If your business has made the commitment and investment to install SAP’s suite of software to manage your business efficiently, congratulations. You’re in excellent company. SAP estimates that on a global basis, 77% of business transaction revenue is touched in some way by SAP systems.
SAP S/4HANA for Enterprise Contract Management
Still, if your business utilizes SAP for managing service contracts or extended warranties, SAP S/4HANA may not provide the level of flexibility and billing accuracy that makes these programs successful and profitable.
For IT professionals, marketing and service business managers and directors responsible for creating, implementing, and managing service contract programs, this guide will help you identify important considerations in creating contract offerings. You’ll also discover in this essential guide to contract management some pitfalls that you may encounter and how to avoid them.
After digesting this guide to managing service contracts with SAP, you will be prepared to move forward with implementing – or improving – service contract management with a fully integrated SAP solution.
SAP-Provided Service Contract Maintenance Options
SAP has offered several approaches for contract management, each with different options, data requirements, and methodology in creating and managing contracts. S/4HANA SD is the successor to ECC, providing the most powerful and robust functionality for contract management.
SAP offers contract management in four solutions: SAP ECM, SAP CLM, SAP C4C, and SAP S/4HANA (and ECC).
SAP ECM – Enterprise Content Management
ECM provides businesses with the capability to create and store documents, collaborate on content, and connect content with SAP transactions and business objects. ECM can be implemented on-premise or in the cloud.
Caveat: Additional software is needed to generate invoices, and content is not specifically designed for service contract management. This is more of a general content creation, storage, and retrieval application.
SAP CLM – Contract Lifecycle Management
CLM is an application that provides a level of automation directly focused on contract management including multiple types of contracts. Through their acquisition of Ariba, SAP gained a complete coverage of contract management that includes initiation, reviews, and renewals using standardized templates and terminology.
That sounds great for procurement-related contracts, but there is not a specific focus on service contract requirements.
SAP C4C – Cloud for Customer
C4C includes additional functionality related to service contract management, including initial contract creation, requests for price quotes, and even managing automated messaging for some functions.
SAP S/4HANA – SD Service Contracts
SAP SD (Sales and Distribution) is part of S/4HANA. SAP provides traditional service contract functionality embedded in Sales (SD). It is natively integrated with SAP Finance, Variant Configuration, MM (Materials Management). SD contract management is also integrated with CS (Customer Service). CS incorporates all PM (Plant Maintenance) functionality, such as equipment device integration with contract management, as well as can-buy lists.
SD Contract Management also facilitates:
• Modeling coverage
• Contract-specific pricing and rates
• Usage-based performance characteristics, measurement points and counters
• Warranty start and end dates
• Performance-based warranty
• Other critical aspects of the warranty
Some Functional Gaps Still Remain
Where S/4HANA falls short with these offerings is the lack of functionality in preparing and managing service contracts based on usage or performance including automatically and accurately generating SAP billing documents based on such criteria. Is not available out of the box, this functionality is available from us, see our solution below.
Considerations for Initiating a Service Contract Management Solution
Before you can begin the process of implementing service contract management, you need all stakeholders to identify business requirements. This includes not only current/known requirements, but foreseeable expansion in product lines, services offered, and review of customer requests.
Formulating your SAP solution approach means identifying:
- Contract Coverage – products that are eligible for service contracts
- Levels of Coverage – replacement, repair, recall service
- Service Level Agreements (SLAs) – same-day service, next business day, 48-hour guarantee, etc.
- Usage-Based Coverage – service that includes coverage with “up to” or “not to exceed” variables
- Performance-Based Criteria – contracts based on actual performance attributes, rather than simply whether the service was provided
- Existing Licenses and Compatibility – supports your current IT architecture (ERP licenses, Servers, Windows, MAC, Linux, etc.)
- Special Considerations – custom billing terms, warranty extensions, and renewal timeframe (annual, 2-year, etc.)
- Fixed-Price Billing Requirements
Ease of Implementation
Get a detailed estimate from your proposed software provider and any consultants involved in the project regarding how the application will be implemented:
- Bolt-on software to be installed, with interfaces to S/4HANA. Interfaces are a red flag, as they open the door for data issues and delays in processing
- A fully integrated application that utilizes existing infrastructure and product hierarchy (extra points)
- Experienced SAP consultants with specific knowledge of service contract management
- Timeline for initial installation, training, and conference room piloting (CRP)
Business Considerations for a Service Contract Management Function
Building a service contract management program that will serve your company far into the future requires collaboration with sales, service, and management resources. Several specific areas should be addressed:
Avoid Siloed Approaches to Managing Contracts
When first setting up contract management in SAP, many companies find that they manage contracts on spreadsheets, Microsoft Access databases, or stand-alone applications. Each of these must be interfaced or manually updated in SAP applications to generate billing documents and provide visibility for analytics. This provides many opportunities for errors or omissions of critical data.
Review the Gaps
Check the current process of managing warranty claims and measuring satisfaction with services provided to your customers. Customer service records and complaints can contribute to this evaluation.
