SAP Supplier InfoNet- An Impressive Application with Lots of Potential to Mitigate Supply Chain Risk
This posting is an update to our previous Supply Chain Matters commentary regarding Ariba, an SAP Company and its announced availability of a new application targeted for supply chain risk management. As we indicated in that original posting, Supply Chain Matters does not elect to echo technology vendor announcements unless we believe it should capture the attention of our readers, and we get the opportunity to drill down on the specifics and functionality. Ariba teamed up with SAP Supplier InfoNet, an internal incubation business unit to provide availability of this cloud-based application. We have since received a detailed briefing on the functionality of this application, and candidly, we were impressed, for a number of reasons.
First, the application itself is not solely targeted to just a sourcing and procurement user base, but other cross-functional users that have responsibility related to broad-based supply chain disruption and risk mitigation. Supply Chain Matters has always advocated that supply chain risk mitigation cannot solely be owned by an individual function such as procurement, but rather cross-functional or cross-business leadership and accountability. SAP Senior Vice president David Charpie who provided our briefing, indicated that this application’s focus includes Director and C-level as well as cross-functional supply chain and operations management users. Bravo for that decision.
Charpie’s prior background was with supply intelligence vendor Open Ratings, and SAP Supplier InfoNet takes that application to much broader and deeper capabilities. After its internal development within SAP, the decision was made to re-cast Supplier InfoNet on the Ariba B2B platform, powered by the SAP HANA database. While this transition is still a work-in-progress, by our lens, there is powerful potential for the ability to gather early-warning and insights on pending and actual supply chain disruption.
What especially stood out for us was:
- A stated ability to provide multi-tier value-chain information visibility and insights. When fully married to the Ariba B2B network, that could prove powerful. When integrated with supply chain response management and planning information, it could provide even more noteworthy potential to manage and respond to major supply disruption.
- Support to allow users to capture many forms of structured and unstructured information to develop a risk profiles among key suppliers. It includes language processing, text analysis as well as social and community-based intelligence capabilities.
- A user-friendly interface that appeared to be rather intuitive with abundant visualization, data summation and heat mapping techniques.
- The ability to currently capture upwards of 160,000 external data sources including industry, government, third-party and other sources. Data can be time and/or supplier weighted. The application supports pre-screening of data and the ability to gather a lot of hidden supplier intelligence, more than a single individual could capture in a normal work week. We even joked that in order to maintain this blog for our readers, this application would quadruple our productivity. Supplier InfoNet can even tap postings of Supply Chain Matters related to risk events.
- A Facebook like data model with the ability of firms to control what data actually gets displaced, along with community management of this data, which could prove beneficial when a major supply disruption is occurring.
- A broader definition of cross-functional performance metrics tied to financial objectives and context.
- The ability to conduct what-if analysis. Supplier InfoNet’s leveraged use of the SAP HANA platform provides for additional capabilities for predictive analytics to be layered across these combined information streams, allowing for a form of machine learning relative to patterns of information that would correlate with expected outcomes
- Configuration for industry-specific requirements with eight industry sectors already configured or in-process and SAP Supplier InfoNet is initially targeted to industries with a complex manufacturing and value-chain profiles.
The issue of pricing of the application is not as clear, and as we suspected, customers will have to sign-up for a separate subscription to utilize SAP Supplier InfoNet. We were not provided pricing specifics other than the subscription model may be predicated on the size of the network. We are certainly interested in hearing from SAP and Ariba customers on their impressions of pricing. We will continue to seek out that information since that may be the Achilles heel to wide-scale adoption.
An open question is obviously how timely all of the functionality of SAP Supplier InfoNet can be eventually incorporated within and on the Ariba Network along with a critical mass of industry-specific supply and value-chain intelligence that firms are willing to share.
Bottom-line- SAP Supplier InfoNet on the Ariba B2B Network has tremendous potential for customers and prospects in the ability to provide early-warning to major supply disruption, to manage all pertinent information when that disruption occurs and to provide more predictive capabilities in supply chain risk mitigation. Let us hope that the SAP bureaucracy does not stymie that attractiveness with elongated milestones and unattractive pricing.
© 2014, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog, All Rights Reserved
April 7, 2014 Readers Note: The below posting has subsequently been edited from its previous appearance because of communication received from Gartner, Inc. Office of Ombudsman regarding Gartner Copyright and Quote Policy.
Last week Industry analyst firm Gartner released its 2014 Magic Quadrant for Supply Chain Planning System of Record technology. We compliment Gartner for somewhat more rigorous ranking criteria in the latest iteration.
