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SAP to Trim Additional 2200 Jobs

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Business media is reporting that SAP is about to undertake this providers second round of headcount restructuring. The current cutbacks are reported to involve upwards of 2200 positions following similar restructuring last year.

A published Bloomberg report cites SAP’s personnel chief as indicating that the total number of jobs affected will amount to about 3 percent of SAP’s worldwide workforce of 74,000. However, SAP spokespersons are quick to point out that the job cuts are more to do with internal business changes rather than cost savings. The Bloomberg report cites Ralf Herzog, the chairman of SAP’s works councils, as indicating: “that groups received information Thursday afternoon about “a very high level” of job cuts. Since the program is “apparently voluntary,” SAP “seems to have learned from its experience” with last year’s job action.”

In its reporting, The Wall Street Journal pointed to SAP’s ongoing transition to being more of a cloud services provider as prompting workforce changes, namely less emphasis on installation and update of software. That article indicates that SAP staff deemed redundant will either be trained in new responsibilities and those unwilling or unable to make the change being asked to leave or in the case of European based employees, offered early retirement or other compensation.

As Supply Chain Matters and others continue to point out, the effects of cloud computing adoption and rapidly changing market realities are indeed real for existing enterprise software providers and they are attempting to adjust their business models to deal with such realities. We have heard undertones of similar job cuts emanating from other enterprise software providers as well.


A Commentary Regarding E2open’s SAP Ring Fence Strategy

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In early January, Supply Chain Matters shared our impressions of independent blogger Vinnie Mirchandani’s new book, SAP Nation-a runaway software economy. The book provides a ten year perspective on SAP, summarizing conversations, observations and case studies among the ecosystem that makes up the “SAP Nation”, including customers, partners, market observers and others. The book quantifies an astounding $1 trillion ecosystem beholden to SAP’s success. The book further describes why other cloud-based competitors have been able to gain attraction among the existing SAP customer base because of the building business pressures and frustrations over elongated development timelines, burdensome software and ongoing support costs. The consequence is described as a ring fence of applications that more and more, are surrounding SAP applications. Since its publication, this author has recommended this book to many of our clients.

After the book’s publishing, Vinnie’s Deal Architect blog has featured added content and responses that have been generated from the book, particularly the described “ring fence” strategy that customers have undertaken. One of the most recent postings features highlights of an interview with E2open’s Chief Marketing Officer, Michael Schmitt.  The commentary describes current E2open customers such as Avnet, Avon, Hewlett Packard, L’Oreal and Shell, specifically how they are exercising various ring fence strategies.

This author has likewise observed such strategies and has spoken to some of these companies and other regarding their technology augmentation strategies.

Vinnie’s summary observation: “Individually, you could dismiss them (SAP backbone customers) as small cracks in the frozen tundra, but there are many such cracks if you use a wide angle lens.”

Bob Ferrari

Disclosure: E2open, Inc. is one of other current sponsors of the Supply Chain Matters blog.

 

 


Supporting the Journey Toward Integrated Business Planning in an SAP Environment

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In previous Supply Chain Matters commentaries addressing supply chain teams utilizing SAP as their technology backbone, we have observed that utilization of SAP’s supply chain focused applications can serve as both a blessing and a curse. The blessing comes from the structural rigor for integrating enterprise-wide transactional, operational execution and master data with supply and demand planning.  This rigor is sometimes cited as a curse; since today’s highly dynamic business processes are expected to respond to ever increasing levels of network-wide complexity and changing business models.

In June 2014, we called reader attention to SAP’s strategic intent to transition its supply chain technology, specifically the need for businesses to transform their supply chains to demand networks – which implies deeper, more agile support capabilities for integrated business planning (IBP). With this shift, SAP is acknowledging that many industries must transform to be more product demand-centric and that demand drives supply chain response. In essence, SAP’s intends to enhance and deploy a broader next-generation supply chain platform, described as a “many to many” supply chain control tower platform, underpinned by IBP and response orchestration. The implication of this strategy change is perhaps the obvious admission that SAP APO, as it was originally designed and modified these past 15 years, will need to be significantly augmented by other technologies.

The conundrum implied with this strategy shift is that the sheer scope of this transition will take many more years, a journey involving incremental phase-ins.  The reality is that while SAP transforms its supply chain support, business requirements are constantly changing and require a more immediate timetable.

