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Author's profile photo Steve Sprague

SAP Hybrid Cloud Part 2 of 4: Proves Successful for Latin America E-Invoicing Compliance

In follow up to my first article: SAP Hybrid Cloud Proves Successful for Latin America E-Invoicing Compliance Part 1, I wanted to go into further detail on why the Hybrid Cloud model is taking over as the leading solution choice for compliance across Latin America. Therefore, I am creating a series of blogs over the next weeks:

  • Part 2 provides the background and rational on why On-Premise solutions don’t work anymore to manage e-invoicing compliance in Latin America
  • Part 3 will cover why traditional Managed Services, 100% Cloud, traditional e-invoicing networks or EDI Value Added Networks leave your internal team with 80% of the work. Why outsource the easy part and create a support and change management finger pointing contest?
  • Part 4 will cover – the SAP Hybrid Cloud model for Latin America E-Invoicing

The Background – Latin America regulations and process standardization create the need for the Hybrid Cloud:

  • The governments in these countries mandate E-Invoicing, the XML schema and the business process.
  • In each country, there are no real differences between types of companies or industries. A Brazil Nota Fiscal is a Brazil Nota Fiscal and a Mexico CFDI invoice is a Mexico CFDI invoice whether you are producing beverages, cars, stereos, chemicals, gasoline or pharmaceuticals. In other words, it’s the same for everyone.
  • Because it is mandated and everyone has to do it the same. Implementing, supporting and maintaining the government connections just makes sense to use a provider that is an expert in the process. Why would you want to spend your resources to be an expert in the technical deployment of e-invoicing? Most multinationals partner with a tax consultancy to keep up with the constantly changing laws – doesn’t it makes sense for the technical implementation as well?
  • Finally, over the past 5 years companies have realized that a majority of the ongoing support issues and change management costs are associated with keeping the ERP system up to date.  Many companies are moving to a single instance or regional instance of SAP ERP – and constant change is not something the Center of Excellence wants to see. A lot of companies only want to do SAP ERP upgrades (at least major upgrades) once or twice and year and the overwhelming majority of SAP shops run a (N-1) ERP upgrade strategy. This means they are not on the latest service packs. This poses an issue when the country changes are always released in the latest service packs.  What do you do when you run 4.7b or ECC 5.0 and the new requirements are ECC 6.0 SP 14 and 15.

On-Premise – Once the only option, now companies realize that this model can be 80% more expensive to maintain then the Hybrid Cloud model.

As more organization move business processes into shared services and look to consolidate on single instances or regional instances of SAP, they are finding that the true cost of ownership of an On-Premise Latin America E-Invoicing compliance solution is extremely high.

The reasons for the out of control costs for On-Premise solutions include:

  • Managing Constant Change is expensive
    • In 2014, all companies in Brazil will be faced with NFe 2.0 to  3.1 upgrades which will be mandated by December 2014.
    • Chile has mandated e-invoicing by Nov. 1, 2014
    • Mexico and Argentina have changes that take effect in 2014
  • Centralized ERP System/Global Instance
    • Many companies since 2008 have been on a mission of centralizing operations onto a common ERP platform; the problem that was unforeseen is the constant change management issues from country legislation.  When the local teams managed their own systems, corporate didn’t see the constant requirements, but now a Mexico change or a Brazil change disrupts the whole COE (Center of Excellence); the speed of change is not easily applied to a centralized SAP system that needs process controls to manage.

The result: constant fire drills, risks of non-compliance, risks of operational shut downs, difficult internal support models for each LATAM country, and sky-rocketing support and maintenance costs.

Stay tuned for Part 3 of the series – where we look at why a 100% cloud or EDI Value Added Network still leaves your internal teams with 80% of the problems and costs.

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      Author's profile photo Knut Barthel
      Knut Barthel

      Hi Steve,

      interesting topic and correctly identified potential pain points for companies subject to e-Invoicing requirements especially in Latin America. However, as Product Director responsible for Brazilian localization at SAP I would like to make some remarks regarding NF-e.

      The SAP solution which is currently most widely used at over 800 customers consists of 2 parts, one being the (free of charge) ERP part (SD and MM module), the other being GRC NF-e 10.0, a separately deployable component which manages the government communication utilizing PI.

      Therefore, the SAP solution is already a kind of hybrid at least in a sense that the government communication is separated from the ERP integration, albeit still on Premise.

