of parallel, then we went live everywhere in one go. We had already engaged a lot of the teams to build and prepare reports in the development environment and had users test them so we could make changes to those reports prior to going into production.”
The project team structure was intentionally heavy on the functional side and light on the technical side, so the finance folks out of the gate were immediately invested in the business needs, according to Erande. “Because the solution didn’t require too much of an IT effort, they were able to turn around, deliver the results, and then analyze the data,” he says. “It was a big plus that the technical portion of the project team was a third, while two thirds was functional.”
Engaging the business before the go-live went a long way to gaining user acceptance. “We had already showed business users all the different reports and gotten their input so they were familiar with them,” says Hsu. “They were excited not to have to learn how to use a new tool. What they already knew, they just migrated, used, or leveraged it to deliver the reports.”
Leadership was quick to adopt the new solution as well, according to Jacob Hyde, Senior Financial Analyst at Cameron. “Management was happy because we were able to deliver the same reports with the same look and feel that they had before,” he says. Financial statements, for example, were crucial reports that finance needed to deliver to business leadership. “Financial statements were delivered at a very fast pace in exactly the way the business wanted,” he says.
Hyde, who was the reporting lead for the project, credits the group’s teamwork for the successful reporting. “My experience gave me access to how everything needed to work,” he says. “Then working with the team, it was pretty easy to set up the reporting and deliver it quickly and relatively simply because we did it all through business rules.”
Cameron project team (L to R): Rajan Erande, Senior Financial Analyst; Jacob Hyde, Senior Financial Analyst; Tony Hsu, Senior Manager of Finance Systems; and Shyam Ayyar, Senior Technical Analyst
Improvements at the Plant Level
Through teamwork and a functional-based make-up, the implementation went smoothly, on time, and on budget. So far, the improvements Cameron has seen with using SAP BPC have been plentiful. For example, the process of pulling operating EBIT (earnings before interest and taxes) in SAP BPC has improved, as now the differences between period costs, variances, and other variable manufacturing costs are clearly visible, which before was an imprecise and tedious process.
With the legacy consolidation solution, data was loaded only once, on the third day of the close process — and this manual effort took a full day to ensure it was done correctly. At that time, business users were spending only 10% of their time analyzing that information, while the rest of the time was devoted to gathering the data.
With SAP BPC, users can simply run a report, perform analysis of the P&L cash flow and balance sheet — identifying any disconnects and determining what part of the business is being impacted — and then go back to senior management with targeted analysis rather than just submitting base financials. “Previously, all our locations spent about 90% of their time just gathering the data, and we were able to flip that to 90% of time to analyze their results and to report that and explain it to senior management,” says Hsu.
With SAP BPC, Cameron has transitioned from manually pulling data to seamless automation, which involves users simply double-clicking on a profit center in the solution to see the data detail. “The solution tells users how many plants there are and whatever amount they are looking at is represented by each plant,” says Erande. “Now, we are doing five loads a day from SAP BW and we can pull the data in near-real time — and perform ad hoc pulls whenever required. That’s a big advantage and there’s less user interface because it’s more of a system pulling data.”
The complete cost of manufacturing includes inventory costs — such as material, variable, production, fixed, and manufacturing costs — and takes into consideration variance divisions and depreciation. For example, say a plant’s revenue is $100, but material costs are $50, and manufacturing and production costs totaled $20, then the true gross margin for that plant is actually $30. With the previous planning and consolidation system, that $20 was a line item sitting in SAP ERP and was never visible to the plant.
“If a VP asked the plant controller how efficient the plant was that year, the controller would need to access SAP ERP (or request authorization or data from other teams), collect the data, and put it into a spreadsheet — and doing this at month close could be a bit of a hassle,” Ayyar says. “With SAP BPC, the cost center functionality provides a true cost of manufacturing. It gives manufacturing plants the ability to say how much they’ve budgeted for something and how much variance they have, but they also arrive at their actual standard margin. All the plant’s costs are immediately visible to each plant so if a VP is asking the controllers how efficient their plants were, they have the information right there.”
In addition to the cost center functionality of SAP BPC, which holds data for P&L and balance sheets, the asset accounting functionality is important for plant, property, and equipment walkthroughs, and the payroll functionality provides headcount data by cost center and client reporting. “Those are the different sources from where we get the data to build a P&L at plant level and profit center level, and all of this detail is available in SAP BPC, giving a lot of visibility for end users into checking data,” Ayyar says. “So if you think about a plant controller, there’s a lot of productivity improvement for them because they’re able to get all of the data in one place when they’re trying to analyze some of the data. So it’s only when they have to go to the line-item level, which should be rare, that they need to go back to SAP ERP or SAP BW reports.”
There was a slight amount of customization involved in the implementation. According to Erande, the team was able to use SAP BPC about 90% out of the box, and developed a specific custom solution for a few things, such as customizing business rules for US eliminations for intercompany transactions with custom script logic, and putting in plug-ins to rectify timing differences during data loading. “We needed to mimic exactly what the legacy solution was doing but without putting in the same level of development effort,” he says. “And we were able to achieve that with the team’s original idea of using stat accounts in the custom solution.
Considering the large amount of custom logic involved with the legacy system, less coding with SAP BPC meant less money devoted to development resources. “The cost of ownership went down significantly because it’s a lot of finance folks doing the work themselves,” says Ayyar. “We don’t need a big IT team supporting us to do our daily master data or any logic changes, and that was a big driver for the decision to follow a business-owned, business-managed model for the SAP BPC implementation.”
Because the business owns SAP BPC — finance users manage the application — the response rate from users was very fast, and there was no gap in understanding between finance and IT, according to Hsu. “From a maintenance aspect, the back-end maintenance was much simpler than in the past,” he says. “From a front-end perspective, the simplicity for end users allowed for much quicker turnaround in cases where changes needed to be made.”
After the parallel period ended, and the legacy system was retired for good. “Now there’s one system that helps users, and everything is in one place,” says Ayyar. “There’s no pushing and pulling of data and making sure everything is tying among all systems anymore. That aspect — and that stress for the users — is gone.”