SAP White Paper
                        mySAP ERP

Enterprise Service...
© Copyright 2006 SAP AG. All rights reserved.                     HTML, XML, XHTML and W3C are trademarks or registered
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...
Today, islands of automation, growing IT complexity,              This white paper is intended for IT ex...
In the past, organizations deployed ERP software to gain internal
Given the complexity and nature of IT in many enterprises,                    integration with new applications...
Why Consolidation Is Difficult                                         Why Innovation Is Difficult
In many enterprises, co...
Why Outsourcing Is Difficult
Outsourcing is often difficult, because organizational bound-          Why the Complexity of ...
The need to respond rapidly to business demands, support new          Furt...
ERP solutions that adopt a services-oriented approach enable    ...
Enhanced Employee On-Boarding Process                             The process starts with the receipt of a request for quo...
Enhanced Quotation Management Process                                7. Initiate facilities request for office, phone, fur...
real-time information between a desktop tool and a financials
Example: Outsourcing Logistics Operations                              parties to exchange product, bill-of-material, orde...
Enhanced Logistics Outsourcing Process                                                          What’s more, enterprise se...
To address the business context in communication between            SAP NetWeaver also enab...
The following table illustrates the differen...
In 2005, SAP announced its ESA preview system with more than         To demonstrate its continued leadership ...
CONCLUSION                                                          FOR MORE INFORMATION
Today, enterprises are burdened b... /contactsap

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Delivering Operational Excellence with Innovation


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Examine the trends in enterprise resource planning (ERP) that are driving businesses to adopt an enterprise services-oriented architecture (SOA). And learn how enterprise SOA can help your organization deliver operational excellence and realize new levels of innovation by enabling more responsiveness and agility.

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Delivering Operational Excellence with Innovation

  1. 1. SAP White Paper mySAP ERP DELIVERING OPERATIONAL EXCELLENCE WITH INNOVATION Enterprise Services Architecture for Enterprise Resource Planning
  2. 2. © Copyright 2006 SAP AG. All rights reserved. HTML, XML, XHTML and W3C are trademarks or registered trademarks of W3C®, World Wide Web Consortium, No part of this publication may be reproduced or transmitted in Massachusetts Institute of Technology. any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed Java is a registered trademark of Sun Microsystems, Inc. without prior notice. JavaScript is a registered trademark of Sun Microsystems, Inc., Some software products marketed by SAP AG and its distrib- used under license for technology invented and implemented utors contain proprietary software components of other by Netscape. software vendors. MaxDB is a trademark of MySQL AB, Sweden. Microsoft, Windows, Outlook, and PowerPoint are registered trademarks of Microsoft Corporation. SAP, R/3, mySAP,, xApps, xApp, SAP NetWeaver, and other SAP products and services mentioned herein as well IBM, DB2, DB2 Universal Database, OS/2, Parallel Sysplex, as their respective logos are trademarks or registered trademarks MVS/ESA, AIX, S/390, AS/400, OS/390, OS/400, iSeries, pSeries, of SAP AG in Germany and in several other countries all over xSeries, zSeries, z/OS, AFP, Intelligent Miner, WebSphere, the world. All other product and service names mentioned are Netfinity, Tivoli, and Informix are trademarks or registered the trademarks of their respective companies. Data contained in trademarks of IBM Corporation. this document serves informational purposes only. National product specifications may vary. Oracle is a registered trademark of Oracle Corporation. These materials are subject to change without notice. These UNIX, X/Open, OSF/1, and Motif are registered trademarks materials are provided by SAP AG and its affiliated companies of the Open Group. (“SAP Group”) for informational purposes only, without representation or warranty of any kind, and SAP Group shall Citrix, ICA, Program Neighborhood, MetaFrame, WinFrame, not be liable for errors or omissions with respect to the materials. VideoFrame, and MultiWin are trademarks or registered The only warranties for SAP Group products and services are trademarks of Citrix Systems, Inc. those that are set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. 2
  3. 3. CONTENTS Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Enterprise Resource Planning: Strategies and Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 The Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Why Consolidation Is Difficult. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Why Innovation Is Difficult. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Why Outsourcing Is Difficult . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 The Solution to Becoming an Adaptive Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Embracing Innovation and Achieving Operational Excellence . . . . . . . . . . . . . . . . . . . . . . . 10 Business and IT Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 – Example: Consolidating HCM as Shared Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Business-Process Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 – Example: Extending the Quotation Process to More Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 – Example: Reengineering the Employee On-Boarding Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 – Example: Reengineering the Procure-to-Pay Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 – Example: Integrating Desktop Productivity Tools with ERP Applications . . . . . . . . . . . . . . . . . 13 Business-Process Outsourcing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 – Example: Outsourcing Logistics Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Unlocking the Potential of ESA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 mySAP ERP and ESA: Aligning IT and Business to Achieve Operational Excellence . . . 17 What’s Next?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 For More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3