That is why there are increasing signs that the SAP community has begun to evaluate other alternatives for surrounding SAP APO with augmented, cloud-based and other planning and decision-making capabilities that can enable business needs in a much shorter timetable. Two of these needs are augmenting demand sensing capabilities and enhancing supply chain planner productivity. In this commentary, we briefly explore each of these needs.

There is little question that the new era of online, omni-channel or multi-channel customer fulfillment has driven far more product options, shorter product lifecycles, added SKU’s and demand streams. With the clock speed of business far more volatile, traditional methods of historical based forecasting lack the ability to sense continual changes in product demand.  Quarterly or monthly planning cycles can no longer keep-up.  SAP APO was originally developed to support a top-down approach to planning and forecasting, often implemented at high-level, aggregated product family level planning. When such high level SAP APO forecasts are subsequently split to item-location levels for inventory resource requirements, crucial item-level product demand information can often be masked.  This problem takes on even more significance for supply chains with complex channels, large-scale distribution, or more frequent new product introduction cycles. Today’s business needs further require supply chain segmentation strategies where supply chains key-in on customer product demand and service needs, allowing the supply chain to respond to individual SKU or point-of-sale demand shifts.

All of this implies a more predictive, stochastic based product demand modeling approach that senses individual item-level demand changes at the item, location or channel level.  Also, continued pressure on cost control and overall inventory increasingly requires seamless integration with multi-echelon inventory optimization methods to optimize inventory in various demand trends and/or scenarios.

These advanced demand sensing and modeling techniques are now offered by certain best-of-breed supply chain planning providers. The good news for the SAP APO community is that many providers, as well as specialized systems integrator firms, recognize the need for a co-existence strategy, where planning applications with more advanced demand sensing and predictive capabilities augment existing planning processes. Rather than rip and replace, these providers support a surround and augment strategy. For added perspectives on the above, The Innovator’s Solution blog features two commentaries, Supply Chain Innovation: Living with SAP APO and Improving Demand Forecasting and Planning with Machine Learning. Both provide added perspectives and specific examples.

The second challenge is increasing supply chain planner productivity.  With the product complexities and rapid clock speed of business noted above, planners need to allocate more time to managing true demand and supply exceptions vs. constantly chasing planning errors and false positives. This problem has added significance for the SAP APO community, since experienced planners remain in high demand because of their system and business knowledge, and attract higher compensation. Planners need augmented tools and capabilities to not only provide more responsive planning and predictability, but to provide greater levels of supply chain business intelligence to sales and operations and overall business planning processes. Thus, augmented planning technology that can provide capabilities such as machine learning, rules-based business modeling, and advanced monitoring and exceptions dashboards predicated on a singular data model.

Supply chain management teams with SAP as their backbone have added options in their journey toward more demand-driven, integrated business planning.  These options include both SAP as well as best-of-breed augmentation, depending on line-of-business and supply chain business outcome needs.

Bob Ferrari

Disclosure: ToolsGroup is a current client of Supply Chain Matters parent, the Ferrari Consulting and Research Group LLC.

© 2015 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog.  All rights reserved.


Breaking Tech News- Kinaxis Reports Significant Deal as Part of Fiscal Q4 and Full Year 2014 Results

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Supply chain planning and response management technology provider Kinaxis today formally reported fiscal Q4 and full year 2014 financial results.  Beyond the rather positive growth and financial performance results, the most significant news was the landing of a $20 million five-year supply chain planning deal.

On the financial side, full fiscal year 2014 revenues were reported as $70.1 million, up 15 percent from the year earlier.  Gross profit was $49.3 million, also up 15 percent and adjusted earnings before interest and taxes (EBITDA) totaled $16.1 million, up 7 percent. Kinaxis reported nearly $57 million in its end of December cash balance, mainly from the proceeds of its recent IPO activity.

For its fiscal fourth quarter, Kinaxis reported total revenues of $18.8 million including $13.9 million of subscription revenues. Gross profit was $13.4 million while adjusted EBITDA totaled $3.8 million.

However on the Kinaxis earnings briefing call, many equity analysts wanted to hone-in on the reported $20 million “mega-deal” booked in Q4.

