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Author's profile photo Neelam Bhatia

The value of RISE with SAP: Quantifying the benefits – Part2

Introduction

In my third blog in the series of blogs on “The value of RISE with SAP”, I will focus on two additional ways in which companies can benefit from offerings of RISE with SAP

  • Improving the BOTTOM LINE and maximizing your profitability
  • Improving the SERVICE EXPERIENCE with cloud delivery capabilities

 Recap

In the introductory blog, I talked about two broad categories of value from which a company can benefit from the offerings of RISE with SAP. The framework I described can be used to quantify the dollar value of business benefits and create a business case. You can read it here in case you missed it. Here is the link to second blog, which has details on how RISE with SAP positively affects top line and the transformation readiness for a customer.

I will provide a summary below from the introductory blog about the two value sources. RISE with SAP enables two sources of value (A and B).

1) Value source A 2) Value source B

Value from differentiating business capabilities and outcomes. With these, it is possible to achieve tangible benefits which favourably impacts:

·      Top line

·       Bottom line

·       Green line

Incremental value from cloud delivery capabilities which supports:

·      Transformation Readiness

·       Service experience

·       Operational resilience

·       Predictable lower TCO

I will detail out both the sources with examples in my blog series. In this blog, let me pick up one topic each (Bottom Line and Service Experience) from the two value sources mentioned above.

1.   RISE with SAP: Improving the BOTTOM LINE and maximising profitability

“We expect all our businesses to have a positive impact on our top and bottom lines … Profitability is very important to us or we wouldn’t be in this business”

-Jeff Bezos

I couldn’t agree more with the above statement. Companies have become more cautious when it comes to their spending. Financial liquidity is now a top priority. Reducing costs, optimizing working capital, and postponing non-urgent projects and investment is now the new standard.

Your bottom line is the compass that guides the major business decisions in the year ahead. Controlling costs more efficiently requires improving visibility into the different cost heads both from a historical and forward-looking perspectives. While targeting cost reductions through process improvements, companies can also achieve operating synergies across different functions.

Let’s have a look at how we can baseline and measure the cost benefits realized from implementing SAP solutions. I will start with COGS and then look at few ways to optimize SG&A expenses.

Cost of Goods Sold (COGS) is the costs of producing and acquiring all the products you sell. Inefficiencies may lead to increased production overhead costs, increased material, and labor costs. There can also be opportunities in optimizing indirect costs such as unused inventory, storage costs etc. by streamlining shipping and inventory related business processes.

Inherent capabilities of SAP S/4HANA manufacturing, planning and supply chain solutions can address the problems described above. For example, synchronized production planning can bring together supply planning, distribution planning, and production planning in one place, enabling a holistic planner’s workspace. Also, predictive MRP acts as a simulative mid- and long-term planning tool to identify potential capacity issues and evaluate possible solutions as early as possible. To know more about ‘transforming to intelligent manufacturing’ with SAP solutions, please read this value paper.

In addition to SAP S/4HANA Solutions – Ariba Network, which is part of RISE with SAP, makes it easy for buyers and suppliers to collaborate on transactions, strengthen their relationships, and discover new business opportunities. Companies can manage the entire procurement process from source to settle, while controlling spending, finding new sources of savings, and building a healthy, ethical supply chain.

Some of the value drivers that can be used to quantify the value related to these cost optimizations and improved efficiencies are mentioned below.

  • Reduction in total manufacturing costs (1% – 2 %)
  • Reduction in supply chain planning costs (5% – 30%)
  • Reduction in inventory carrying costs (5% – 25%)
  • Improvement in procurement FTE productivity (10%-20%)
  • Increase in tactical sourcing savings (2%-15%)

(The benefit % are conservative outside -in benefits by moving from a traditional ERP to SAP S/4HANA, Cloud/LoB applications)

Now, let’s talk about SG&A optimization.

SG&A (Selling, General and Administrative) expenses comprise day-to-day operating costs of running a business that aren’t related to producing a good or service. This includes a wide range of expenses, such as rent, advertising and marketing, salaries of management and administrative staff etc. By increasing the level of automation in internal processes it should be possible to remove the inefficiencies. For example, faster period end closing, automation in accounts receivable and payable processes can lead to higher efficiencies and productivity gains. Even the benefits can extend further to DSO (Days Sales Outstanding) and DPO (Days Payable Outstanding) optimizations by improving on credit management and cash collection process with your customers and accounts payables process with your vendors.