  4. 4. EXECUTIVE SUMMARY Today, islands of automation, growing IT complexity, This white paper is intended for IT executives and line-of- governance pressures, and budget reductions are IT realities business management. It introduces business strategies, trends, that hamper the ability of small and large organizations to and issues related to enterprise resource planning (ERP), embrace new business practices and technological innovation. financial management, operations management, and human As organizations look for better ways to achieve competitive capital management (HCM) that drive the consideration of differentiation, market responsiveness, and operational enterprise services architecture (ESA). It also examines the excellence, they often find their existing IT landscapes too importance of such architecture and the role it plays in guiding complex, inflexible, and costly to adapt to evolving business organizations to create value, improve efficiency, and respond conditions. Even if organizations can afford the resources, to evolving business needs in ERP – on any scale and for any time, and effort it takes to change and enable new practices, industry. The document then illustrates and compares a all those might prove too extensive to justify the value of the number of deployment examples with and without ESA and investment. IT – often regarded as a monolithic, rigid, slow- clarifies why businesses are adopting an enterprise services moving, or foreign entity by many businesspeople – must be approach to compete effectively in a dynamic marketplace. aligned with business needs and evolve with changing market demands to enable future innovation, agility, and excellence. The growing importance of IT architectures has led many IT executives to rethink traditional approaches and seek better, smarter, and more efficient ways to serve their organization’s needs. The adoption of services-oriented architecture (SOA) is central to becoming more responsive and agile. An SOA not only helps organizations address short-term needs – such as lowering IT costs, improving quality of service, and enhancing existing IT systems – but also, and more importantly, provides a flexible, adaptive, and open IT foundation that can accommodate changing business practices, market dynamics, and competitive challenges. 4
  5. 5. ENTERPRISE RESOURCE PLANNING: STRATEGIES AND TRENDS In the past, organizations deployed ERP software to gain internal efficiency in back-office operations, such as manufacturing, Common Experiences When Changing accounting, HCM, financial management, and purchasing. Business Practices Such technological investments helped management reduce costs. But today’s businesses can no longer rely on automating • Once the competition copies a differentiating activity back-office processes to achieve top-line growth and bottom- from the core, efficiency and productivity become the line improvements. primary purpose of the core. This situation is well described in Living on the Fault Line by • Consolidating common business and IT functions Geoffrey Moore. In the book, Moore frames the challenges reduces costs and redundancy while it enforces of achieving continuous business innovation around an global policies. organization’s “core,” the business processes that differentiate • Outsourcing nonstrategic processes enables an enter- businesses in the eyes of their customers, and its “context,” prise to focus on its strategic or core competency. which is everything else (see Figure 1). The purpose of an enterprise’s core is to drive business innovation and competitive differentiation to stimulate growth. The context’s primary goal, according to Moore, is to operate as efficiently and Businesses might want to leverage their ERP software for productively as possible. The catch is that core remains core competitive differentiation by finding new ways to achieve only as long as it differentiates the enterprise from the greater efficiency in previously untried or unsuccessful areas. competition. Once it has been copied, it becomes context and They might also want to consider outsourcing standard is no longer an innovation. At that point, the organization processes to free up resources for strategic endeavors that lead must refocus on improving the efficiency and productivity of to differentiation. the context. Examples of business practices that can enhance differentiation or improve productivity for an organization include the Core Context following: Focus on Differentiation Focus on Productivity • Implementing mass customization with geographically Innovation Standardization dispersed contract manufacturers and suppliers to reduce Mission- Consolidate cycle times, rework, and inventory costs in the automotive or Critical Activities high-tech industry Compose • Extending an existing quotation management process to Out-Task Insource external suppliers to encourage more efficiency and Scale responsiveness within the contract manufacturing process • Improving new hire, employee transfer, termination, and Enabling other workforce management events to automate the Invent Retire Activities exchange of information with third parties in accordance Invention Commoditization with local and global policies Courtesy of Geoffrey Moore’s Living on the Fault Line • Centralizing common operations as a shared service to Figure 1: Business-Process Innovation – Core and Context enforce global policies and leverage economies of scale • Outsourcing payroll and human capital management to third-party agencies 5
