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Latest Enterprise Technology Vendor Financial Results Point to Differences in Cloud Based Adoption Momentum

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It should be no secret that most enterprise information technology vendors have embraced cloud-based applications and technology as a dominant strategic direction. The reasons are obvious and compelling. They are the key to customer and long-term revenue and profitability growth. Recent quarterly financial performance reporting from key enterprise technology providers such as IBM, Microsoft, Oracle and SAP provide indications on business strategies gaining more customer attraction as well as market momentum.

In a prior Supply Chain Matters commentary, The Value Proposition of Cloud Computing is Broader in Scope and in Business Implications, we observed that cloud-based platforms and applications provide businesses with added flexibilities in their technology and software requirement needs.  Businesses remain under compelling pressures to respond to rapidly changing market needs and at the same time, continue to reduce costs. That includes the ongoing costs of IT, where studies continually reinforce that 50-75 percent of costs stem from maintaining existing IT infrastructure or business software applications. Rather than expending additional capital investments for IT hardware, infrastructure and applications support needs, cloud-based platforms provide a more attractive financial model that is more attuned to ongoing operational growth or adjustment needs. As noted, why settle for business process innovation that can cycle in intervals of 5 years or more, when an option of technology releases every 6 months are available?  Cloud based technology implementation can also be less disruptive to ongoing business operations since adoption involves a singular, consistent cloud-based application and support model.

For enterprise and other technology providers, cloud-based offerings are becoming a very strategic growth aspect, affording such vendors a more recurring, subscription based revenue stream that can provide more predictable revenue and profitability stream.

The ongoing open question remains in strategy and ongoing execution.

In their latest quarterly financial reporting, both IBM and Microsoft reported setbacks in anticipated cloud based revenue growth. The latter was somewhat of a surprise, since Microsoft’s Cloud based growth trajectory had shown consistently positive growth. IBM on the other hand, by our lens, continues to have an ongoing execution problem in bringing Cloud based technology and applications to market on a more timely and compelling basis. IBM’s cloud-based strategy remains a work-in-progress while its legacy services businesses remain a drag on revenue and profitability growth.

A far more interesting contrast, one perhaps more of interest to our blog readers is that of Oracle and SAP.

The latest SAP financial performance release features the headline of first quarter non-IFRS Cloud subscriptions and support revenue growth of 33 percent at constant currencies on a year over year basis. The Walldorf Germany based technology provider reported what it termed as a solid 23 percent growth in new Cloud based bookings equating to roughly $165 million in new cloud-based revenue in the first quarter. Further declared was that the total of cloud subscriptions and support along with software support revenues (we interpret that to mean all software support) reached a 69 percent share of total revenues in Q1.

The financial report additionally cites SAP S/4HANA customer momentum in the quarter adding more than 500 customers of which 30 percent are described as new customers. By our lens, the wording smacks more of a marketing brief since there is still a lot of confusion relative to the overall composition and deployment needs of S4 HANA, particularly from an overall end-to-end supply chain support perspective.

Meanwhile, SAP’s bread and butter software license revenues fell 13 percent with the implication that the conversion to a predominant Cloud-based services business model remains somewhat of a challenge. An evidence point relates to sales and marketing expenses which have grown 5 percent year over year.

In mid-March, Oracle reported fiscal Q3 2016 results for the quarter ending in February and Supply Chain Matters featured key highlights and takeaways. The headline was that Cloud software as a service (SaaS) and platform as a service (PaaS) revenues were up 61 percent at constant currencies while total Cloud revenues were $735 million, up 44 percent in constant currencies.

Our calculation of the total of Cloud subscriptions and support added to total customer support revenues equate to 76 percent share of Oracle’s total revenues in the February ending quarter. That would imply that Oracle’s broader strategy of support for both IT infrastructure and various software applications may indeed be garnering increased momentum.

