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Survey Indicates SAP Customers are Not Yet Committed to S/4 HANA

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Today’s theme is Cloud ERP and the tendencies among technology customers towards adoption or conversion to the Cloud. In addition to this week’s update on Oracle financial performance indicating building momentum, noted enterprise blogger and friend Vinnie Mirchandani tweeted our attention to a recent survey among SAP ERP customers.

Rimini Street, a provider of enterprise software products and services, and a support services provider for Oracle and SAP applications, released the findings from a recent global survey of SAP licensees to better understand SAP ERP application strategies and future needs.

The report, “Rimini Street Survey: 2017 SAP Applications Strategy Findings,” was based on responses from CIOs, CTOs, IT VPs, directors, and managers from a broad range of industries and company sizes across North America, Europe, Latin America, and Asia-Pacific.

A key finding, according to the authors, indicated that 65 percent of the survey respondents have no plans to, or are currently not committed to, migrate to SAP S/4 HANA, with the number one reason for not committing cited as “no strong business case and unclear ROI.”  Further indicated by 89 percent of respondents, was to continue running their proven SAP ERP releases, given that the rich functionality met existing business needs and further formed the foundation of a preferred hybrid IT model. Regarding the latter, 30 percent indicated that they are already adopting a hybrid IT strategy to maximize the value of their core SAP system as a system of record, while freeing up funds and resources that can be used to drive innovation through systems of engagement more quickly and flexibly. According to the authors, a hybrid IT strategy offers the best of both worlds – providing the ability to reliably run the business on a robust core ERP application, and at the same time enabling an organization to more quickly adopt new innovative applications and services, including cloud, mobile and analytics.

What we found as a rather important technology buyer indicator, was the following statements:

In addition to citing “no strong business case and unclear ROI,” for the low commitment to S/4 HANA, another top reason by survey participants for the low commitment to S/4 HANA is the “high migration and reimplementation costs.” Of those respondents who have committed to S/4 HANA, 56% estimated the total cost of reimplementation for a move to S/4 HANA to be between $10 and $100 million, an expensive undertaking which makes it difficult to build a positive business case for the move and is financially untenable for many organizations.”

No enterprise Cloud software provider wants to read or hear such statements from existing customers. If not already, this should be a clear call-to-action to both fully understand what a strong business case needs to be to prove to customers that such applications are flexible and robust enough to support needs for business and process innovation. For the specific area of existing SAP applications supporting supply chain management, manufacturing and product lifecycle process needs, we believe that the business case for upgrade is reflective of a perception in lack of understanding in various applications and technology roadmaps, coupled with functional and line-of-business uneasiness on the disruption, cost-of-ownership and/or performance tradeoffs of adopting SAP HANA as a backbone database. Instead, customers are indeed turning toward select supply chain edge systems for such needs.

At the recent annual SAP Sapphire and ASUG customer conference, there was a special emphasis on communicating the existence of product roadmaps and in declaring that the bulk of ERP innovation was completed. Kudos to SAP for at least listening and processing customer feedback. However, from the feedback and discussions we have had, more work remains in any compelling business case for upgrade adoption. Meanwhile, market introduction of added innovation of edge systems is increasing every week.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


Oracle’s Fiscal FY17-Q4 and Full Year Financial Performance Garners Market Attention

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Oracle reported its Fiscal Q4 and full FY17 financial performance results and the Wall Street and individual investment community seemed very pleased by what was termed as a phenomenal quarter and an impressive transition towards accelerating Cloud based revenues and margins.  Investors drove Oracle stock up 10 percent in after-hours trading. Oracle OW16 sized450 300x172 Oracles Fiscal FY17 Q4 and Full Year Financial Performance Garners Market Attention

Co-CEO Safra Katz characterized a tremendous quarter in just about all business areas including Cloud, software license and earnings and declared that Cloud has now become the predominant growth engine for Oracle. Co-CEO Mark Hurd went a step further, declaring that this was the best quarter that Oracle ever had, and that the company performed very strongly in bookings, billings, and revenues, all at record levels.

Financial performance highlights for Fiscal Q4 included:

Total revenues rising 2.8 percent to $10.9 billion.

Software as a Service (SaaS) revenues up 67 percent to $964 million.

Total Cloud revenues up 58 percent to $1.4 billion.

Total on-premise software revenues of $7.5 billion, essentially unchanged from year-earlier.

Net Income rose 15 percent to $3.2 billion.

Gross deferred revenue now at $2.3 billion, up 67 percent and exceeding goal established at the beginning of the fiscal year.

