The Supply Chain Matters blog provides a follow-up commentary focused on SAP ERP and Supply Chain Management focused customers, and their new imperatives for considering an acceleration to Public Cloud based technology deployments, based on SAP’s customer messaging at last week’s Sapphire customer conference.
In a prior blog commentary, Supply Chain Matters provided highlights and perspectives of the 2019 SAP Sapphire Customer Conference, which for our way of thinking, represented an important watershed event for businesses with installed SAP ERP, SCM and other business applications support technology. We committed to a follow-on commentary to assist readers in thinking about their transition to the Cloud, and the following represents our added thoughts and perspectives.
Major Crossroad and Inflection Point for the SAP World
Businesses and supply chain management teams across the globe, now more than ever, need to be able to more quickly respond to a rapidly changing global economy, and changing markets. The online and digital-driven economy is disrupting multiple industries, product and services models. In industry after industry, innovative firms are leveraging digital based business models leveraged by advanced technology to disrupt existing markets, unseating market-share leaders.
Business agility and responsiveness has become fundamental for driving added growth and profitability, and that now adds to the increasing need for businesses, including those supported by SAP, to need to invest in new business models and more enhanced processes supported by Cloud-based technology.
Our primary reader takeaways from last week’s Sapphire focused commentary was essentially the emergence of a added conundrum, namely that SAP customers and SAP itself have reached a major crossroad in business and product strategy needs and requirements.
Let us explain.
Customers who invested in major on-premise ERP or SCM business applications software and technology several years in the past, have reached an inflection point. Initial on-premise implementations involved millions of dollars of total up-front and continuing investment and a lot of added customization to support ongoing business change. Many existing businesses likely remain reluctant to have to move the bulk of on-premise ERP applications to the Cloud, without a solid base case relative to overall cost, time-to-benefit or added business disruption. That has weighed on SAP’s customer Cloud migration efforts for some time.
Internally within SAP itself, efforts to move existing technology to Cloud based models has primarily be driven by a predominant acquisition-based strategy that involved multi-billions of dollars invested in acquiring other Cloud platform providers including Ariba, Concur, Fieldglass, Success Factors, and the latest, Qualtrics. When one rolls back the covers to assess the primary motivating strategy, there is a strong argument that such a strategy stems from both buying innovation and locking-in opportunities for added user-based seats spread across the enterprise. Yes, SAP is introducing broader options to support end-to-end business process capabilities, such as procurement, human resources, expense and now experience-based management. But for major core business applications and industry-specific applications support needs, the sub-strategy was to develop Cloud business applications internally, such as SAP S4 HANA on the business application end and SAP HANA for database and information management needs. From our lens, the former strategy has been aggressive, the latter laggard and troubled.
As noted in our prior blog, there is acknowledgement that SAP has not previously been listening to customers and their needs. Legacy customers have pushed back on the frequent number of technical updates, expressed confusion in understanding application upgrade strategies, coupled with challenges and elongated timetables in the ability to migrate to S4 HANA. Yet another architecture shift in overall data warehousing, advanced analytics and business intelligence deployment is underway, this time announcing a new application for consideration, SAP HANA Cloud Services.
The most compelling message of all, is that SAP will now leave little choice for on-premise customers, namely they must migrate to public or private Cloud deployments, and soon.
That was the essence for Sapphire 2019, new promises to deliver native integration of data across all SAP Cloud technology stacks, a record 82 integration projects that are committed to be completed this year, and an admission statement that with more installations in the Cloud, SAP is better able to configure and optimize HANA configuration and performance for customers. A further consideration is that with SAP’s revised Public Cloud strategy, customers will have to select among a number of available Public Cloud hosting platforms, that include either AWS, Google, Microsoft or even Oracle..
All of the messaging was tailored to be able to convince on-premise customers that migration to Public Cloud is the way to go. The question, however, that SAP customers need to rationalize, is whether this a strategy to accommodate SAP’s 2020 Ambition needs in revenues and margins, or to best accommodate customer business and digital transformation time-to-benefit needs, or both.
