Amr Research 0906 The Fast-Payback SAP Projects for Saving Money in 2009
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Amr Research 0906 The Fast-Payback SAP Projects for Saving Money in 2009

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The Fast-Payback SAP Projects for Saving Money in 2009

The Fast-Payback SAP Projects for Saving Money in 2009

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Amr Research 0906 The Fast-Payback SAP Projects for Saving Money in 2009 Amr Research 0906 The Fast-Payback SAP Projects for Saving Money in 2009 Document Transcript

  • June 2009 The Fast-Payback SAP Projects for Saving Money in 2009: Detailed Data for Business Expense Projects by Derek Prior Companies can squeeze further business benefits from their existing SAP ERP and supply chain systems in order to save money at a time when it’s desperately needed. This Report, which summarizes detailed data from a field study conducted exclusively for AMR Research SAP Peer Forum clients, was written to help business audiences looking for every opportu- nity to reduce the total business expenses of their huge, existing investments in SAP. SAP Peer Forum
  • © Copyright 2009 by AMR Research, Inc. ® AMR Research is a registered trademark of AMR Research, Inc. No portion of this report may be reproduced in whole or in part without the prior written permission of AMR Research. Any written materials are protected by United States copyright laws and international treaty provisions. AMR Research offers no specific guarantee regarding the accuracy or completeness of the information presented, but the professional staff of AMR Research makes every reasonable effort to present the most reliable information available to it and to meet or exceed any applicable industry standards. AMR Research is not a registered investment advisor, and it is not the intent of this document to recommend specific companies for investment, acquisition, or other financial considerations.
  • SAP Peer Forum June 2009 The Fast-Payback SAP Projects for Saving Money in 2009: Detailed Data for Business Expense Projects by Derek Prior The Bottom Line: Enterprises that revisit the business process areas in this Report will have improvement opportunities to reduce overall expenses by instigating a fast-payback project to exploit their huge investments in SAP. Enterprises are under huge pressure to cut all SAP- The fast-payback lowdown: related costs. This Report was written to help business results from our field study audiences looking for every opportunity to exploit their huge, existing investments in SAP to help reduce their The highest-potential areas for business total business expenses. It summarizes the detailed data expense reduction opportunities generated from an online survey of 18 respondents in a field study conducted exclusively for AMR Research Respondents were asked to rate the potential of a pre- SAP Peer Forum clients. defined list of business process areas to generate a fast payback for a moderate, overall project expenditure. This confidential cost-savings survey was split into two This potential was expressed through a score of 1 to 5, halves: where 1 is the lowest potential and 5 the highest. Table • Fast-payback projects for business expense reduc- 1 shows the results. tion for a business audience The business process areas in Table 1 have been ranked • Fast-payback projects for SAP operations cost by highest average score (first column) for potential fast reduction for a technical audience payback. For some respondents, particular business pro- We’ll present data for the former half, where there cess areas have a higher impact, so those with the high- appears to be considerable potential to squeeze further est score (4 or 5) are shown for additional information cost savings by exploiting SAP investments, especially (second column). This shows that business intelligence in classic ERP and supply chain business process areas. (BI) and manufacturing have a higher impact, with Findings and best practices rising from this data were some companies currently engaged in related projects. identified in the SAP Forum Summit Sessions held on Overall, these are relatively high scores, indicating the April 14, 2009, in Palo Alto, CA and April 28, 2009, respondents believe there’s high potential still to reduce in Walldorf, Germany. business expenses, especially in the upper half of the table. SAP Peer Forum | June 2009 ©2009 AMR Research, Inc. 1
