In conjunction with its Supply Chain Executive Conference being held this week, Gartner indicated that the worldwide supply chain management software market grew a healthy 12.3 percent in 2011, reflecting two years of double digit growth.  This author has been involved in quantitative SCM software forecasting for many years and I can share with Supply Chain Matters readers that this growth in investment is the highest since the boom times of Y2K.  It also provides ample evidence of the fact that many companies are investing in advanced supply chain technology in multiple areas. Another significant takeaway is the uptake in SaaS (software-as-a-service) revenues, which Gartner pegged at a 21 growth rate, contrasted with 15 percent growth associated with perpetual license sales. That implies a higher uptick in SCM cloud growth, in-line with our Supply Chain Matters 2012 prediction related to technology adoption.

According to Gartner, 79 percent of software revenues were generated in Europe and the U.S., however European growth slowed in 2011. Asia/Pacific experienced robust growth, outpacing the market average. We would anticipate that given the current business climate, European based SCM investment will continue to decline in 2012.

Gartner also declared the top five SCM technology vendors by revenue, with SAP leading the list, followed by Oracle, JDA Software, Ariba and Manhattan Associates. We caution our readers to not place significant attention to which vendor is the top revenue generator.  The reason is that many of the enterprise software vendors such as SAP and Oracle do not formally breakout revenue reporting by application type, such as SCM.  Thus, industry analyst firms such as Gartner must estimate actual revenues based on any vendor input, internal analysis and estimates.  Categories of SCM software are also categorized differently, especially in areas of overlap with ERP related software, along with software associated with sourcing, procurement and contract management.

Suffice to state that supply chain software technology vendors for the most part, celebrated a healthy year of growth in 2011.  Many manufacturers and retailers also recognized the importance of augmenting supply chain business processes with advanced technology.

Bob Ferrari

This week, SAP conducted its annual Sapphire customer conference in conjunction with its Americas Users Group (ASUG) among thousands of customers, partners and analyst wanabees.  There are the usual spiffy, industrial strength executive presentations that portend compelling trends in business and technology with customers responding to fluff questions or singing the praises of technology in return for healthy discounts.  However, beneath the glitz is reality, the reality of a technology company that has bold vision but is spread out in too many directions, with confusing messages for its customers.

In their keynote talks, both Co-CEO spoke to mega-trends of business and technology.  Co-CEO Bill McDermott stated that the world will consume everything through mobile devices. Co-CEO Jim Hagemann Snabe spoke to the world of 2052, and outlined his view of the three fundamental paradigm shifts in computing:

1. The rush to mobile computing and mobile access to data. In five years, everything is mobile.
2. Cloud computing adoption is underway, and, in less than 5 years, everything is cloud.
3. In-memory computing, with applications that recognize patterns and predict the future.

These are all compelling trends, those that a Geoffrey Moore, MIT’s Charles Fine, or HBR’s Clayton Christensen can certainly expand upon.  To no surprise, these three same compelling trends also conveniently match up with SAP’s business plans for revenue growth. We expect to hear about these trends from visionaries.  We should expect technology CEO’s to speak to solving customer’s current business problems, both in short and longer-term dimensions. There were some attempts to get to these concepts in the keynotes but SAP missed the mark in not providing a hard-hitting panel facilitator. SAP at its core is an ERP and enterprise technology provider, but those terms seem to become blurred which each Sapphire.

Most businesses and supply chains deal with today’s demanding business challenges of this quarter, next quarter, and the remaining fiscal year. Supply chains are challenged with the complex simultaneous problems of supporting top-line revenue growth, agility, efficiency and managing significant risk. A fundamental shift in the influence of technology decisions is well underway, a shift that favors business and functional teams.  Yet SAP messaging still tends to dwell on mega IT trends.

Supply Chain Matters would surmise that business and global supply chain teams utilizing SAP have their success pegged to near-term information, decision support and software application performance realities. For example:

Mobile Computing and Security- how do we protect and insure that sensitive data residing on mobile devices does not fall in the wrong hands. After all, it is a mobile device.  In his blog posting in preparation for Sapphire, Ray Wang summarizes user questions related to mobility, specifically: Why does it cost more to use SAP’s mobility solutions and why as an SAP customer, I pay twice, and in some cases three times for mobile licenses to access the same system information? In his blog commentary, ZD Net and SAP Influencer blogger Dennis Howlett noted developer consensus that SAP has shot itself in the foot, missing mobile opportunities that are obvious to everyone but SAP. He also points to considerable internal friction among internal SAP teams.