Ask Your Customers
Talk to your customers about what they would like to see you provide in service contracts. What are their pain points in your existing offerings? Provide a survey that is simple to complete yet offers valuable insight into how you can do service more effectively.
Ask Third Parties or Contractors
If you do service through third parties or contractors, probe them as well for information on how you can provide more accurate and timely information to help them serve your customers more efficiently.
Determine the key performance measurements (KPIs) that will be used to evaluate the success of your service management program. These should include:
- Customer Satisfaction or Complaints
- Billing Accuracy – Invoices are generated automatically and accurately.
- Financial Accounting – Correct GL accounts are posted in the correct periods.
- Attach and Renewal Rates – Track initial sales and renewals to evaluate the impact of the program – typically the new application will have an anticipated target for improvement of this critical KPI.
- Profitability – This is certainly one of the key focal points of any service management program. Where revenue falters, your application should help you pinpoint where your anticipated revenue is realized and the cause of lackluster performance.
Controlling Service Contract Entitlements
Service contract management is a specialized business function. Offering customers the contract entitlements they desire requires flexibility and customizable applications to provide the level of coverage they demand.
Entitlements in a service contract may include:
- Spare Parts Availability – what is available within a specific timeline
- On-Site Service Available 24x7 – with 24x7 carefully defined (include/exclude holidays, weekends, etc.)
- Inspections Required – how many and how often
- Recalls – what is covered and for how long
- Extra Charge Details – for usage exceeding contract specifications including pricing
Implementing a full-featured contract management application, such as SAP S/4HANA service contract management, will enable your company to track and monitor any deviation from adherence to contract entitlements. Identifying such problems early allows you to resolve contract deviations quickly to avoid disputes.
Business Advantages of a S/4HANA Integrated Solution
Establishing a complete program of service contract management integrated with SAP S/4HANA will benefit your company in many ways:
- Build Value for Your Customers – Provide clearly defined expectations for service levels and pricing.
- Generate Accurate Invoice Documents Automatically – Work with flexibility on the GL accounts posted to in your SAP FICO - financial applications.
- Improve Attach and Renewal Rates -- With native SAP analytics that provide accurate data for all parties, everyone works from a common set of information.
- Eliminate Silos of Information – Sales and service have contract information at their fingertips and can collaborate on contract terms, entitlements, and pricing.
- Consistent Accuracy of Billing Documents – This reduces administrative overhead in managing customer disputes and correcting errors.
- Compliance – Integrated contract and billing solutions contribute to full compliance with federal, state, and local jurisdictions. GAAP/IFRS rules apply to all GL activity and postings. Leverage SAP RAR - "Revenue Accounting and Reporting" for revenue postings subject to revenue recognition.
- Better Window into Service – As customers and service centers claim parts and activities against the service contract, your company gains valuable data about service activities they would not otherwise have visibility to.
- Generate Invaluable Data – For SAP professionals, Sales and Service go hand in hand. S/4HANA service contracts transactional history established a concise database of all related transactions in SAP. Feeding big data and business warehouse analytical systems, meticulous transactional data is crucial for the accuracy of KPIs, metrics, AI, and ML, and gives you a chance to produce insights previously unavailable.
When billing dates are reached, our integrated service contract solution improves cash flow by automatically generating accurate, auditable billing documents.
Integrated service contract maintenance improves cash flow through the process of generating billing documents in SAP automatically when billing dates are reached. This avoids delays in invoicing and speeds payment.
By leveraging existing SAP data contained in your SAP S/4HANA and ECC environment, service contract management enables other departments such as spare parts coordinators, inventory management, and warranty claims personnel to better manage inventory and parts demand.
Detering Consulting Simplifies SAP Service Contract Management
Detering Consulting provides a full-featured service contract management solution for businesses across all industries for companies of all sizes. Our Billing Workbench (BWB) provides customizable contract creation and management for every type of contract and entitlement.
BWB utilizes standard SAP functionality residing in the application layer of your environment. With BWB implemented, your business can offer a new set of options to your customers, adding value to their contracts and increasing loyalty to your business for future contracts or renewals by providing:
- Time or usage-based contracts and entitlements
- Performance criteria and associated pricing
- Increased renewal rates
- Application of contract-specific discounts
- Automatic billing generation and accurate financial entries
- Compliance with legislative requirements
- Automatic renewal notifications for customers and business departments
- Tiered pricing
Once sales or service personnel create a contract for service or extended warranty through BWB, it is available in real time for all authorized departments or technicians to review and transact against, increasing productivity and accuracy.
Analytics available through Detering Consulting’s contract management solution arm business departments with essential information to establish new programs, offer new coverage options, and evaluate the effectiveness of existing programs. Reports from BWB data can also be utilized to discover trends in contract effectiveness, useful in targeting new initiatives.
Our BWB product represents decades of SAP and service contract management experience and offers increased ROI for your total SAP investment.