From our Supply Chain Matters point-of-view, there is an important takeaway concerning this year’s rankings of vendors. Four of the total five vendors ranked in the upper right-hand quadrant, those that Gartner ranked as leading on completeness of vision and ability to execute, are all termed best-of-breed vendors in supply chain planning. If one adds the three other vendors ranked high in completeness of vision (lower right-hand quadrant), there are seven of eight best of breed vendors listed.
Common themes were broad vision, completeness of functionality in terms of supply chain process maturity and the quality of customer references and satisfaction rankings. Another important aspect to the rankings was customer’s use and dependence on a single planning platform. Much of this is reinforced in the individual listings of individual vendor strengths. These overall strong rankings of best-of-breed SCP vendors reinforce that product innovation, attention to customer process needs and overall solution value for the customer remains an advantage for this family of vendors.
For non-subscribers to Gartner’s supply planning research, a summary of this report can be viewed at this web link.
Industry Analyst firm Gartner has issued a new advisory, namely that CIO’s and their IT teams must take action to address the fast-approaching reality of ‘legacy ERP’. According to Gartner’s latest prediction, by 2016: “heavily customized ERP (Enterprise Resource Planning) implementations will be routinely referred to as ‘legacy ERP. CIO’s and application leaders must take action to address the fast-approaching reality of ‘legacy ERP.’”
Pause for a moment and reflect on the above statements. The analyst firm that first introduced the applications IT market to the concepts and benefits of Enterprise Resource Planning systems along with the rating of capabilities among ERP vendors so many short years ago is now raising warning flags for technology end-users. A Gartner Vice President observes: ”The need for agility and responsiveness has led highly customized ERP implementations to an impasse, creating a subset of legacy ERP installations that must be dealt with constructively.” Similarly, analyst firm IDC has been strongly urging IT vendors to concentrate all future applications development on the so-termed “Third Platform” namely cloud, mobile and business intelligence enabled applications.
From our experience within the industry analyst world, that is the clearest acknowledgement by the traditional analyst firms that traditional ERP platforms and applications are struggling to keep pace with supporting required business change utilizing legacy behind-the-firewall applications. Keep in mind that these same analyst firms garner significant revenues from ERP vendor clients but must advise multitudes of end-users.
Most in the supply chain and B2B fulfillment community who have had any experience with information systems or transformation initiatives have long discovered the obstacles and pain levels associated to highly customized ERP systems. Customization becomes a significant obstacle to timely business process innovation not to mention the heartburn for streamlining information flows and decision-making. Legacy ERP was constructed with the design principle of inside-out control, but today’s businesses are faced with the challenge of outside-in information, planning and decision-making needs.
IT leaders who follow Gartner’s research may recall that a couple years ago, the analyst firm articulated three layers of systems innovation:
Systems of Record (presumed to be legacy ERP systems)
Systems of Innovation (presumed to be best-of-breed or cloud-based point solutionbs_
Systems of Engagement (presumed to be extensions social based systems in the concepts of Facebook, Linked-In, Twitter and others)
A new reality is occurring however, at a far more rapid pace. Business and supply chain functional teams are stepping-up to accept more time-phased accountability for delivering required business outcomes or dynamically responding to ever changing business process requirements. Accountability includes more responsibility in IT applications funding and selection. The CIO and his/her IT teams have similar strategic needs to accelerate the pace of business innovation but also reduce the legacy IT infrastructure costs.
As noted in Prediction Ten of our 2014 Predictions for Global Supply Chains, the fate of technology investments now rest in the hands of business and supply chain teams, with the counsel and assistance of IT. The days of multi-year, highly disruptive IT transformation has been subsumed by highly targeted business process initiatives directed at phasing-in continuous improvement capabilities toward a desired business end-goal.
Gartner, IDC and indeed ourselves in our advisories are acknowledging the reality of today’s IT landscape, namely that continuous innovation and faster time to business value dominate the C-level agenda. Leveraging the technologies of cloud and mobile computing, deeper business analytics and faster decision-making processes are increasingly looked upon as systems of innovation and engagement enablers.
Need more evidence.
SAP, a major player in ERP, announced to its investors that it has elected to forgo previous profitability goals for the next two years in order to accelerate development efforts to transform its business suite of applications to better leverage cloud platforms. Co-CEO Bill McDermott told investors: “we have bold ambitions in the cloud.” Bloomberg reports: “SAP is searching for a balance between expanding cloud-software offerings and safeguarding its mainstay license business.”
Similarly, Oracle has been aggressively investing in cloud offering through both acquisition and internal development as are many other ERP providers.