Once more, Oracle has placed more emphasis on the amount of customers that have gone live with various Cloud based infrastructure and applications. Oracle states that it had more than 250 customers go-live on Fusion SaaS HCM and Fusion ERP in Q3 alone. Oracle further declares nearly 2000 Fusion ERP customers thus far, ten times that of Workday. Equating that number to a prior Oracle industry analyst briefing declaring 1500 Oracle Cloud ERP customers at the end of fiscal Q2, implies another 500 customers on-board in the latest quarter.

Right now it’s difficult to equate that to equivalent SAP S/4 HANA total customers to-date since reporting by SAP is elusive. Oracle Fusion ERP does contain some basic supply chain business process support. As we have noted in prior commentaries, Oracle has developed, by our lens, one of the broadest cross-functional SCM public-cloud based applications currently available in the market.

Thus, our scanning the latest financial results of select enterprise technology vendors, our assessment is that Oracle’s broader Cloud product support strategy coupled with more integrated sales execution is indeed paying off in added market momentum.

Rest assured, this remains an ongoing competitive battle, and more evidence will need to come forward. However, from an overall Cloud based supply chain business process support perspective, we continue to believe that Oracle provides broader and clearer options for Cloud based benefits in addressing both IT cost reduction needs as well as flexibility in cloud-based applications deployment either in private or public Cloud based deployments.

Bob Ferrari

© 2016. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Disclosure: Oracle is a client of the Ferrari Consulting and Research Group, the parent of the Supply Chain Matters blog.


A New Release for SAP Integrated Business Planning

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SAP announced this week the official release of SAP Integrated Business Planning 6.1 for response and supply. With this latest release, SAP claims that all of the major components of this broad based application, first announced in 2012, are now available.

This Cloud based application runs on the SAP HANA platform and includes support for sales and operations planning (S&OP), product demand sensing and planning, supply and allocations planning, response planning and inventory optimization. SAP Integrated Business Planning is actually a set of five Cloud based applications deployed via a subscription model.  Variants include S&OP, supply, inventory, demand and SAP Supply Chain Control Tower.

SAP claims that this application suite has grown in cross-industry adoption and functional depth.  This author reserves judgement on that claim since SAP installed based feedback continues to indicate reservations in adoption. One ongoing concern is obviously the deployment of all mission critical integrated business planning in a hosted Cloud based platform as well as the implications of user training for the SAP HANA platform.

To help in that effort, SAP continues to offer a rapid-deployment service, described as a set of best practices and enablers to facilitate time-to-value.  In this week’s release announcement, the enterprise technology provider indicates introduction of a promotional package to be offered to existing SAP Advanced Planning and Optimization (SAP APO) and the SAP Enterprise Inventory and Service-Level Optimization Analytics application. Supply Chain Matters will be reaching out directly to SAP to seek more knowledge regarding the composition of these promotional packages.

Readers contemplating this application may want to partner with an experienced third-party systems integrator and supply chain consulting firm with strong credentials and knowledge of SAP supply chain management applications, especially if considering a transition from one planning platform to the other.

Bob Ferrari

 


Advisory Update on E2open’s Acquisition of Terra Technology

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A week ago today, Supply Chain Matters broke the news regarding the acquisition of product demand sourcing provider Terra Technology by E2open. According to the announcement, the combination will provide the opportunity for E2open trading network members to have the ability to access real-time product demand signals directly from the end-to-end supply chain network.

Since little had been shared up to last week’s announcement, this independent industry analyst reserved any opinion or customer advisories until having the opportunity to secure a briefing relative to what led up to the announcement and how this acquisition fits with long-term strategy.

Shortly after publishing our commentary, we heard directly from Michael Farlekas, CEO of E2open and indeed, we were able to secure a briefing earlier this week. We thank Michael for his prompt response. Based on that exchange, we can now share some additional advisories regarding the opportunities and consequences of this deal.

First and foremost, this was a strategic acquisition for E2open.