Supply Chain Management Technology Transformation Considerations
Today, and in the context of digital transformation, technology support for supply chain management often includes process support for end-to-end procurement, product management, supply chain, manufacturing, logistics and transportation and overall customer order fulfillment. Transformation should be viewed as process , technology, information and decision-making that spans all of these areas, and now, Cloud native technology supported to better accommodate continuous change.
That places a particular set of requirements in consideration of a systems replacement strategy, or in some cases a rip and replacement strategy.
In considering supply chain management, one of the most important considerations is the integration and normalization of data and information from a variety of sources. Some may have to remain on-premise because of information or process security needs, some may be in an individual business Cloud, some may reside on a physical device or digital twin, and some in a B2B Business Network or industry-centric Cloud.
For SAP SCM customers, the challenge is especially difficult because on the existing complexity of on-premise planning, operational execution and process control systems. Evaluating SAP’s various individual SCM applications migration strategies, customers need to assess elements of what we consider as a fragmented Digital Supply Chain collection of options.
There is, for example, the option to peel-off certain processes such as Sales and Operations Planning and consider adoption of SAP Integrated Business Planning and S/4 HANA Cloud, but also consideration of the most appropriate information integration tool, to now include SAP HANA Cloud Services. Other considerations reflect SAP Digital Manufacturing, Leonardo or Procure-to-Pay. There may likely be assessments for multiple Cloud platform and application paths, with corresponding subscription and user license options and overall implementation cost. All of this takes added time and resources not to mention close collaboration with resident IT support.
Another uncertainty is whether SAP’s added emphasis on customer and experience-based capabilities will impact or delay ongoing SCM development projects related to Cloud because of higher priorities.
The task and assessments are complex, and it is no surprise that systems integrators and SCM consultants have a continuing healthy business to assist customers in sorting out the options, tradeoffs, and end-goals.
For our part, we recommend consideration outside-the-box thinking, in addition to an SAP centric perspective. This is sometimes termed as an SAP ring fence approach, where needs for more timely innovation are focused on proven non-SAP technology alternatives.
There Are Options
Consider for a moment, that other enterprise and best-of breed SCM technology providers elected to architect and develop specialty and full-suite Cloud-based applications and data integration platforms from the ground-up. The secret is that leveraging open, and widely developed Cloud application development standards provides added flexibility for broader information integration needs.
As an example, Oracle was one of the first enterprise-scale tech vendors to announce an end-to-end Public SCM Cloud suite back in 2015. We lauded that achievement back then, and since that time, the suite has matured to support broader functionality, industry specific support and deeper integration with Oracle SCM Cloud and other external ERP or SCM Cloud-based suites. That includes support for master data management and analytics. Oracle has additionally developed a totally Cloud based database with autonomous management features, and an Oracle hosted Cloud-based platform available for either public or private deployments, all of which simplifies the complexity of the decisions that IT support teams need to resolve.
Oracle is by no means the only other technology provider that long ago architected a native SCM focused Cloud applications and information management stack. Enterprise, industry and best-of-breed B2B Business Network platform providers are augmenting messaging technology with added SCM planning and customer fulfillment focused applications, deeper and more transparent application-to-application and Cloud-to-Cloud information integration and advanced analytics. Similarly, specialty supply chain planning, artificial intelligence or omni-channel customer fulfillment support providers are more and more, augmenting planning, execution, sales and operations and broader decision-support processes with seamless integration to SAP applications, either on-premise or Cloud based.
SCM workloads and their data and information requirements will often range from multi-tenant public Cloud, private Cloud, or various on-premise profile capabilities depending on the overall scope of operations, supply and customer demand networks to be supported. That will span end-to-end and up, vertical and horizontal process support needs.
Indeed, SAP SCM customers will indeed need to make important technology decisions in the coming months. Some have already elected an SAP ring fence or best-of-breed Cloud coexistence strategy. Some may elect to wait out the SAP Cloud roadmaps and hope that required process and technology transformation can hold-off for another year.
Our message is for supply chain management teams to broaden thinking beyond a just an SAP-centric approach. Consider digital transformation as a series of process and systems transformation initiatives supported by the best technology available, with demonstrated master data and information integration to existing SAP applications. The critical dimension of innovation will always be time-to-business-value.
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