SAP Central Finance, part 1: an overview of functionality and use cases
Blog: Capgemini CTO Blog
The SAP Central Finance deployment option for S/4HANA has been available since the Simple Finance days when, in its infancy, it went by the name of Central Journal.
The functionality has moved on considerably since its introduction, with additional features added in each S/4HANA release; a good example of this being Central Payments functionality delivered in release 1709 of S/4HANA (on premise version).
Recently I have noticed a groundswell of focus from clients (some emerging, some actual RFP) in Central Finance so thought it would be useful to explain in a short blog series some of the Central Finance features, use cases and lessons learnt from our experience:
Part 1: an overview of the functionality and use cases.
Part 2: the key lessons learnt from our experience.
What is SAP Central Finance? A concept, a product, a way of working?
There has been some confusion in the market on this point. What is Central Finance?
Well it is a line item in the SAP BOM. But it’s not really a product in its own right. The key things to remember is that SAP Central Finance:
- is an S/4HANA system (or S/4HANA Finance)
- is complemented by the SAP Landscape Transformation replication server (SLT), to replicate finance transactions posted in source ERP systems (SAP and non-SAP) in the target S/4HANA system (Central Finance system) using a set of standard interfaces – use of the SLT is mandatory
- uses a lighter version of SAP Master Data Governance (MDG) to handle some of the data mapping from source to target – use of MDG is optional
- utilises the SAP Application Interface Framework (AIF) for error handling, monitoring and reprocessing
If you were to draw this deployment approach very simply on a napkin, then it would look something like this.
A high-level diagram of SAP Central Finance
What are the advantages of using this approach?
Central Finance provides real-time replication so consolidated financial reporting data can be available without the inherent latency of a data warehouse solution. This creates opportunities to reduce month- and year-end reporting cycle times.
Certain processes that are typically centralised can be supported by SAP functionality in the CFIN system; Intercompany Reconciliation (ICR), Central Payments, Receivables Management (known previously as FSCM) and the SAP Financial Closing Cockpit provide further opportunity for efficiency, especially in a Finance Shared Services environment.
System validations and data mapping provide robust control to drive data quality; error handling and monitoring is delivered through the of SAP AIF (Application Interface Framework) in the Central Finance solution.
Which transactions are replicated in Central Finance?
Each finance transaction posted in a source legacy ERP is replicated through SLT and mapped to the target structures in the S/4HANA Central Finance system. Transactions are replicated through the posting of finance documents in Central Finance updating the Universal Journal database table (ACDOCA).
It is important to understand that only finance documents are transferred from source systems to Central Finance. Other transactional data such as sales orders, purchase orders, or material documents are not transferred.
All financial accounting relevant documents are updated and, if SAP ECC systems are source ERP’s, Controlling documents are also posted. From release 1709 of S/4HANA (on premise), Central Finance is also updated with costing-based profitability analysis (COPA) documents. This is only the case if the source system is SAP ECC, and if costing-based COPA is activated in the source ERP.
For each document in the source ERP, the document is posted again in Central Finance. A reference to the original source document number is provided in the document header in Central Finance and drill back to source document is possible if required (note: certain settings need to be enabled to make this possible).
There are some limitations. The Asset Accounting (AA) subledger is not replicated from source ERP’s and documents are only transferred where there is a general ledger impact. Fixed assets reporting dependent on the AA subledger (e.g. asset history sheet in SAP ECC) must continue to be delivered from source ERP’s.
In addition, Special GL transactions in SAP ECC are not replicated and there are also some restrictions in tax reporting.
All restrictions are documented in SAP notes.
What about data mapping? I might want different structures in the Central Finance system compared to my source ERP’s.
Central Finance provides an opportunity to implement an organisation structure and data model to that which supports the consolidated reporting requirements of the group.
This requires rich data mapping options. SAP MDG is part of this but there are other mapping types that cater for different object types. At a high level the following mapping options are available.
What are the use cases? Why would customers consider this deployment option?
There are multiple use cases for Central Finance as an S/4HANA deployment option, with the unifying feature being one or more legacy ERP’s that will transfer financial data to Central Finance.
However, there can be key differences in the strategic intent of the project and the approach to legacy decommissioning.
Here are three real life examples (again, high-level napkin drawings) that help to give a flavour of where Central Finance can provide a faster route to S/4HANA and solve more immediate challenges in consolidated reporting and shared services inefficiency:
Use case 1: replace legacy finance with the CFIN system and in the future, move the functionality in the SAP industry solution into the CFIN environment; in the interim period the IS will transfer financial postings to CFIN.
Legacy replacement with CFIN
Use case 2: multiple ERP’s across territories and business units; Central Finance delivering consolidated reporting and opportunities for shared service efficiency. Pathway to phased legacy decommissioning.
Multiple ERP’s across territory and business unit
Use case 3: statutory reporting, transition to regional template; Central Finance to solve a short term need to deliver consolidated regional statutory reporting, followed by a redesigned regional template for all brands within the country/region.
Stat reporting, transition to regional template
In addition to these examples Central Finance could be considered in an organisation with high M&A activity or scenarios where the legacy ERP’s have too much inherent complexity to decommission until they have reached the end of their useful life.
In the next blog, we will cover the key lessons learnt from our experience of Central Finance projects and describe our rapid proof of concept approach.
Connect with our Experts to continue the Central Finance conversation!