  • Table 1: The highest potential SAP business process savings Average Percentage of Score/rank Score of 4 or 5 SAP Business Process Cost Savings Category 1 58.8 Purchasing 1 47.1 Supply chain 3 47.1 Inventory management 4 35.3 Financials—working capital 5 35.3 Order fulfillment 6 41.2 Business intelligence 7 29.4 Warehouse management 7 29.4 Master data management 9 29.4 Financials—operating expense 10 35.3 Manufacturing 11 29.4 Quality control 12 11.8 Human resources 13 23.5 Scoreboards and dashboards Source: AMR Research, 2009 Detailed data for sample fast-payback Summary of financial performance metrics projects to reduce business expense for sample fast-payback projects to reduce business expense Respondents were asked to select their most successful fast-payback project to reduce business expenses to date Two basic financial performance metrics—what we for any business process area. They were then asked to call time to payback and bang for the buck—were supply some detailed data about its financial character- calculated to identify the most successful fast-payback istics (see Table 2). Note: Not all survey respondents projects to reduce business expenses (see Appendix were able to supply such detail. A for definitions of these metrics). The results of this calculation are presented in Table 3. Of note, four of these projects were justified on the basis of strategic need, with another four justified by For time to payback, an order fulfillment project that cost savings. There’s also a fairly broad range of business featured drop-ship with third-party providers had the process categories, although purchasing and order ful- best overall financial performance. For bang for the fillment were the most popular choices. Detailed data buck, a purchasing project, featuring a supplier rela- for the costs and benefits are provided for each project, tionship manager (SRM) procurement implementa- as well as project team size and duration. tion, generated the best performance. 2 ©2009 AMR Research, Inc. SAP Peer Forum | June 2009
  • Table 2: Detailed data for some fast-payback projects to reduce business expense Business Actual Approx. Approx. Cost Savings Justification Annual external Internal Total Category Type Description Cost Saving Project Cost Project Cost Cost Financials— Strategic ERP/SCM single $120,000 $200,000 $400,000 $600,000 operating need back-office systems expense Supply chain Cost savings Reduce inventory, in- $2,200,000 $6,100,000 $1,800,000 $7,900,000 crease ROA Financials— Cost savings Consolidate systems, $20,000,000 $22,000,000 $7,000,000 $29,000,000 operating low-cost countries expense Business Revenue im- BI for customer and $1,000,000 $500,000 $500,000 $1,000,000 intelligence provement product profitability Manufacturing Cost savings Plant reliability im- $12,000,000 $7,000,000 $3,000,000 $10,000,000 provements Order Compliance Drop-ship with third- $250,000 — $80,000 $80,000 fulfilment requirement party providers Purchasing Cost savings SRM implementation $1,041,000 $435,200 $489,000 $924,200 for procurement Purchasing Strategic Establish global — — — — need sourcing agreements Order Revenue im- Reduced staffing to 700,000 $1,500,000 $500,000 $2,000,000 fulfilment provement manage complexity Manufacturing Strategic Replace legacy with $5,000,000 $10,000,000 $20,000,000 $30,000,000 need SAP Business Strategic EDW plus common — $20,000,000 $5,000,000 $25,000,000 intelligence need metrics and scorecards Source: AMR Research, 2009 SAP Peer Forum | June 2009 ©2009 AMR Research, Inc. 3
  • Table 3: Financial performance metrics for fast-payback projects to reduce business expense Bang for Business Time to Time to the Buck Bang for Cost Savings Justification Payback Payback (money the Buck Category Type Description (months) (rank) Back) (rank) Financials— Strategic ERP/SCM single 120 — -$840,000 — operating need back-office systems expense Supply chain Cost savings Reduce inventory, 58 — -$4,050,000 — increase ROA Financials— Cost savings Consolidate systems, 53 5 -$29,000,000 — operating low-cost countries expense Business Revenue im- BI for customer and 24 3 $1,000,000 2 intelligence provement product profitability Manufacturing Cost savings Plant reliability — — — — improvements Order Compliance Drop-ship with third- 8 1 $565,833 3 fulfilment requirement party providers Purchasing Cost savings SRM implementation 19 2 $1,418,050 1 for procurement Purchasing Strategic Establish global — — — — need sourcing agreements Order Revenue im- Reduced staffing to 52 4 -$950,000 — fulfilment provement manage complexity Manufacturing Strategic Replace legacy with 78 — -$17,500,000 — need SAP Business Strategic EDW plus common — — -$20,000,000 — intelligence need metrics and scorecards Source: AMR Research, 2009 4 ©2009 AMR Research, Inc. SAP Peer Forum | June 2009