  6. 6. THE ISSUES Given the complexity and nature of IT in many enterprises, integration with new applications. Similarly, developing these operational strategies are difficult to implement. innovative processes from the context into the core is equally Traditionally, organizations develop custom applications from challenging and expensive, because IT must determine the best scratch and use various platforms, but then find that they lack way to leverage existing investments. And business-process the flexibility to accommodate change. Moving from core to outsourcing is difficult and expensive, because it requires context to consolidate common IT practices, for example, is organizations to manage the performance of the third-party difficult and expensive. To make the move, enterprises must vendors on service-level agreements, but monitoring and analyze their IT landscape to determine which assets to replace, enforcing such new policies would require new integrations upgrade, or make obsolete; acquire new skills; and support with third-party systems that reside beyond existing boundaries. Core Context Core Context Custom Development Packaged Applications Custom Development Packaged Applications on a Tech Platform on a Tech Platform Innovation Standardization Innovation Standardization Consolidation Innovation is extremely can’t easily difficult: leverage existing • New platform investments. • New skills • New integration • Time • ... Invention Commoditization Invention Commoditization Core Context Custom Development Packaged Applications on a Tech Platform Innovation Standardization Outsourcing is challenging: • New process extensions • Data on different systems • Governance • ... Invention Commoditization Figure 2: Business-Process Innovation Hampered by IT 6
  7. 7. Why Consolidation Is Difficult Why Innovation Is Difficult In many enterprises, consolidating common business and IT To achieve innovation, organizations often attempt to build functions is difficult and costly for several reasons. For instance, upon existing IT investments. However, a number of issues applications are often implemented independently to address impede their efforts. For instance, some organizations use specific needs at a given time. This approach creates islands of enterprise application integration (EAI) tools to integrate automation that comprise different technologies and propri- independent applications to support new or reengineered etary code that are too complex to integrate, that are too costly business processes. This approach relies upon proprietary to adapt to changing business requirements, and that make it interfaces to hardwire different applications. Although EAI difficult to share critical business information. With evolving tools have been used successfully for such linkage, they require business conditions – such as mergers and acquisitions, employees with specialized skills who understand the inner company spin-offs, and reorganizations – fragmented workings of the systems on both sides to create tightly coupled information, inconsistent user interfaces, additional pockets integration. In addition, skilled employees are also needed to of automation, and redundant systems not easily used by maintain the integration over the useful life of the applications. other business units only complicate the IT landscape further. But the costs of up-front development and ongoing mainte- nance and efforts involved in integration can be avoided. Consider the example of an enterprise that has grown through acquisitions and now consists of a few independently operated Consider a second example of the difficulty of process HCM, financial, procurement, and IT groups, each with its own innovation. In many organizations, the need to reference system to support local needs. Any policy changes required at structured (or online) data and unstructured (or offline) data the global level – such as IT security policies, privacy laws, or is not only desirable to increase efficiency, but also mandatory contractual pricing – must be enforced separately at the local to satisfy regulatory requirements. This situation is especially level. true in the public sector, where agencies rely on traditional paper forms to conduct business with smaller companies that The question? How can organizations in such a situation act might not have online access. Because traditional systems do not effectively to comply with global and local regulations? The fully address the end-to-end process, the agencies create a wealth answer? Not easily. Many organizations look for better ways to of offline data through administrative paperwork, e-mail, faxes, centralize common functions as shared services, rid themselves mail, and other methods of offline communication. The staff of redundancy, increase their operating efficiency, and enable must then spend non-value-added time sorting the offline reuse of their existing investments. Unfortunately, the growing information and tying it back to, or reentering the data into, complexity of the organization’s IT landscape often hampers appropriate systems for compliance purposes. To innovate these laudable goals. this process and ensure compliance with federal regulations, agencies must invest in IT staff to develop the custom integration necessary for data exchange and in a team of contract administrators to govern the end-to-end process. 7