Cloud is certainly gaining interest but business and functional teams need to be provided with a coherent and scalable strategy that can be positioned with senior executive teams. Some have noted that SAP currently has multiple cloud platform offerings including some of the new HANA based applications. SAP’s newly appointed senior executive charged with Cloud strategy, Lars Dalgaard did not help to provide such clarity other than SuccessFactors is the model.

SAP also straddles private vs. public cloud deployment strategies, trying to both satisfy huge enterprise customers along with mid-market businesses.  The current customer adoption among SAP Business by Design and SAP Business One is not exactly stellar at this point, and Business One has just been re-written on the HANA platform. SAP is also just beginning to talk seriously about integration with non-SAP cloud platforms.

In-Memory: Then we have the game changing potential of HANA, which seems to change messaging which each passing Sapphire. Analytics means entirely different needs for different business challenges, and as pointed out by SAP, can span both OLTP (on-line transactional processing) and OLAP (on-line analytical processing) needs.  HANA seems to be evolving to not only solve each challenge, but to serve as the ERP transactional and substitute database platform strategy.  A bold vision indeed, but customers need specifics related to roadmap and impacts to existing upgrade strategies in applications and newer IT hardware.  What about pricing of HANA?  That seems to be something that is reserved for deal negotiations vs. overall planning.

SAP and Oracle are also engaged in public warfare over who has the better collection of technology that can support operational reporting, relational query, OLTP and information discovery needs. Each of these analytical needs requires different technical capabilities and both vendors claim the high ground.  Some credit goes to SAP for trying to take the high ground. Both vendors however, provide important arguments and IT teams need to assess the bottom line implications. The resolution of the debate will ultimately be determined in actual delivery of all of this functionality in a customer-timely, cost-affordable manner. The other reality remains that the majority of SAP existing deployments include SAP Business Warehouse, most likely wrapped with some SAP Business Object s Explorer tools. What’s the roadmap or recommended strategy for this infrastructure?

In his keynote, Hasso Plattner was willing to speak candidly about the HANA roadmap.  Thank goodness for his candor. He spoke of the opportunity to move new SAP applications to the HANA platform, the ability to help customers perform more timely planning as well as simulation, and, as he mentioned last year, the ability to significantly accelerate the performance of SAP APO, SAP’s advanced supply chain planning application. He further noted that IT teams will have to reconfigure their physical systems and applications landscape to be able to leverage these capabilities. But all of this will again take additional time.

Some SAP observers note that the key to HANA adoption is the few killer application use cases that can convince the broader SAP community of the true game-changing power of HANA. For supply chain business process, that opportunity was presented in the recently released SAP Sales and Operations Planning Powered by HANA application. Our Supply Chain Matters first impression was that this was an opportunity to truly demonstrate HANA in a mission-critical supply chain application.  But, an initial evaluation noted incomplete features and limited functionality, along with a small select group of pilot customer ramp-up projects. Bottom line, another opportunity squandered.

As another Sapphire moves into the archives, SAP continues to leave gaps among vision, strategy, confusing internal structure and product execution roadmaps. In the mission critical areas of supply chain, manufacturing, product lifecycle management and procurement business process support, another year passes without transferring the power of potentially game-changing technology to multiple applications in planning, predictive analytics, collaboration and decision-support vs. just a singular application.  What about supply chain applications availability in the cloud, other than SRM?

There remains a need for clear positioning and articulated value for various supply chain business problems, and providing solutions based on customer timetables as opposed to SAP’s timetables and internal business priorities. That keeps the door ajar for systems integrators, best-of-breed technology and other providers to fill the gaps and turn confusion into opportunity.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog.  All rights reserved.