 

For the full fiscal year:

Total revenues rose 2 percent to $37.7 billion.

SaaS revenues rose 70 percent to $3.4 billion.

Cloud, PaaS, and IaaS revenues up 63 percent to $1.4 billion.

Operating income up 3 percent to $16.2 billion.

 

Two Significant Takeaways

From our technology industry analyst lens, we observed two significant reader takeaways regarding Oracle’s latest quarterly and fiscal year performance.

The first is a response from Wall Street and the company’s investors that Oracle has reached the termed tipping point where customer Cloud adoption as reflected by ongoing recurring revenues are reaching a point of significant momentum. Oracle senior executives hosting the briefing with analysts and investors indicated that the company achieved its stated goal of surpassing $2 billion in annualized recurring revenues, a rather important metric for Cloud technology companies. Co-CEO Hurd pointed to a $6 billion annualized run rate which is another pertinent indication of momentum.  As we have often pointed out in our prior Oracle focused commentaries, Oracle’s business strategy of all-in for Cloud software, database, computing hardware and infrastructure was very bold, and is now paying dividends from many business perspectives.

Cloud ERP

Within the latest performance was evidence of market traction and momentum in two very important application areas, ERP, and database. In his feedback to analysts, Hurd rattled off stats as to 1575 new SaaS customers coupled with 1138 termed expansions, namely customers that acquired both Cloud software and associated platform and infrastructure technology. For ERP Cloud, Hurd noted 868 new customers (not including the recent NetSuite acquisition numbers).  Some manufacturing industry nameplates included Ball Corporation, General Electric, Kraft Heinz, Motorola, NCR, Newell Rubbermaid, and Volkswagen, among others. Of that adoption rate, almost 200 were noted as expansions, meaning adoption of extended modules, examples being either procurement, supply chain or manufacturing support. Of added significance was the statement that roughly two-thirds of new Cloud ERP customers were brand new Oracle nameplates. This adds some credence to Oracle’s messaging of faster technology adoption and customer benefits with Cloud adoption. Of course, there is a flip-side to this statistic, namely that existing Oracle on-premise customers are still undecided.

In total, Oracle now has 13,550 active SaaS customers, and when NetSuite is added, the number approaches 25,000. This is noteworthy momentum both in customer adoption and future pull for expanded technology needs, particularly supply chain related.

Database Cloud

During the quarter, Oracle announced a very significant and strategic database deal with AT&T, which according to executives operates over 10,000 Oracle databases. The company elected to move to the Cloud to gain the benefits of database provisioning along with consolidation of in-house infrastructure. Because AT&T is subject to regulatory directives for data management, the deal called for adoption of Oracle’s Cloud database on premise, where Oracle will operationally manage all databases and infrastructure, very like services performed for public Cloud. When completed, this one customer has the potential to be a key strategic customer reference for many other large Cloud database deals.

Speaking to Cloud database adoption, Chairman and CTO Larry Ellison indicated that newer versions of Oracle database technology are experiencing very rapid adoption uptick because of the needs for multi-tenancy and enhanced memory capabilities.  Oracle utilizes a design that places large amounts of flash cache memory in front of hard disk memory, along with a sophisticated storage hierarchy system. Obviously, such remarks were directed at competitors such as Amazon Web Services, Microsoft, and SAP. Ellison noted that Oracle can now provide rather high performance at a dramatically lower cost than competitors. As customers evaluate the movement of millions of Oracle databases to Oracle Cloud, Ellison anticipates that Oracle PaaS and IaaS will eventually surpass the company’s SaaS business. Here again, Oracle’s broader strategy of software and hardware has the potential to bear significant market traction. Hurd indicated to analysts:

This is an example where we have talked about before, we take our Oracle cloud machine and we are able now to do all of that with them on their premise and give them all the benefits of the cloud, we manage, we patch, we basically run the cloud for them and we help them get all of that done.”

Final Note

Oracle obviously has additional work ahead, both in making the business case for existing on-premise ERP and applications customers to initiate their path to the Cloud, along with continued focused messaging directly to line-of-business teams on the business benefits of moving to the Cloud. But, the fact remains that momentum is clearly part of Oracle’s favor at this point. We highlighted the database technology aspects for our readers, because line-of-business and supply chain focused IT groups are in various stages of evaluating whether to transition to Cloud-based databases, as well as which strategic vendors provide the more compelling business case in performance, user acceptance and lifetime cost. We still do not observe senior Oracle executives directly citing Oracle Supply Chain Cloud uptake and we will work to share those numbers with readers in a subsequent posting.