After the firm was taken private by Insight Venture Partners in February of last year, efforts were taken to reduce the overall cost structure of E2open which included moving corporate headquarters from Silicon Valley to Austin Texas. Leadership across most of the senior management ranks has since changed and according to Farlekas, cost trimming efforts were initiated resulting in the company now trending towards positive EBITA earnings. The next order of business was to augment E2open’s synchronized supply chain execution platform with stronger capabilities in supporting product demand planning and sensing.  Hence, eyes turned towards the opportunity to acquire Terra Technology.

More importantly, Terra augments two other strategic needs.

First, Terra’s strong presence with high profile consumer product goods producers such as Procter& Gamble, Campbell Soup, Con Agra and Unilever, among others, potentially broadens E2open’s abilities to support process manufacturing supply chain needs where the emphasis is more concentrated on the complexity of supporting complex distribution channels. As our readers are often aware, demand planning and demand sensing are rather important competencies required in managing a consumer packaged goods focused supply chain network.  The opportunity provided by this acquisition are the abilities to sense point-of-sales or channel product demand changes on the B2B business network platform and integrate demand signals to inventory planning, replenishment and customer fulfillment actions.

Obviously, another component of this deal rests in business development and sales strategy. E2open gains access to very influential CPG companies for the opportunity to further support their supply chain end-to-end process needs. Most of Terra’s customers utilize large scale ERP backbone systems, primarily SAP, thus they gain the opportunity to assess a different B2B supply chain network option. Many turned to Terra for product and process demand sensing support because of their perceptions that SAP was lacking adequate or timely support in this area.  In essence, they were practicing an SAP ring-fence strategy depicted in the book SAP Nation by Vinnie Mirchandani. Terra Technology can be deployed in either a Cloud-based or behind-the-firewall implementation strategy.

Terra Technology itself gains the benefit of a larger sales and support team to increase its sales growth and market penetration as well as compete more aggressively with other supply chain planning and predictive analytics providers. The provider has been hampered in growth by a perceived lack of investment in sales and marketing resources. We were informed that Robert Byrne, Terra Technology Co-founder and CEO will stay on with the acquisition.

As with other acquisitions among software providers, the real importance and benefits of such marriages come with the subsequent integration of technology, people and business process expertise of the combined teams.  We advise customers of both of these technology providers to sit back and assess the overall integration that has the potential to bring together augmented demand planning, process simulation and scenario planning, multi-echelon inventory optimization and synchronized execution across a contiguous supply chain B2B network platform.

The strategy is by our lens, solid, but requires dedicated resources and efforts from two companies that have been operating in lean, slimmed-down profiles. Look for signs as to further investments in program talent, development and customer support. The other watch out is obviously any change in pricing strategy. Overall however, we view upside potential in this marriage if carried out successfully.

After our briefing discussion, this analyst is more convinced that the market can expect other acquisitions from E2open as the company and its venture backed investors moves forward with a broader strategy for end-to-end supply chain platform business process support that umbrellas both more responsive and predictive based planning with synchronized supply chain customer fulfillment execution across multiple supply chain profiles. As that occurs, the pressure toward further consolidation among the up and coming supply chain best-of-breed technology segment will increase since long-term growth strategies are quickly moving away from IPO towards strategic link-ups.

One final observation we can share with our readers and clients. The E2open and Terra link-up places even more pressure on supply chain planning provider Kinaxis to broaden its responsive planning capabilities with added support for synchronized fulfillment execution. The pressure to be an acquirer itself or deeper strategic partner is building

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


Uncovering Hidden Cash Lurking in Existing Business Systems

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In today’s business environment of high global uncertainty, activist investor influence and global manufacturing activity contraction, industry supply chains are once again under pressure to uncover opportunities for reducing costs. It seem as though the mantra continues to be a constant effort to drive down costs, increase efficiency and profitability.

After many months, and perhaps years of cost-cutting, the effort becomes harder and harder.

