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External Service Management in SAP
7 min read

5 Steps to Optimize External Service Management in SAP

Every company outsources different services that are not in their core competency. Some of the services that can't be completed in-house include hiring a contractor for staff augmentation, accounting services, consulting, installation or construction. Alternatively, some businesses might run a project that will only require additional help for the duration of the project, providing an additional opportunity to leverage a contractor. Therefore, other than the indirect procurement of goods and services, your business might require some regular services to be conducted on a time and materials or fixed milestone basis. Sufficient business justification suggests that industry knowledge or the use of complex equipment can be significantly cheaper to outsource in some capacity. More businesses making this transition have resulted in higher customer expectations and improved after-sales service. Unfortunately, matching these expectations can be difficult through a manual services procurement process. To help your business automate this process, we have put together a list of five steps to optimize external service management in SAP.  

In the traditional process of service management, businesses require the completion of a scope of work (SOW) and purchase requisition (which are often completed together), a purchase order that is sent to the vendor, a vendor timesheet requiring internal approval and sign off and an invoice which also requires internal approvals and sign off. Before we highlight these steps, let's start with the context around the external service management process and how it is completed in SAP

The External Service Management Process  

You might already be familiar with the procure-to-pay process, however, some key differences exist between the procurement of materials and the use of external services. The external service management process entails three key elements within the context of the broader procure-to-pay process; the service master record, the purchase order, and the completion of a service entry sheet.

SAP Service Master Record 

The SAP service master record is a complete list of master data for external services and includes: 

  • Service or activity number 

  • Category of service 

  • Text descriptions 

  • Unit of measurement (I.e. hours)  

  • Service group 

  • Class of valuation 

Once created, the service master record is added to the purchase order as a service line. 

To access: SAP Menu -> Logistics -> Materials Management -> Service Master -> Service -> Service Master 

SAP tcode: AC03 

SAP Services Purchase Order (PO)

The Services Purchase Order is where short text outlining the details about the vendor services, quantity and price needs to be included. In the PO, a valid start and end date will also be required. After the terms of these services are accepted internally, a Service Entry Sheet can be submitted against the purchase order. 

To access: SAP Menu -> Logistics -> Materials Management -> Purchasing -> Purchase Order -> Create -> Vendor / Supplying Plant known 

SAP tcode: ME21N 

Completing a Service Entry Sheet in SAP MM 

Since external contractors carry out these tasks for your business, you need to consider service management in SAP rather than just procurement.  

In contrast to a purchase requisition, service management in SAP considers service as:  

  • An activity that is directly consumed and can't be stored as inventory.  

  • Services that have been procured are recorded in a document known as a service entry sheet (SES).  

  • A description of the service and a unit of measure are managed in the service master record.  

  • Services can either be planned or unplanned. The difference is defined as knowing the quantity and price ahead of time or not.  

In the procure-to-pay process, a goods receipt follows the purchase requisition and purchase order to maintain a record of items purchased. Similarly, a service entry sheet is created to record services provided and is tracked against a purchase order. To complete a service entry sheet in SAP MM, team members can navigate to:  

To access: Logistics -> Materials Management -> Service Entry Sheet -> Maintain  

SAP Tcode: ML81N  

Alternatively, frequent users might recognize this function as the SES tcode in SAP, ML81N. Doing so will allow employees to enter the necessary details, including the purchase order number, quantity of services and price. Hitting save will result in a new SES being created. The process seems simple enough; however, when necessary details are collected by email, written on a piece of paper, or phoned in manually, SES can become tedious and result in human error. The SES tcode in SAP might be a more automated solution that will take the strain off your accounts payable team and accelerate your business transformation. While contractors submitting their time directly into SAP has also been a topic of consideration, this is typically not done since this would give external parties access to purchase orders that are not relevant to them. 

Easy to Incorporate Strategies for Service Management   

To look for areas to further optimize your SAP system, there are five key steps we encourage businesses to follow.  

1. Consider Which Steps of Service Management Are Difficult for Users  

Finding the best solution means understanding how your team works. Within service management in SAP, you might notice that manual time entry is producing errors. Alternatively, you might find new Accounts Payable team members are making lengthy phone calls for information from their service providers. Still, other businesses might find the service management process from start to finish is difficult for users due to their company policies. Regardless, it is essential that you consider the actual methods in which people work, not the ones you have recorded in your policy binder. Depending on the processes that your team follows, there are several different approaches you can take. To compare, the ConvergentIS workflow diagram for technical user experience can be an excellent resource for your business transformation team.  

Some common pain points to begin considering include:  

  • Service procurement is not being set up properly forcing team members to input services as goods procurement, resulting in confusion as to where the quantity and rates should go 

  • Repetitive functions (multiple approvals at each step of the process) 

  • Chasing (literally) email and paper timesheets  

2. Integrate Service Management Activities with Other Business Data  

SAP Service Management gives users an integrated approach to managing the activities of various service providers. The benefit is using your ERP system to track all information ensures that users get a full picture of all the activities that are occurring in the business and can offer further insights and predictable capabilities with analytics tools. It also ensures your SAP backend is simple for your IT team and is not overcomplicated with various connections to non-SAP apps.   

3. Only Conduct Service Manager Activities Once  

Consider that in the current process, your Accounts Payable team might require the service provider to track their hours manually, which will need to be emailed, incorporated into a PDF, relayed over the phone, or handwritten. Your Accounts Payable team will then need to go back and submit monthly hour totals to your SAP system. This means that the Service Provider's hours are unnecessarily tracked twice. Therefore, solutions that allow service providers to directly track their time in SAP save duplicated efforts that contribute to revenue leakage. 

4. Allow Your Service Entry Sheets to Kickstart Automated Billing and Vendor Payment in SAP  

Some service providers will have varying contract lengths, work for your business on a long-term basis or might only complete a one-time job. The right tool can ensure online entry of hours immediately notifies the businessperson who is responsible for the service team to accept the service entry sheet and associated services to manage different providers and if the services are going to be rebilled to your customer, service entry sheets can be merged with internal teams' timesheets to provide a consolidated invoice to your customer. Once received, SAP Evaluated Receipt Settlement can be used to allow vendors to be paid automatically with approved POs, eliminating the need for an invoice. 

5. Choose Out of the Box Solutions to Reduce Costs  

Although your business might believe the problem you are trying to solve is unique to you, it may not be. Before designing something custom, we encourage you to check out SAP and SAP partner applications that come out of the box. In many cases, the problems addressed by these applications apply to organizations like yours and are known to be a lot cheaper than creating something from scratch.   

A Simplified Solution to Service Management in SAP  

Say goodbye to re-typing timesheets. With the ConvergentIS Service Entry Sheet application, service providers gain secure and personalized access to your SAP backend. With proper configurations, each provider only gets insight into the purchase orders they are working against and can monitor their progress against each contract and input their time directly into SAP through a simplified interface that enables faster processing and increased visibility. With reduced overhead, the month-end is a more efficient process that results in on-time payments.  

For a more in-depth look at the external services management process, we encourage you to download our free guide linked below.


Managing Services Spend for High Growth Companies