  • Approach to measuring SAP business Most respondents feel confident when it comes to benefits handling large IT projects, rating their companies’ abilities to manage them with a high average score of Respondents were asked to choose from one of four 4.25. However, the same companies were less confident ways to characterize how they currently measure the in their abilities to manage large business transforma- business benefits derived from their SAP business proj- tion or reengineering projects, where the average score ects (see Figure 1): dropped to 3.50. For the ability to get consensus across • Analyze benefits once at some point after the proj- business units on common processes and systems, the ect is completed. average score was lower still, at 3.07. • Identify benefits and metrics as part of project plan- ning and measure continuously within the project Popular methods used to share SAP skills team. To complete the survey, respondents were asked • Assign specific goals to business units and depart- whether they have the following organizational ele- ments and hold individuals in those groups ments in place. The percentages reported below repre- accountable for achieving them. sent the organizations that do: • Do not measure benefits. • SAP center of excellence (COE)—67% Despite the difficulties with measuring benefits, only • Dedicated group measuring SAP benefits—28% one respondent didn’t try to measure. Companies that • Dedicated group conducting business process do measure benefits do so in one of the three methods improvements—44% in Figure 1, but the respondents in this survey were evenly split across all three. • Senior executive responsible for business process improvements—11% Figure 1: Managing and measuring benefits The SAP center of excellence clearly remains a popular way of sharing and exploiting SAP skills. But most Do not measure companies prefer to devolve the measurement of busi- or manage ness benefits and business process improvements down 7% Analyze once Individuals held after the project to the local level to ensure ownership. accountable for 36% achieving them 29% Conclusions Consider the following: • There appears to be considerable potential to reduce business expense using existing SAP invest- ments, especially in the classic ERP business process areas of purchasing, inventory management, work- Part of project planning ing capital management, and order fulfillment. and execution • Fast-payback projects for reducing business expense 29% to offer an attractive payback and bang for the Q: What best describes the process you use to measure and buck can easily be executed without high levels of manage bene ts from this and other SAP-related projects? expenditure. Source: AMR Research, 2009 • Most companies prefer to use local business exper- tise to ensure ownership to measure the actual busi- ness benefits accruing from business improvement projects. SAP Peer Forum | June 2009 ©2009 AMR Research, Inc. 5
  • Appendices Appendix A: methodology Appendix B: Financial metrics A set of research questions was built into an online survey tool to gather important data about the follow- Time to payback ing type of fast-payback project information: • Financial payback time, months = (total project • Company profile cost) / (annual project cost savings) • SAP ERP profile • Time to payback, months = (project elapsed time) + • SAP operations costs fast-payback projects, poten- (financial payback time) tial by project type The time-to-payback metric realistically takes account • SAP operations costs fast-payback projects, profile of how quickly the project pays back as well as the of best project actual project lead time. • SAP business expense fast-payback projects, poten- tial by project type Bang for the buck • SAP business expense fast-payback projects, profile Consider a three-year period: of best project • Available benefit time, months = 36 – (project • Usefulness of SAP enablers for business expense elapsed time) fast-payback projects • Financial savings, $ = (available benefit time) x • Company approach to SAP business benefits (annual project cost savings) measurement • Bang for the buck, $ = (financial savings) – (total project cost) The bang-for-the-buck metric takes account of how much net money is returned by the project over a three- year period. 6 ©2009 AMR Research, Inc. SAP Peer Forum | June 2009
  • Notes SAP Peer Forum | June 2009 ©2009 AMR Research, Inc. 7
  • research and Advice That matter AMR Research is the No. 1 independent advisory firm serving supply chain, operations, and technology executives. Founded in 1986, AMR Research focuses on the intersection of business processes with value chain and enterprise technologies. We provide our clients in the consumer products, life sciences, manufacturing, retail, and technology sectors with subscription advisory services and expert-led Peer Forums. To learn more about our research and services, please visit www.amrresearch.com. More information is available at www.amrresearch.com. Your comments are welcome. Reprints are available. Send any comments or questions to: AMR Research, Inc. 125 Summer Street Boston, MA 02110 Tel: +1 (617) 542-6600 Fax: +1 (617) 542-5670