This week, SAP is taking advantage of a supply chain focused conference sponsored by the SAP Insider publication to unveil the vendor’s new application, SAP Sales and Operations Planning (S&OP) Powered by HANA. Supply Chain Matters had the opportunity to be briefed on this new application in early February, and while the application has some long-term potential, the initial release may have been rushed to market.

This much anticipated application has been in the development pipeline for well over a year, and SAP has not helped its customers to overcome confusion as to SAP support for a company’s S&OP process.  Another composite application supporting S&OP was already made available to customers which does not have anything near the potential of the HANA powered application. Customers had to do their homework to figure out what the SAP long-term S&OP support plan may have been.

SAP HANA is marketed as the next wave of in-memory computing technology and represents an information appliance strategy where all key data is readily available on a HANA platform, avoiding the need to tap the SAP Business Suite applications for needed access to supply chain related information.  Supply chain IT teams should view HANA applications as an alternative to the classical Business Warehouse (BW) form of storing key planning and decision-support data. Supply Chain Matters has previously shared our belief on the market game changing potential for HANA based applications, but that from the mission critical supply chain and supplier relationship lens, HANA is yet to be tested.

This latest S&OP support application was designed to incorporate analysis of product demand forecasting, consensus demand planning, material and capacity restraints, revenue and profitability analysis, inventory target setting, and other analysis related to support of the S&OP process. The application however does not currently incorporate SAP’s inventory optimization extension application nor does it seem to incorporate inputs from the Response Management Powered by IKON application.  On the positive side, the application makes extensive use of dash boarding to visually represent data and also incorporates use of Streamworks for support the social aspect needs of the S&OP process, namely the constant sharing of data.

Supply Chain Matters was unable to secure a demo of the application actually in-use and thus we cannot currently comment on the overall ease-of-use of this application.

This latest S&OP support application had its pilot release in November of 2011 but was targeted to a select group of pilot customers. The go-to-market release occurs this quarter, but again with limited availability to a designated controlled group of customers. The release includes limited use of planned functionality, and no optimization routines, just heuristics.  There are also no feeds from SAP Supply Network Collaboration included in this release. Unilever has been identified as a current pilot customer.

Another consideration for evaluation teams is the fact that this application is current only offered as an on-demand SaaS based platform. We believe that this was a purposeful decision by SAP to insure the overall performance of HANA based applications. While many of SAP’s HANA based composite applications released to-date have been much hyped, very little have involved mission critical process support such as S&OP. It remains to be seen whether customers will embrace a public hosted platform or instead require SAP to provide a private cloud option. For its part, SAP is assuring customers that its HANA hosting process will not be multi-tenant and will involve secure lines. To date there is but one hosting center located in the U.S., with another planned later for Europe.

The pricing of this application is still a work-in-progress and will be predicated on subscription based model pegged to the size or scope of the S&OP process. Also unclear is how many different SAP licenses will be required to actually support the application.  Supply Chain Matters is of the view that this application could, in the end, be rather expensive.

For all of the observations noted above, we believe that SAP has rushed this application to market, probably to either satisfy internal product management or attract early adoption lighthouse customers to gain experience with the application.  Since much of the promising features are a work-in-progress it may behoove SAP supply chain customers to take a wait and see approach to this application or if under time constraints, explore best-of breed S&OP process support options.

Bob Ferrari

©2012 The Ferrari Consulting and Research Group LLC and the Supply Chain Matters Blog. All rights reserved.

Last week, SAP announced preliminary results of its 2011 fourth quarter financial performance and the results were impressive, exceeding analyst expectations for revenues and profits.  In Q4, software license revenues increased by 16 percent and total revenues grew by 11 percent.  Operating profit from a year ago is expected to increase by over 200 percent . Similarly, full fiscal 2011 financial performance was equally impressive prompting SAP senior management to declare that SAP delivered “the best year in its 40 year history.”

Upon review of the preliminary earnings release we noted statements indicating that growth in core applications business, increased momentum for analytics and mobile product lines, and accelerated growth of SAP HANA were each cited as growth engines.  SAP had established a 2011 revenue goal of €100 million for HANA, and has indicated that it exceeded that goal by €60 million. The company also exceeded its €100 million goal established for its mobile based applications, reflecting even more interest by customers in engagement type systems, empowering the user wherever he/she may be located.

