In the ever-evolving Aerospace and Defense (A&D) industry, efficient procurement processes are critical to maintaining a competitive edge. Direct materials procurement, which involves acquiring essential raw materials and components for production, is a critical aspect of this industry. Managing supplier relationships and ensuring the availability of necessary materials are essential to meeting production schedules and delivering quality products.

The procurement process begins with supplier selection and evaluation, aiming to reduce costs and enhance product quality. This process is particularly challenging in the A&D industry due to the need for compliance with stringent regulations such as DFARS, ITAR and CMMC.

Integrated with SAP S/4HANA and SAP IBP, SAP Ariba offers a comprehensive suite of solutions designed to streamline and enhance direct materials procurement. This ensures that A&D companies can easily navigate the complexities of their supply chains.

Challenges in direct procurement

One of the primary challenges in direct procurement is achieving N-tier supplier visibility. With a vast network of suppliers, it is essential to have a clear understanding of the entire supply chain to mitigate risks and ensure the timely delivery of materials. Additionally, managing direct spending and responding to disruptions or changes in demand are significant hurdles that companies must overcome. Geopolitical events also profoundly impact defense spending, further complicating the procurement process.

The major difference in approach to direct vs. indirect procurement concerns supplier collaboration. The priority in direct procurement is managing supplier relationships, as opposed to indirect procurement, where the focus area is spend management. The availability of raw materials and component lead times directly affect production plans for aerospace and defense OEMs, who need to maintain a long-term collaborative relationship with suppliers.

Direct procurement management can greatly impact the bottom line as it starts with supplier selection and evaluation. The suppliers should be capable of handling production volumes based on changing supply chain dynamics and market needs in the A&D industry. So, the procurement process remains the key to managing the direct spending of A&D companies, enabling them to reduce costs and deliver a quality product. Typically, the process flow for direct materials would cover several areas, from spend analysis, sourcing, contract management, supplier performance, buying, supplier collaboration, invoicing and payment. Defense contract management also entails contract flow-down requirements and adherence to regulatory compliance and standards.

Some of the specific challenges A&D companies face are related to:

• Compliance: FedRamp (Federal Risk and Authorization Management Program/ITAR (International Traffic in Arms Regulations)/CMMC (Cybersecurity Maturity Model Certification)
• Supplier collaboration (drawings, quality, vendor-managed inventory)
• Flowing down and tracking DFAR requirements to suppliers (Defense Federal Acquisition Regulation Supplement)
• Consistent and accurate storage and communication of contract data
• The ability to apply, track and execute DPAS when necessary (Defense Priorities and Allocations System)
• Supplier maturity verification
• Contract reporting and data analytics

In addition to A&D industry-specific challenges, we see some commonly encountered business challenges among our direct procurement clients across different sectors with their existing supply chain and procurement solutions. Some of them are highlighted below:

• Not being able to connect to all partners in the supply chain quickly and transparently
• Not being able to view/model material stocks at third parties
• Suppliers are not able to view or act on the latest demand
• Demand, supply and inventory modeling not comprehensive or reactive enough
• Modelling tools built on different data structures or those that cannot easily be adapted or amended
• Inability to see supply shortages or demand variations in time to take corrective action
• Discrepancies between purchase order, goods receipt and vendor invoice
• Lack of non-conformance visibility and traceability
• Not having a unified supplier portal for collaboration
• Purchasers not provided with clear, actionable direction across multiple processes
• Material shortages due to constant changes in quantity or delivery dates

Ariba for direct materials: An overview

SAP Ariba's capabilities for direct materials procurement are extensive, covering various aspects such as supplier management, strategic sourcing and supply chain collaboration, which complement the functionalities of procurement in S/4HANA, forecast and planning in IBP and financial supply chain management in Taulia. These solutions are tailored to meet the unique needs of the A&D industry, providing a unified platform that facilitates seamless collaboration between suppliers and partners.

SAP Ariba offers the following capabilities in Source to Pay process area complimented by your SAP ERP to streamline your processes:

Supplier management:

• SAP Ariba Supplier Lifecycle & Performance^*
• SAP ARIBA Supplier Risk^*

Strategic sourcing:

• SAP Ariba^*
• SAP Ariba Contracts
• SAP Ariba Spend Control Tower^*
• SAP Ariba Category Management^*

Supply chain:

• SAP Ariba Supply Chain Collaboration^*
• SAP Ariba Planning Collaboration^*
• SAP Ariba Quality Collaboration^*

Procurement:

• SAP Ariba Buying
• SAP Ariba Commerce Automation

Financial supply chain:

• Taulia^*
• SAP Ariba Invoice Management
• SAP Ariba Central Invoice Management^*

^* Modules for Direct Material S2P Capabilities

One of the key benefits of using SAP Ariba for direct materials procurement is the ability to manage supplier relationships more effectively. By leveraging advanced tools for supplier management, companies can ensure that they are working with reliable and compliant suppliers, reducing the risk of disruptions in the supply chain.

SAP Ariba provides insight into the supplier risk across categories from multiple marketplaces. Strategic sourcing capabilities enable companies to identify and engage with the best suppliers, ensuring they receive high-quality materials at competitive prices. SAP Ariba sourcing capabilities are infused with AI to help buyers with supplier suggestions as well as identify the right content to be included in the RFx. By providing real-time visibility into the supply chain, SAP Ariba enables companies to monitor the status of their orders, track shipments and manage inventory levels more efficiently. This level of visibility is essential for maintaining production schedules and meeting customer demands.