Kinaxis executives were very careful to respect customer confidentiality and hence had measured responses to analyst queries. However, Supply Chain Matters was able to garner from the Q&A back and forth that this was a five-year, cloud-based deal involving a new customer described as a large global enterprise.  The customer elected to pre-pay the $20 million up-front, and that number will be reflected in Kinaxis fiscal Q1-2015 performance. The deal was brought to Kinaxis from an unnamed large systems integrator.  We suspect the deal involves one of the existing vertical industries that Kinaxis currently supports.

Upon further probing, it was disclosed that the customer had an existing backbone systems footprint involving a combination of Oracle and SAP systems, and apparently elected to pursue a Kinaxis strategy for various supply chain planning technology needs. Kinaxis executives hinted that the customer had “given-up” on both the timetable and future promises of the incumbent vendors.

Supply Chain Matters highlights the reporting of this “mega-deal” because, by this author’s recollection, it represents one of the largest deals involving supply chain planning, and further, it appears to be totally cloud-based.

A trend that we continue to pick-up from other supply chain planning vendors is that their pipelines increasingly include both large and emerging enterprises that are becoming more and more impatient with the overall commitment of larger ERP and enterprise vendors to support today’s line-of-business and supply chain needs for added predictability, responsiveness and more informed decision-making.  Time-to-benefit, quicker implementation and industry track record have become very important criteria. With the option of cloud applications, such enterprises are exploring methods to surround existing ERP based supply chain systems with more advanced, outside-in facing technology. From our lens, such a deal is an endorsement for needs and desires for fusing supply chain planning, execution and customer fulfillment processes as much as possible toward a single data model approach.

While it is not likely that the broader market will garner more specifics regarding this significant deal until later within its implementation phases, it will serve as an important milestone of continued market shifting favoring more nimble, cloud-based technology approaches.

In full disclosure, we share with readers that Kinaxis has been a prior sponsor of this blog, and we are in the final stages for having Kinaxis as a Named sponsor for 2015. That aside, this is a significant watershed development for the supply chain planning market, and should be referenced as such.

Congratulations to all involved.

Bob Ferrari

 


Highlights of Supply Chain Matters Briefing with Fieldglass, an SAP Company

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In March of 2014, SAP acquired cloud-based procurement contingent labor and vendor management system technology provider Fieldglass.  Plans called for combining the functionality within Fieldglass with that of the existing human resource management capabilities of SAP SuccessFactors and integrating both with the Ariba, an SAP Company network platform. After the acquisition was completed in mid-2014, the technology services provider has since been designated Fieldglass, a part of SAP.

This author recently had the opportunity to conduct a briefing with this services procurement and contingent workforce management technology provider.  The briefing was prompted by reports that Fieldglass has experienced a considerable growth trajectory since the SAP acquisition.

In our briefing, we were informed that post acquisition plans have gone exceedingly well. The technology provider has grown its global workforce by just over 30 percent and relocated its corporate headquarters to another part of Chicago. Efforts are underway for broader coverage in Europe and Latin America. According to a recent press release, 30 percent of all customer implementations of Fieldglass in 2014 occurred outside North America.  That should be expected given SAP’s global presence and sales coverage.

The integration with the Ariba P2P platform was spurred by an internal SAP decision not to go forward with previous plans to augment Ariba Services Procurement, opting instead to utilize elements of Fieldglass. However, there remain separate user-interfaces among Fieldglass and Ariba but there have been described efforts to unify the look and feel of both platforms by leveraging SAP’s Fiori user interface strategy. When we questioned whether both Fieldglass and Ariba eventually come together, we were informed that there are no current plans to do so at this time.

Plans for business process integration of Fieldglass and Ariba were noted as tracking for release this current calendar quarter. That integration supports the ability to create a services requisition on the Fieldglass platform, create the ability for Statement of Work and services tracking, and Fieldglass will seamlessly pass such data over to the Ariba platform for requisition and purchase order creation.

To no surprise, the SAP and associated Ariba direct sales teams were described as embracing the selling of Fieldglass to manage contingent labor needs. The explosion of contingent labor business models among many industries has further helped in spurring SAP customer interest.  Our supply chain focused community of readers is aware of the expanding use of contingent services labor in many areas of supply chain execution and customer fulfillment. However, customers are required to secure two separate software licenses, one for Ariba and other for Fieldglass. That was described as changing at some unspecified future point.