      Let us analyze what this deployment model means for an event of a legal change:

      - Patches applied to the communication component (GRC NF-e) do not affect the ERP part, hence this maintenance activity has actually only a low impact on an ERP installation, even a global single instance.

      - However, should the legal change be of a nature as to also require an update on the backend (ERP) side, this has to be patched anyhow, i.e. it could also not be avoided in a hybrid deployment model where the communication component is in the Cloud.

      - By the way, legal changes are always down-ported to all releases in maintenance, hence the described scenario "What do you do when you run 4.7b or ECC 5.0 and the new requirements are ECC 6.0 SP 14 and 15" does not occur - the ECC 6.0 SP 15 patch would have a corresponding correction also on ECC 5.0 or 4.7b.

      Therefore, while the points in principle are valid, a hybrid model does not necessarily have advantages over the SAP ERP+GRC NF-e solution.

      However, hybrid deployment does indeed have potential of optimizing operational cost for those companies that do not require the benefits of on Premise applications like SAP GRC NF-e and this is where the offering of SAP company Ariba comes into the picture, which offers on Demand NF-e integration as alternative to the on Premise GRC product.

      Kind regards,


      Author's profile photo Former Member
      Former Member

      Great discussion,

      Knut I would be interested to understand if there has been benchmarks done on the total cost of implementing and managing on-premise versus some of these other cloud and hybrid cloud models you alluded to -- agree they can really offer end users cost savings.

      I read an article where the CIO of Philips switched to a SaaS/Hybrid Cloud solution and reduced their annual costs by 80% - albeit in Portuguese

      Also based on your localization expertise, could you help me with some of these other questions:

      • What is required for the 3.1 upgrade for GRC? I understand based on some previous Sao Paulo meetings that it is SP 16 of the GRC NFe solution as well as Support Packs of the ERP system?
      • Where can I find the new OSS notes for the ERP requirements of the NFe 3.1? 
      • When is the FCI solution going to be released by SAP?
      • When will the EFD report be added to the SPED capability of SAP as we hear this is required in January 2015?
      • Is the Manifestacao Destinatario delivered as part of the Inbound GRC license or is that separate -- have a customer looking to add this voluntarily? Have you seen that done?
      • Does GRC produce the MDFe - have a customer that processes both CTe and generates/receives MDFe?

      Appreciate the guidance as have been looking for this type of guidance for a few weeks.

      Author's profile photo Knut Barthel
      Knut Barthel

      Hi Sam,

      I am not aware of a reliable benchmark in the sense that you describe and I imagine it would require quite a decent sample size to be statistically relevant as even on premise operation costs vary considerably from one customer to another - based on complexity of business process, degree of customization and, last but not least, competency of the consultancy that implemented the solution.

      With respect to the alleged cost reduction achieved by Philips I do not dare to comment as I do not have sufficient information about their new architecture and how they supposedly achieved this saving. Assuming they continue to use SAP ERP as a backend, either they still would have maintenance cost associated to apply the ERP half of the notes in event of legal changes, or else the SaaS solution they acquired would have to provide a substantial part of functionality that in SAP architecture is nowadays handled within ERP, hence they would have been not only substituting the GRC NF-e component but also parts of the standard localization. However, this is only guessing since I am not aware of how exactly they are operating today.

      The further questions you posted are partly off-topic, but nevertheless I will try to answer them:

      - 3.10 layout is part of GRC support package 16, correct.

      - The ERP notes can be found via SAP Service market place note search, for your convenience the one related to layout 3.10 is 1933985 (also check the overview note 1589975 which is always updated with new legal changes). To be informed about legal changes you may also want to check where all worldwide legal changes and legal change announcements can be downloaded in an excel sheet.

      - FCI is a legislation with multiple requirements for which SAP enables the tax determination based on material origin and the handling of FCI-specific fields in NF-e. The announcement note is 1791519 where you find reference to multiple implementation notes for ERP and NF-e, most of them available since November 2013.

      - Are you sure about EFD report being valid as of January 2015 or do you mean a different one? SPED EFD is supported in ERP since 2009 and SAP recently launched a new product SAP Tax Declaration Framework for Brazil based on SAP HANA which also covers EFD and is available since December 2013.

      - The Manifestação do Destinatário (receivers acknowledgement) was delivered last year with SP 13 of GRC (i.e. free of charge).

      - The MDF-e is currently not in the scope of GRC product and portfolio considerations regarding the topic are ongoing.

      Kind regards,