But, what if there are hidden opportunities that have been overlooked up to this point? What if built-up inefficiencies among existing business processes and supporting software applications are driving unnecessary inefficiencies and cost?

This type of opportunity for discovery of hidden opportunities for cost reduction and cash generation can often manifest in complex and precision engineered business systems environments such as SAP ERP.  Without constant diligence to exception reports or data misalignments, the system can inadvertently prompt its own set of inefficiencies and cost burdens. Areas of opportunity to uncover such hidden cash opportunities can be in procurement, inventory management, supply chain operations or customer service.

As an example, perhaps the single most common byproduct of an imbalance of product supply and demand can be excess open procurement and inventory.  The more complex in terms of number of plants, product lines, ERP instances, and the larger the potential exposure.  In SAP ERP environments, when demand shifts downward, MRP creates an Exception Notice in a process termed MD04.  If there is not constant review of MD04, unneeded and excess component supply continues to flow in.  Real cash money is spent to pay the supplier, the freight, the receiving dock workers, and locations in the warehouse are taken up.  The problem can become more compounded in industries such as food and pharmaceuticals where raw materials inventories have shelf-life expiration and there are added risks for unnecessary inventory write-downs.

Another area of potential inefficiency is data misalignment. In the day-to-day pressures to get work completed and customer orders fulfilled, teams can be innovative to find ways to work around systems for the sake of time. Transactional data errors where users inadvertently do not update a completed process in the ERP system cause the system to view orders as incomplete when they really are complete. When multiple organizations or teams download and modify data in individual Excel spreadsheets without closing the data loop in the backbone ERP applications supporting business processes, other system misalignments occur. The result can often be undiscovered bloated inventory.

What if a technology vendor, with multiple years of built-up experience in uncovering hidden value in SAP ERP environments offered over a period of just five days, the opportunity for customers to uncover at least 10 times more in hidden business costs in their SAP ERP environments or the evaluation is complimentary?

Readers may want to checkout Supply Chain Matters sponsor Every Angle Software’s announced Business Value Discovery program offering. It includes an analysis of business value draining activities and an evaluation of results monetized into optimistic, realistic and pessimistic categories. Every Angle will produce an additional proposal to realize quick win savings along with recommendations to harness longer-term recurring ones as well.

Bob Ferrari

Disclosure: Every Angle Software is one of other sponsors of the Supply Chain Matters blog.


SAP ERP Backbone Environments- Opportunity for One Complimentary Supply Chain Health Check

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For the past several months, Supply Chain Matters has featured a series of market education blog commentaries addressing the needs to garner more effective and simplified operational analytics and business intelligence with SAP ERP environments. Our latest posting, focused on self-service business analytics in SAP environments was published last week.  These commentaries focus on the technology capabilities of one of our sponsors, Every Angle Software.

With this posting we want to alert our supply chain functional, IT and line-of-business focused readers who reside in SAP environments of an attractive limited-time offer, the opportunity to win a complimentary supply chain health checkup.

Every Angle Software is offering one lucky organization the chance to win this supply chain health check, valued at over $8,000. The Health Check is aligned to your specific business and supply chain operational processes. All specific SAP configuration settings are referenced allowing for understanding of your organizational detail (company codes, plants, sales orders etc.) and master data (material type, customers, vendors etc.) that other tools simply cannot do.

What happens during this health check?

  • Every Angle’s software is installed and connected to your SAP ECC system(s) under your IT team’s supervision.
  • Technical and functional verification checks are executed to ensure all is well
  • Every Angle expert consultants perform the Supply Chain Health Check analysis
  • The results are collected and validated, insights are shared and results presented. Every Angle has produced a customized web page that provides additional detail on the supply chain business process areas analyzed in this health check.  You made be amazed on what is discovered.

To be eligible for the one complimentary health check, an entry must be submitted by this Friday, February 5th on the sign-up form at the bottom of the Every Angle customized web page .

Good Luck

 


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