  8. 8. Why Outsourcing Is Difficult Outsourcing is often difficult, because organizational bound- Why the Complexity of IT Systems Hinders aries constrain an organization’s systems and applications, Excellence and Innovation neither of which was designed to be interoperable with external systems. To accommodate outsourcing, organizations often • Impedes the ability of organizations to respond to build proprietary integration between internal and external business change systems, which increases the cost of ongoing maintenance and adds complexity to the IT environment. In addition, changes to • Requires additional investments to unite scattered or hidden information the internal or external systems cause a wave of updates to development, testing, and documentation. For example, if an • Increases the costs of building and maintaining organization wishes to outsource its payroll information, it integration must extend its time and attendance processes in HCM to a • Requires custom integration by personnel with third party. But doing so is difficult, because success here relies scarce and expensive skills upon the ability of multiple systems with different functionalities, underlying logic, and rules to work well with each other. • Forces employees to work with multiple systems to accomplish tasks Consider logistics outsourcing as another example. Extending an organization’s inventory management system to a third- party warehouse inventory system requires proprietary integra- tion and specialized skills unless the systems are built upon open standards and communication protocols. Subsequent changes to the tightly coupled systems drive up the costs of maintenance. 8
  9. 9. THE SOLUTION TO BECOMING AN ADAPTIVE ENTERPRISE The need to respond rapidly to business demands, support new Furthermore, although Web services are suitable for promoting strategies, and improve the overall user experience is driving syntax and protocol-level communications, they do not yet IT organizations to search for new ways to improve IT at a lower provide a way to ensure semantic interoperability. For example, cost. IT organizations can overcome these challenges by adopting the way a customer is defined in a product from Siebel Systems SOA. In general terms, SOA is a technical framework for building differs from the way it is defined in a solution from SAP. software applications that use services available from a network Organizations need a way to resolve the data and process like the Web. Applications in SOA are designed to use Web disparities between different Web services and to translate services as the standard means to communicate well-defined syntax and communications into business constructs that can information with an array of other applications. be reused across different situations. The notion of enterprise services does exactly that through the “semantic leveling” Enterprise services architecture, as defined by SAP, is a business- and “right sizing” of individual Web services. For example, an driven approach to SOA that expands the concept of Web enterprise service can encapsulate incompatible and individual services into an architecture that supports enterprise-wide, Web services that span the Siebel and SAP® systems into a service-enabled business architecture. However, SOA and ESA common business concept such as “retrieve customer infor- are not one and the same. The difference between an SOA and mation.” Various enterprise services can then be assembled to an ESA comes from service enabling the most common business form a composite application. processes, such as procure to pay, order to cash, and hire to retire. Although SOA can be seen as a more technical concept, Composite applications enable the orchestration of new business ESA can be thought of as the blueprint that enables flexibility, processes that leverage enterprise services from existing applica- openness, and agility, which are critical elements for success in tions in ESA. Whether a composite application is designed for an adaptive enterprise. Simply put: ESA is a blueprint for a internal or partner use, it shows how any company can address business-oriented approach to SOA. new business needs and extend its existing processes by using existing systems and applications based upon ESA. 9
  10. 10. EMBRACING INNOVATION AND ACHIEVING OPERATIONAL EXCELLENCE ERP solutions that adopt a services-oriented approach enable In a centralized scenario, a self-service portal for employees is organizations to achieve competitive differentiation by allowing introduced globally to allow employees to perform simple them to implement a variety of IT and business strategies, HCM tasks or use an online employee handbook and other including business and IT consolidation, business-process knowledge tools. The portal serves as an automated first line innovation, and business-process outsourcing. This section of support. The HCM department is readily accessible if the illustrates the value of an ERP system built upon ESA for employee needs assistance with the task at hand or with using helping organizations implement a number of processes under the portal. This new approach liberates the local HCM repre- the following strategies: sentative from a significant number of routine administrative tasks to focus on more strategic initiatives that can further Strategies Used to Achieve Competitive Differentiation improve employee satisfaction and reduce operating costs. Strategy Examples Existing Employee On-Boarding Process • Business and IT consolidation • Consolidating HCM as shared services Deployment of the employee self-service portal requires • Business-process innovation or • Extending the quotation process to extensive proprietary integration with back-end systems. For reengineering more suppliers example, to register an employee home address change, the • Reengineering the employee update must need to be reflected across multiple systems, as on-boarding process • Reengineering the procure-to-pay shown in the following table. process • Integrating desktop productivity tools Information Used by Multiple Systems • Business-process outsourcing • Outsourcing logistics operations Type of Information System Involved Employee master information ERP system Business and IT Consolidation Travel profile Third-party travel