For any new enterprise or supply chain focused technologies, increased customer adoption momentum is a rather important metric. This week, Oracle’s announced performance was all about such momentum, with an indication that its broad market strategy of software, infrastructure and services is drawing attention.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

Disclosure: Oracle is currently a client of The Ferrari Consulting and Research Group, operators of the Supply Chain Matters blog. The author does not hold any Oracle stock holdings.


MetTel Announces Single SIM Chip for Internet of Things Seamless Connectivity

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A sidebar to our previous blog posting reflecting regarding IDC’s latest global market forecast for IT related technology reflects on new technology entering the market each week. Supply Chain Matters is continually impressed with the current cycle of new technology that addresses specific challenges directed at IoT enabled business processes.

We highlight just one example that crossed our news desk this week.

One of the more troublesome challenges for connecting physical objects with digital information driven processes is overcoming challenges related to connectivity. While mobile network connectivity proliferates, not all geographic locations nor regions have similar networks. That adds to challenges of uniform connectivity with added complexity and costs.

New York based MetTel, a provider of integrated digital communications, announced what the company describes as “the first SIM that intelligently roams to identify and automatically connect to the strongest signal globally. Connectivity is achieved by embedding protocols for the four major US and 650 worldwide wireless carriers, allowing any device from a hand-held device to a jet engine to communicate operational data and status. This technology resides on a hardware chip and the provider indicates that it leverages eSIM-ready infrastructure which is being developed as a global standard in the not too distant future. It further includes geo-fencing, providing the additional ability for equipment to report entry or exit specific regions or locations.

The technology responds to the need for always-on connectivity that is not constrained by existing transmission networks or physical location. While this technology serves as a de-facto proprietary software connectivity network, it seems to address challenges that we have heard described from current pilot efforts of IoT enabled process applications.

Our ongoing IoT coverage has also highlighted technology that allows information and PDF files to be electronically stored on physical equipment for reference needs along with next generation electronic labeling technology that supports sensing of product condition. No doubt, with double-digit market growth potential, supply chain teams will be able to take advantage of other new technology for support supply chain related IoT needs.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


IDC Updates Global Spending Forecast for Internet of Things Technology

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This week, quantitative market research firm IDC released its Worldwide Semiannual Internet of Things Spending Guide, that at the surface, provides strong evidence of meaningful IoT related IT spending this year, and in future years.

Within the announcement are important validation for our supply chain management community, namely that the broadest appeal, value, and attraction for current IoT efforts rests in areas of manufacturing and supply chain focused business processes. IoT 425 IDC Updates Global Spending Forecast for Internet of Things Technology

The industry analyst firm now predicts that worldwide spending on IoT focused technology is expected to grow 16.7 percent this year, reach a level of $800 billion. The firm now forecasts that spending on hardware, software, services, and connectivity that enable IoT will reach $1.4 trillion in five years.

According to the analyst firm, technology hardware, manifested by sensors and modules that connect end points to networks, will be the largest spending category until the last year of the current forecast, when overtaken by the faster growing services category. The forecast indicates that software, namely horizontal and analytics focused, will represent the highest five-year technology growth rates at 29.0 and 20.5 percent CAGR respectively.

IDC indicates that the industrial use cases expected to attract the largest investments this year include $105 billion in manufacturing operations, $50 billion in freight monitoring, and $45 billion in production asset management. According to the forecast, the industries with the largest investments will be Manufacturing ($183 billion), Transportation ($85 billion), and Utilities ($66 billion).

Interesting enough, IDC indicates that the Asia Pacific region (excluding Japan) will represent the leading investment region, followed by United States and Western Europe. From our lens, these regional based forecasts are an indication that Asia-Pac firms view IoT as a core disruptive technology, and are taking an aggressive investment view to leverage such technologies.

On the consumer focused IoT side, the firm now forecasts this area to be the fourth largest market segment this year, and grow to become the third largest segment by 2021. The largest spending growth areas over the five-year window indicated to be 33.4 percent CAGR in airport facilities automation, 21.1 percent CAGR in electric vehicle charging stations, and 20.2 percent CAGR in in-store contextual marketing.

Within our own specific 2017 supply-chain focused technology predictions, we declared that IoT focused technology would continue in early stage pilots or line-of-business driven efforts to prototype new business models. We believed that industry competitor drives need needs to achieve forms of first-mover advantage in either developing new forms of digital-driven business process and achieving newer top-line revenue streams. Early efforts also help in developing required competencies in data security and interoperability among various edge and core business systems.