Regarding the adoption of the SAP HANA database strategy for Fieldglass, there does not appear to us that there are any specific plans at this point.

We were further informed that Fieldglass continues in efforts to support non-SAP ERP backbone environments with recent customer activity involving both Oracle and Workday environments.

Our brief briefing did not accommodate time to dive into current Fieldglass pricing and long-term product roadmap strategies, as well as deeper direct materials and supply chain related contingency services support, and that will be our goal for a future briefing.

In the meantime, we encourage Supply Chain Matters readers who have had experiences dealing with Fieldglass since the SAP acquisition in managing complex services and contingent workforce management needs to provide us with your impressions and feedback.  We will incorporate them in a future commentary.

Bob Ferrari


SAP S4/HANA- The Next Iteration or Distraction of SAP Business Suite

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Yesterday at a marketing focused event held in New York City, SAP announced SAP Business Suite 4 SAP HANA (SAP S/4HANA), a long title to depict the termed next generation of SAP’s Business Suite of applications. This new collection is to be fully built on the SAP HANA in-memory database platform but the product’s full potential will not be realized for many additional years.

It is uncharacteristic of SAP to pre-announce a major software development program, but these are challenging times for the enterprise software provider’s attempts to compete with more up and coming cloud-based applications providers.

SAP’s CEO Bill McDermott described SAP S/4HANAas the most important product launch in the company’s history. The CEO provided his typical verbose statements:

Today SAP is redefining the concept of enterprise resource planning for the 21st century. SAP S/4HANA is about uniting software and people to build businesses that run real-time, networked and simple. When Hasso Plattner invented SAP HANA, we knew the day would come for SAP Business Suite to be reinvented for the digital age. At a moment when businesses around the world need to enter new markets and engage with their consumers in any channel, there’s now an innovation platform designed to drive their growth. This is an historic day and we believe it marks the beginning of the end for the 20th century IT stack and all the complexity that came with it.”

However, SAP Founder and HANA champion Hasso Plattner was more to the point. He is quoted in Re/Code and Business Insider as indicating: “If this doesn’t work, we’re deadIt’s that simple.” Leave it to Hasso to succinctly get right to the point.

Business Insider and others, including Supply Chain Matters, acknowledge that SAP’s strategy for cloud adoption has been via acquisition. We recently featured a review of enterprise blogger Vinnie Mirchandani’s new book, SAP Nation, which more deeply explores SAP’s acquisition efforts to leverage cloud and the marginal results of such efforts. Billions have been spent in the prior acquisitions of SucessFactors, Ariba and Concur Technologies. It now appears that SAP will now turn toward its in-house development teams to yet once again, re-design millions of lines of code to be able to leverage the full potential of an in-memory database.

Regarding yesterday’s announcement, Mirchandani’s take was that there was little news of product depth, discussion of economics, along with his impressions that this announcement might have been rushed by SAP executives.  On the Diginomica Blog, long-time SAP observer Dennis Howlett provides User, Analyst and Partner initial perceptions of yesterday’s announcement. His two takeaways were that:

1. SAP believes it has a 3-5 year window in which to refactor 400 million lines of code or:

2. It doesn’t know where to start other than core financials as a moat to protect existing maintenance revenue.

Our Supply Chain Matters initial takeaway is that rather than being even more confused and unsettled by these continued SAP HANA focused development efforts, supply chain and procurement, and their associated IT support teams need to stay focused on the business challenges at-hand and make the best of the SAP supply chain management applications installed. A consideration for surrounding such applications with best-of-breed cloud-based applications or time-to-benefit services accelerators becomes ever more evident given this latest directional timetable of SAP.

This author does not perceive that supply chain has any current discernable priority in the current HANA strategy, and that is an opportunity lost.

Our additional concern is for SAP supply chain focused teams seeking end-to-end supply chain information and business network integration. Ongoing efforts to enhance Ariba applications deeper into extended direct procurement support and to fully leverage SAP’s HANA platform stand to be further extended with this latest SAP Business Suite directional timetable. There were already challenges for Ariba development teams and now the picture becomes more unsettling.

We will provide additional follow-up commentary relative to the announcement of SAP S/4HANA in the weeks and months to come.

Bob Ferrari

© 2015, The Ferrari Consulting and Research Group LLC and the Supply Chain Matters blog. All rights reserved.


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