Ariba’s solutions for direct can help A&D companies to:

• Manage and collaborate on critical production, merchandise and MRO spending, starting with integration into product design and R&D processes and continuing through collaborative supply chain execution and delivery with multiple tiers of suppliers.
• Source direct materials through Ariba's network-based project and RFx tools with integration to your ERP's material master.
• Integrate seamlessly with PLM, ERP and SAP Integrated Business Planning solutions.

Aerospace and defense companies have been leveraging the benefits of SAP Ariba for indirect procurement for a long time; however, they have not been utilizing the Ariba suite for direct procurement due to security concerns linked to the highly regulated environment.

With FedRAMP’s (Federal Risk and Authorization Management Program) authorization for SAP Ariba solutions, A&D customers can now deploy SAP’s industry-leading Ariba Supply Chain solutions to scale the benefits that digital procurement delivers across agencies.

Direct procurement functionality overview

SAP is focused on bringing new functionalities in SAP Ariba related to direct procurement, ensuring Ariba is a complete solution for any kind of procurement. Some key features which help industries to streamline the procurement process and integrate with the core ERP are:

• Supplier management - Template-based supplier lifecycle process management, including managing supplier certificates with repetitive reminders of their expiration and blocking or unblocking any vendors. SAP Ariba offers insight into financial, geographical, environmental, etc. supplier risk.
• Category management - Define and manage the procurement categories with actionable market intelligence, category insights, tools (such as Porter’s Five Forces framework for market dynamics), cost breakdown, SWOT analysis and Kraljic for segmenting categories. Natively integrate with Ariba sourcing.
• Sourcing - Bill of material and material master-based RFx have integrated flow of information between the ERP and Ariba Sourcing. Ariba provides AI-based features like supplier and content recommendations while drafting the RFPs.
• Supply chain collaboration - Collaborate between buyers and suppliers using the SAP Business Network for forecast planning, vendor-managed inventory, PO-to-invoice, shipment tracking, quality collaboration, subcontracting and consignment order management.
• Invoice management - Dynamic discounting using Taulia integrated with SBN, Invoice reconciliation, OCR, exceptions and Invoice automation.

Customer story: Transforming procurement with Ariba SCC

A leading aircraft systems OEM faced several challenges related to manual and complex procurement processes, material shortages and discrepancies between purchase orders, goods receipts and vendor invoices. These issues hampered efficiency and increased the risk of production delays and cost overruns. By implementing SAP Ariba solutions, the OEM was able to streamline its procurement processes and achieve significant efficiency improvements.

Below are some of the highlights from our project beyond implementing the standard SAP Business Network supply chain modules, along with a robust Supplier enablement and Training & OCM strategy:

MRP Change request app: MRP change request app to streamline rescheduling proposals

Dashboard for the purchaser: Purchaser’s dashboard to perform daily activities smoothly, without opening different reports and transactions

Serial number mapping: Align the SCC solution to procure operating supplies – batch and serial-number-managed

Quality notification: Quality notification interference and workflow for supplier to notify the buyer about problems with components

SAP Ariba provides multiple APIs/web services to extend a solution with platforms like BTP tailored to the client's requirements. Some are highlighted above.

By implementing SAP Ariba SCC, the client experienced many benefits, including:

• The ability to make proactive decisions for materials requirements planning in response to changing demand
• Monitoring stock-outs and effectively guarantee the availability of required at the right time
• Full traceability of buyer and suppliers managed batches through supplier ship notice.
• Simplified accounts payable processes and eliminated manual invoice processing, which was prone to errors
• Quality notification collaborations brought better compliance in recording Non-Conformities (NCs), analyzing, monitoring and closing defects
• Increased supplier adoption of SAP Ariba Business Network and more willingness to support troubleshooting for error notifications

The automation of procurement tasks reduced the reliance on manual processes, minimizing the risk of errors and discrepancies. Real-time visibility into the supply chain allowed the company to address material shortages and ensure timely delivery of components proactively. As a result, the OEM experienced a notable reduction in procurement cycle times and improved accuracy in order fulfillment.

Why choose HCLTech to implement SAP Ariba?

Our expertise in the Aerospace industry, combined with our experienced and certified SAP Ariba and SAP S/4HANA product experts, makes us an ideal partner for A&D companies looking to transform their procurement processes. Our approach focuses on filling gaps without introducing risky customizations, ensuring that the implementation of SAP Ariba solutions is seamless and efficient.

Conclusion

SAP Ariba's direct materials procurement solutions offer A&D companies a powerful toolset to enhance their procurement processes, improve supplier collaboration and achieve greater visibility and control over their supply chains. HCLTech’s AI-enabled solutions, like GenAI-powered supplier enablement on SAP Business Network, further enhance SAP application capabilities. By partnering with HCLTech, A&D companies can leverage these solutions to drive efficiency, reduce costs and maintain a competitive edge in the industry.

If you are an Aerospace and Defense company looking to improve your supply chain, Ariba direct procurement (supply chain collaboration) solutions can be a valuable tool to enhance and improve the procurement process.

For more information, reach out to sharad.maheshwari@hcltech.com or roy.davis@hcltech.com