Enterprise software companies have a tendency to perform creative allocation among internal revenue segments, thus we have to context SAP’s with some caution.  Also, many of the SAP HANA applications have experienced a delayed market entry and are just reaching customer release visibility and confined to certain non-mission critical application segments.  All that as an aside, the SAP performance is still impressive, especially when placed in context to the ongoing market battle with rival Oracle.  In December, Oracle surprised analysts with a disappointing fiscal Q2 2012 financial performance, indicating only a 2 percent adjusted growth rate in software license revenues.

For readers unfamiliar with HANA, it will become SAP’s answer to leveraging today’s advanced in-memory computing for areas such as advanced planning and predictive analytics.  In our Supply Chain Matters attendance at SAP’s 2011 Sapphire customer conference, we shared our belief that if successful, conversion of SAP applications and software infrastructure to take maximum advantage of in-memory technology would be market game changing.  Last year’s Sapphire customer conference provided a more detailed understanding of how extensive and far-reaching this objective really is, as well as the difficult technical challenges that SAP needed to overcome.  Subsequent SAP influencer focused events have lacked some details related to the future release schedules of HANA powered applications. At face value, the fact that customers are now beginning to buy into the potential of HANA is noteworthy.

From a supply chain and supplier relationship management lens, the real test for HANA focused applications is yet to come.  The initial test will be the long awaited Sales and Operations Planning (S&OP) powered by HANA application that is scheduled for initial customer release this quarter.  Supply Chain Matters has been attempting to secure a detailed briefing on this specific application. During his keynote address at the 2011 Sapphire conference, SAP father and Supervisory Board member Hasso Plattner declared that if he had his way, all of SAP’s business planning applications and specifically the SAP APO application should be the initial targets of further HANA enablement.  We were quick on the keys to “tweet” that statement in belief that SAP’s SCM and SRM customers take note of the implications of that statement.

We continue to believe that in-memory computing will have profound impacts in supporting future supply chain sourcing, planning, fulfillment, collaboration and decision support needs but customers will need vendors like SAP to actively integrate this technology within the existing applications, and not leave that burden on the shoulders of existing customers.

The preliminary uptake of HANA is indeed impressive but the real test will come in SAP operations and mission critical applications such as supply chain and supplier relationship management focused applications.

Bob Ferrari

Something interesting occurred this weekend, an announcement of an acquisition by SAP.  We note the term interesting because the announcement was made on a Saturday, a relatively non-news day for enterprise software companies in the U.S. as most people are busy with leisure and pre-holiday activity.  We were not even alerted by SAP Global Communications to the announcement.

In any case, the headline reflects SAP’s intent to acquire cloud-based human capital applications provider SuccessFactors for an estimated $3.4 billion. The deal includes an all-cash transaction and was priced at over 60 percent above SuccessFactors trailing 60 day trailing stock price and roughly 9.7 times current earnings.  The San Mateo California based company touts to have a Business Execution System that helps companies manage recruitment, assess human performance and accommodate other human resource process needs.   SuccessFactors boasts over 3500 customers and 15 million subscribers, a software licensing nirvana.  It also includes a rather top-heavy management structure for a mid-sized software services firm in the area of $400 million in revenues.

The deal comes on the heels of SAP’s October announced acquisition of Crossgate, a B2B cloud platform that helps companies to exchange data with their partners. Both announcements are sure raise more debates regarding SAP’s prior statements to follow an organic growth strategy.

It would appear that SAP has caught the HP tendency to significantly overpay in acquisitions, or is acknowledging that it needs to augment its current cloud services offerings.  A New York Times DealBook posting (metered view may be required) quotes a Forester analyst observing that the premium is an indicator of SAP’s struggle with its current cloud platform strategy along with its need to garner more future revenue from the cloud model for computing.   We tend to concur.

In its announcement, SAP indicates that SuccessFactors will remain an independent company, to be renamed SuccessFactors, an SAP Company. Of more interesting note, Lars Dalgard, the current CEO will be appointed to the SAP supervisory board and take on the broader role for providing leadership for SAP’s cloud business offerings.  Readers may recall a similar type of appointment when SAP acquired Business Objects in 2008 and its CEO, John Swartz was tapped to lead SAP’s business intelligence offerings. Swartz later departed SAP over presumed differences in strategy.