In today’s new normal of business, industry competitiveness is predicated on seizing market, product and services opportunities quicker and faster than competitors. The new realities of business imply a globally based supplier and trading partner ecosystem bringing increased dimensions of complexity, scope of control and risk. The IT applications landscape supporting end-to-end supply chain business process innovation will benefit from the rapidly changing applications development trends being enabled by today’s cloud, mobile and analytics technologies.
Heed the growing evidence that highly customized ERP systems are headed toward legacy status and systems of innovation, engagement and deeper supply-chain-wide intelligence and insights should be your organization’s priority.
© 2014 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.
In the Business Technology section of Wednesday’s edition of the Wall Street Journal, an article appeared that is often the nightmare of any provider of enterprise software. The article, Avon to Halt Rollout of New Order Management System (paid subscription or free metered view) reports that Avon Products has elected to pull the plug on a $125 million SAP software implementation. That is no small amount.
It is further a fresh reminder for supply chain leaders and technology selection teams of two very fundamental shifts occurring in software evaluation deployment and acceptance.
Readers familiar with Avon Products will recall that they practice a unique business model. Independent (non-employee) salespeople of all walks of life represent and sell Avon products to friends, colleagues and acquaintances, with sales assistance tools provided by Avon. The personal relationships among the independent Avon representatives sustain continuous sales cycles involving varieties of product offerings. Orders are continuously inputted by the independent sales representatives and order status is in-turn provided on a continuous basis.
The WSJ reports that Avon began its implementation of an SAP order management system in Canada in the second quarter of this year, and while the system was described as working as planned, it apparently was disruptive for Canadian Avon representatives. Plans called for a broader worldwide rollout over the next four years. The WSJ further reported that this was not the first broad system implementation problem encountered by Avon. Two years ago, the Brazil operation attempted to move from manually intensive operations to a deployment of enterprise software from Oracle, without acceptance.
According to a filing with regulators this week, Avon elected to halt the company-wide rollout and expects to incur anywhere from a $100 million to $125 million write down of the cost of the software. The company will continue using the software in Canada. In the earnings conference call, the CEO of Avon acknowledged the issue in Canada but indicated the system was working as designed. Further acknowledged was the degree of disruption that occurred in daily processes associated with independent representatives that resulted in steep fallout of sales resources.
In the article, a spokesperson for SAP is quoted as indicating the order management system “is working as designed, despite any issues with the implementation of this project.” A further statement indicated a “solid and productive relationship.”
Solid and productive, but at a significant cost write-off and another lesson learned.
While we may not have added testimony to what did or did not occur at Avon, Supply Chain Matters has two observations to share with our community of broad supply chain management followers.
The first and most obvious is the critical importance and weighting of user acceptance in any evaluation and systems implementation. The most advanced and sophisticated technology is of little use if those that interact with the system on a frequent basis have no confidence in the system’s value in helping with completion of their work or providing deep insights to decisions. Avon’s unique requirements concerning daily use from thousands of independent representatives had to have been a key concern. With today’s increased availability of cloud-based software alternatives, end-user acceptance and uptake takes on even more meaning.
The second involves the groups that are involved in selection and accountability for the results from investments in advanced technology. Last week, Supply Chain Matters called attention to IDC’s validation that the information technology buyer influence continues to shift to the business side. The industry analyst firm predicts that 61 percent of technology focused projects will be business rather than IT funded. The implication is that business and supporting supply chain functional teams now hold far more influence on specification of required business process and associated technology investments. With that comes more direct accountability for successful implementation and timely business benefits.
While some may view the Avon story as another knock on the complexity and cost risks of complex ERP systems, it is rather important to focus on how important user input, change management, comprehensive training and acceptance make for successful systems implementations.
The business is clearly gaining more influence in technology specification, selection and deployment. Gaining timely business benefits and expected outcomes is ever more dependent on insuring the commitment of those end-users accountable for getting the work done is incorporated into planning and deployment. Too often, teams dwell on specifications and cool functionality without allocating adequate time for user acceptance.
Recently, ERP technology providers have rushed to take advantage of today’s buyer preferences for adoption of more cloud-based applications that can surgically be inserted to support specific business processes. They effect of that strategy has come home to roost for the major players.
This week, SAP AG reported a 23 percent increase in third-quarter profits but the winds of currency and buyer preferences impacted the growth of software license revenues. Total revenues climbed a mere 2 percent to slightly over €4 billion, compared with a 14 percent growth rate a year earlier. According to business media reports, revenues for the company’s core software licensing businesses actually decreased by 5 percent overall, including 13 percent in the Americas and 9 percent in the Asia regions. License sales in the EMEA region increased by 8 percent. Cloud subscription revenues more than doubled in the quarter to €191 million and claims to have 33 million cloud subscribers. Looking toward its final quarter, SAP executives forecasted an overall 10 percent excluding currency fluctuations. That would imply an aggressive sales effort in the very important upcoming final fiscal quarter.