Judging from the latest IDC forecast data, manufacturing, asset management and transportation processes are garnering the highest interest levels in 2017. Each has a foundational aspect. A further takeaway, again from our lens, is that the near-term investment use-cases for IoT remain in the industrial sector, many of which reflect the digitization of business processes.

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


A Path Towards Internet of Things Enabled Service Management- Service Parts Planning Realities

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This blog posting represents the second of a four-part market education series, in collaboration with supply chain planning and service parts technology provider ToolsGroup.

 In our initial posting in this series, we declared that one of the most promising line-of-business areas that will benefit from Internet of Things (IoT) enabled technologies applied to supply chain management will be equipment services management, especially service and spare parts management.  Planning 3 shutterstock 394279114 300x184 A Path Towards Internet of Things Enabled Service Management  Service Parts Planning Realities

A longstanding challenge in service or replenishment parts planning and management has always been the ability to forecast item-level demand when such demand is sporadic or sudden.  Now consider the opportunities to have demand-driven or predictive failure data and information emanating directly from the physical equipment.

But with any major business transformation, there are always foundational capabilities that come first. In the specific area of IoT enabled equipment and services management, a foundational capability is usually the need for a robust, responsive, and analytically-driven service parts planning (SPP) capability.

Yet an unfortunate reality is that many manufacturing and services organizations with lower levels of process maturity have not recognized the differing process and decision-making needs required for responsive and effective SPP.  Considering a leap to an IoT enabled service management business model will likely expose this weakness.

 

What Makes Service Parts Planning Different?

Three fundamental differences often found in SPP are the following:

  • Contracted service levels and customer contracts determine the overall parts distribution and required service response network. When there is either equipment downtime, caused by a failing part, or when equipment consumables are suddenly out-of-stock, equipment is no longer generating value for end-customers. There is very little tolerance for inventory back-orders since non-performing equipment results in downtime costs that can far outweigh the cost of the replacement part.

 

  • Service parts component demand is often manifested in intermittent or lumpy demand signals, caused by actual equipment operational conditions or changes in operating environment. That means planning in an environment of long-tail demand, parts that exhibit larger numbers of variability, lumpy or seasonality focused demand patterns. Traditional forecasting or demand planning techniques are often ineffective in planning parts demand in such environments. That’s because SPP is far more concentrated in individual item-level planning as contrasted to product family or aggregated planning techniques. SPP planning models feature higher stock keeping unit (SKU) counts and associated long-tail demand planning computations than traditional supply chain planning models. Algorithms that capture actual parts demand, or plan for future demand need to be far more sophisticated in item level and shipping location mathematical modeling.

 

  • Service parts networks require the need for multi-echelon and multi-tiered inventory stocking strategies tied to more predictive parts demand. Long-tail demand can be best managed by planning that factors item level and shipping location simultaneously. SPP must therefore be able to effectively manage and optimize inventory within such multi-echelon stocking environments.

 

A Path to the Future

Three to five years from today, even more equipment will be acquired by “services by the hour” payment methods, saving on front-end capital equipment costs for equipment operators. Physical objects such as complex equipment, engines, motor vehicles and other forms of equipment will be communicating operational performance and service needs via IoT enabled data and information flows. For equipment manufacturers, the opportunities are new lines-of-business and incremental multi-year top-line revenues flowing from such models.

The good news for IoT enabled service management processes is that the equipment itself can provide more proactive or prescriptive indications of when a part is scheduled to fail, as well as actual maintenance data related to parts failure. Such capabilities will provide added intelligence and more accurate parts demand information that will provide additional service uptime and operational cost savings for customers and service parts providers. In addition, the ability to link the physical equipment and operational data related to equipment with a robust SPP environment adds important benefits in the ability to capture and plan more accurate, and more predictive information related to service parts or consumable parts needs and requirements across a service management network.

However, the savviest businesses recognize that the end-goal is not IoT per-se, but in building the foundational people, process and technology capabilities that can best leverage the digitization of supply chain management and decision-making processes. An IoT front end isn’t much good without an equally responsive back end planning system.

Businesses that recognized the critical differences in more effective service parts management and made the initial foundational investment in more responsive SPP process capabilities will be far better positioned to harvest the benefits of smarter and more efficient network wide inventory levels, more timely decision-making and most important of all, more responsive service and satisfaction levels for equipment customers.

 

Bob Ferrari

© Copyright 2017. The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.

 


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