Supply Chain Matters wonders aloud whether SAP will be inclined to exercise further cloud related acquisitions in the specific area of supply chain, PLM and manufacturing management applications.

Bob Ferrari

Supply Chain Matters had the opportunity to attend SAP’s Supply Chain Management Summit meeting at SAP North America headquarters. The purpose of this day and a half  summit was to bring SAP’s current supply chain management applications customers together to share information and gain further knowledge on SAP’s various software applications supporting supply chain business processes.  In our initial part one posting, Supply Chain Matters provided commentary on the leadership change within SAP SCM.

We had the opportunity to attend a number of educational sessions during the Summit.  Here are some summary impressions.

A deep-dive session entitled Best Practices in Improving Supply Chain Response Management was rather interesting.  The session facilitators billed their presentation as an educational overview on the role and purpose of response management and stated up-front that the session would not be technical.  The audience however had other needs, and wanted more detailed knowledge on how the newly released SAP Supply Chain Response Management by ICON-SCM would specifically integrate with SAP’s APO and SNC and ERP ECC applications. What became evident is that integration to other existing  SCM applications is still a work-in-progress  What was mentioned is that the initial integration target involves Global Available-To-Promise (gATP).  Also mentioned was that in the interim, customers desiring integration of Response Management to existing SCM or other applications can do so on a custom project management basis.

A session summarizing all the changes incorporated in SAP APO Version 5.0 and 7.0 reinforced that APO customers need to keep abreast of changes, since a lot of enhancements continue to be added.  The key takeaway for APO users is SAP’s message that Release 7.0 provides the staple ECC core release, and that once customers move to 7.0, they will be able to henceforth take advantage of SAP’s less disrupting Enhancement Release Paks which promise to make future upgrades less disruptive.  Eric Simonson of SCM Solution Management demonstrated superb and detailed knowledge of various APO enhancements, and APO customers should keep Eric’s contact data on their smartphones.  One of the other most significant takeaways for SAP customers in life sciences and process industries is that APO has finally addressed comprehensive and detailed support for shelf-life planning, an issue that dates back six years. Supply Chain Matters would be highly interested in speaking with any SAP APO customer who has had experience with this newest shelf-life optimization technology.

There were a series of roundtable luncheons involving customers representing specific industries.  Supply chain Matters sat in on the Life Sciences roundtable that included representation of a broad cross-section of life sciences companies spanning generic drugs, proprietary drugs and pharmaceuticals, medical devices and other ancillary products.  The listing of hot topics and process challenges was quite comprehensive and by our count, the ones most emphasized included lean enablement, extended warehouse management, master data management and reporting, inventory optimization and response management.   To our pleasant surprise, we also discovered that SAP currently sponsors four different forums dedicated to the topic of supply chain tracking and serialization, which is another life sciences challenge given upcoming state and governmental mandates for supply chain drug tracking capabilities. Many life sciences companies are also moving toward extended contract manufacturing, which has added more challenges for visibility and process controls.

By our observation, the most widely attended customer sessions involved Newell Rubbermaid’s use of SAP APO to enhance its S&OP process, and Medtronic’s deployment of SAP Enterprise Inventory Optimization by SmartOps, one of SAP SCM’s other solution extensions.  A lot of learning and watch outs came from both of these presentations. Supply Chain Matters will provide additional comment in subsequent postings.

Overall the Summit was very educational, providing ample time for attendee networking, which is rather important in these times of social media.  Some attendees indicated that they preferred these smaller sized venues, as well as a location that was easy to travel to by automobile, train, or quick plane ride.

In the category of disappointment, was the lack of any definitive knowledge-sharing of how SAP’s ongoing in-memory HANA technology would play a role in SAP’s evolving SCM suite, especially SAP APO. At this year’s Sapphire, SAP Supervisory Board Member Hasso Plattner indicated that APO would be a top priority for HANA. The lack of any education or update was an opportunity lost.

Bob Ferrari