In mid-September, rival Oracle also reported a mere 2 percent increase its fiscal first quarter revenues, continuing its trend of two challenging quarters of revenue growth. Oracle does not breakout its revenues for cloud based application and indicated that revenue from the combination of new application software licenses and cloud subscriptions grew 5 percent in the quarter. First quarter profits rose to approximately $2.2 billion, compared with just over $2 billion a year earlier. Looking forward to the remainder of the fiscal year, Oracle indicated that combined software application and cloud subscription revenues growth would range from a negative 4 percent to a gain of 6 percent in constant currency, a rather wide range.
ERP vendors have a special challenge, they have to convince customers that their current cloud computing offerings have a more compelling value proposition that those of existing best-of-breed cloud-based vendors. Recent cloud-focused acquisitions have had a slower record of integration with existing applications with elongated timetables, and that probably accounts for why buyers are shopping the field.
The other more subtle challenges is that ERP vendors have built a legacy of staffing and overhead directed at supporting traditional direct sales of applications while cloud-based sales are more developed by longer-term relationship selling.
According to announcements from both the German and Americas SAP Users Groups, SAP has begun to modify some of its software maintenance policies to allow customers some flexibility in retiring older software licenses related to on-premise installations. This is good news, even though the terms are complex and dependent on individual circumstances.
A posting on ASUG News (Americas SAP User Group) indicates that SAP will now allow customers to terminate on-premise licenses in order to buy new cloud-based software. According to the ASUG posting: “In effect, customers can eliminate maintenance payments on the software they are no longer using and use that money to pay for cloud software.” Specific customer needs will be apparently taken on a case-by -case basis, implying that SAP Sales and Services teams will maintain control of the negotiations, in essence, assuring that any changes ensure a net positive outcome for SAP. The posting reinforces that the one caveat is that new cloud-based subscriptions which include either SAP’s newly developed HANA applications, or offerings from Ariba or SuccessFactors, have to add-up to more than the customer is currently paying in legacy maintenance and support for the eliminated on-premise software.
A later ASUG News posting informs of another option, the ability to terminate an on-premise software maintenance plan to buy a new on-premise plan, or to terminate some licenses without a new purchase of software. Again, these policies are highly dependent on existing contract terms and customer related discount structures and include lots of fine print.
On the newly formed start-up digitnomica web site, veteran SAP observer and sage Dennis Howlett opines that these new maintenance licensing policies are indeed complicated to understand and interpret. Howlett notes SAP’s history of giving customer benefit with one one-hand, only to take-away with the other. Howlett opines: “The message is clear: while customers always welcome initiatives that provide more bang for the buck, they also want a much simpler pricing landscape. It is worrying to see customers becoming annoyed to the point where I am receiving inquiries about 3PM from what I also see as SAP only shops. SAP won’t want to see that become a trend, especially in light of the fact that SAP’s on premise business is looking over a fiscal cliff of its own.”
Supply Chain Matters highlights these changing SAP software maintenance policies because by our observation, SAP supply chain management applications often feature many unused seats or applications that were placed on-the-shelf for later implementation, and remain in that state. The takeaway message for supply chain functional teams is that your IT or technology procurement teams now have some flexibility in the ability to modify the ongoing cost burden of the unused or not widely deployed supply chain applications. Again, as noted above, there are lots of caveats and SAP obviously is attempting to provide its installed-base customers the economic justification to upgrade to the newer cloud-based software offerings. For SAP Supply Chain Management Suite customers, that applies directly to consideration for the adoption of Ariba’s broad B2B supplier connectivity applications or SAP Business Suite Powered by HANA applications that directly support supply chain business process needs. There are also SAP customers that might have acquired licenses to the entire SAP Supply Chain Management suite, including SAP APO that really did not widely deploy these applications because of other business needs or disruption concerns. Your IT team may now have some flexibility to consider a non-SAP cloud based application without the excuse of the SAP maintenance costs already budgeted, forcing you to make do with previously acquired but unused software.
As many software industry watchers have pointed out these past months, enterprise software customers are no longer willing to tolerate high legacy software maintenance costs which are perceived as a burden with marginal upside business benefits. Customers are pushing back with their collective voices, and vendors such as SAP are responding, albeit in a conservative, highly controlled manner. The good news is that other enterprise vendors are bound to follow, and supply chain functional teams will gain added flexibility in their needs to plug-in process automation capabilities such as more predictive supply-chain decision-making support. In essence, SAP is dealing with customer realities and supporting the financial ability to adopt cloud-based options more readily than before.