Inherent capabilities of SAP S/4HANA Finance can help with these optimizations. For example, Robotic process automation (RPA) can be used to automate repetitive processes and redirect resources to high-value activities and processes. Some of the use cases of RPA are: Intercompany reconciliation, intelligent accounts receivable (A/R) and accounts payable (A/P) processing, general ledger (G/L) entry upload and supplier invoice status check. Another example is continuous margin analysis and real-time profitability reporting during the month. To know more about ‘transforming to intelligent Finance’ with SAP solutions, please read this value paper.

Some of the value drivers that can be used to quantify the value related to these cost optimizations in finance operations are:

  • Reduction in cost accounting and analysis costs (15%-20%)
  • Reduction in days to close books (25%-50%)
  • Reduction in G/L and financial closing costs (5%-50%)
  • Reduction in customer billing, credit, and collections costs (5%-50%)

(The benefit % are conservative outside -in benefits by moving from a traditional ERP to SAP S/4HANA, Cloud/LoB applications)

 

2.   RISE with SAP: Improving your SERVICE EXPERIENCE with cloud delivery capabilities

Below is the value framework for cloud delivery capabilities of RISE with SAP.

As mentioned before, I will detail out the second value pillar – “As-a-service” Experience.

Few operational challenges that may come in the way to innovate and grow are:

  • High governance cost and effort to maintain existing system landscape
  • Loss of business due to delayed resolution of unplanned system downtime
  • Triaging with multiple parties for issue resolution
  • Time-consuming and expensive periodic patching of all software and infrastructure components
  • Multiple disjointed SLAs from disparate service providers

So, how does RISE with SAP address these challenges and improve your service consumption experience? Let me explain it through the below value dimensions:

  1. Access simpler support model
  2. Leverage periodic updates
  3. Simplify contract & commercials

 

1.Access Simpler Support Model

Most often, issue resolution requires organizations to triage among multiple service providers (for each layer of the solution stack). It results in IT personnel putting in extra time and effort to ensure the production landscape is up and running. In some cases, it can cause loss of business due to downtime.

RISE with SAP promises one single party (i.e. SAP) to support software, infrastructure, and technical managed services. This reduces governance cost and effort allowing IT personnel to better focus on strategic initiatives rather than routine task management. It also makes issue resolution simpler and faster, thereby ensures minimal impact to the business by improving system uptime.

Reduced

IT governance cost

Improved

System uptime (by reduction in issue fix time)

 

2. Leverage Periodic Updates

With cloud delivery capabilities, it has become easier to consume the latest innovations at a higher frequency with minimum impact.

SAP S/4HANA Cloud offers quarterly update cycle, with the latest innovations, which can be consumed based on organizational needs. SAP also performs regular patching of all software and infrastructure layers reducing overhead and costs. This enables organizations to be always at the forefront of latest innovation. Also, organizations can use Road Map Explorer to view upcoming updates to the solution and can plan their innovation initiatives.

Reduced

IT patching and upgrade cost

Improved

Agility to consume new innovations

 

3. Simplify Contract & Commercials

Traditionally, for ERP transformations, organizations had to get involved in contractual negotiations and agreements with multiple parties for software, infrastructure, infrastructure management, and technical managed services which often resulted in multiple disjointed SLAs from disparate providers.

RISE with SAP enables management of service-level agreement (SLA), operations, and issue management from SAP in a single contract. Application level SLA covers multiple solution components (i.e. software, infrastructure, and technical managed services). With this mechanism in place, IT resources can invest more time and effort on strategic topics and exploring innovation areas that are essential for maintaining competitive advantage.

Reduced

IT governance cost

Easier

Tracking of SLA

Key takeaways

  • RISE with SAP helps companies improve margins by optimizing the business processes, manage business change with agility, and better orchestrate internal and external resources
  • RISE with SAP can help in improving service consumption experience with a simpler support model, streamlined periodic updates, and simplified contract and commercial aspects

To know more about the RISE with SAP value framework, click here.

Next Steps

Depending on the starting point of organizations (existing SAP ECC / SAP S/4HANA / net new customers), they can expect to achieve benefits across value sources A and B. To determine the value proposition of RISE with SAP for your organization, you can contact us at valuemanagement@sap.com.

In the next blog, we will explore how RISE with SAP can help improve the ‘Green Line’ performance of companies. We will also detail out the third pillar of the cloud value framework – ‘Operational Resilience’.

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