system By consolidating business processes, organizations can reduce 401(k) Third-party financial services system redundancy and increase cost savings. Organizations avoid the Employee stock purchase plan Third-party investment system complexity and costs of a fragmented, heterogeneous environ- ment by consolidating redundant applications and systems into American Express card Third-party credit and banking system a single technology platform based upon ESA. Payroll ERP system and third-party payroll processing Example: Consolidating HCM as Shared Services Tax services Third-party tax services Consider the example of centralizing HCM functions for all employees. In a distributed scenario, local HCM teams are on- site to address specific issues and administrative tasks. The tasks Integration of an HCM solution without ESA requires the might be as simple as executing an address change, enrolling design, testing, deployment, and documentation of a multitude in a 401(k) plan, or managing direct payroll deposits. But the of custom proprietary interfaces. Changes to a given interface tasks might also be as complex as managing benefits planning result in yet another wave of development, testing, and docu- through different providers using different systems on several mentation. In time, this task becomes insupportable, because it continents. is overly complex, cost prohibitive, and highly inefficient. 10
  11. 11. Enhanced Employee On-Boarding Process The process starts with the receipt of a request for quotation An HCM solution built upon ESA can use enterprise services (RFQ) from the end customer. The account manager enters to exchange employee data securely and reliably with multiple the information into the CRM system and then assesses the systems. For example, when an employee submits a home opportunity. The internal team is notified of the opportunity address change through the self-service employee portal, and assembles pricing and material information from multiple the appropriate change home address service is invoked to internal and external sources. Depending upon the sourcing communicate real-time information to third-party systems. needs, the internal team might produce an RFQ to source more Several systems can use the enterprise services developed upon competitive quotations from suppliers. This situation can occur open standards–based interfaces in the enterprise services when insufficient manufacturing capacity exists or when more repository. This flexibility reduces the time, effort, and cost competitive prices can be obtained. required to build and maintain tightly coupled integration. Existing Quotation Management Process Business-Process Innovation The contract manufacturer relies upon its internal team as By reengineering existing processes and by composing and human integrators to bridge the flow of information manually extending new applications, organizations can enable new between multiple systems and parties. The extended quotation business processes. Doing so is difficult without ESA, because management process requires extensive offline communication, innovation or changing existing business processes would paperwork processing, data reentry, and other administrative require the IT organization to understand the inner workings of tasks, all of which result in poor process governance and the underlying applications. With ESA, IT organizations can fragmented data. The process is clearly ineffective, reactive, compose applications that leverage existing IT investments and unreliable, time-consuming, and difficult to manage for all accelerate the rate of change while eliminating the need for parties involved. Changes to the original RFQ require a wave proprietary integration. of updates to the existing applications, which compromises responsiveness and data accuracy. The contract manufacturer Example: Extending the Quotation Process can automate the process through hardwired integration to More Suppliers between its internal ERP systems and the supplier’s systems, but Consider the example of a contract manufacturer that must this approach is complex and difficult – especially considering extend the quotation management process to external suppliers the vast number of suppliers and proprietary systems with which to improve efficiency and responsiveness. Today, the process the manufacturer might have to connect. And even worse, spans the line of organizational silos – the end customer, the this type of integration increases the total cost of ownership internal team, and the external suppliers. Numerous internal by making the IT landscape more and more complex. and external systems – including homegrown, third-party, and legacy systems – are in place to help address ERP, customer relationship management (CRM), supplier relationship management (SRM), HR, supply chain management (SCM), and financials. 11
  12. 12. Enhanced Quotation Management Process 7. Initiate facilities request for office, phone, furniture, and Using enterprise services, ERP systems can exchange business- wiring to support TCP/IP (automated) critical information between different systems, including SRM 8. Provision services, including facilities, IT procurement, and third-party CRM systems, and even with other ERP office space, and so on (automated) systems. Examples of enterprise services include purchase order 9. Schedule new-hire orientation (hiring manager) and contract status tracking, costing updates, sourcing, vendor 10. Enroll in benefits, submit W-4 forms, and so on (employee quotes status tracking, and PO creation. through third party) The new approach enables different systems to communicate With the composite application, activities can be automated and using a common language and reduces the need for data reentry information can be exchanged in real time. Furthermore, the and offline communication. For example, the document composite application provides a consistent look and feel that controller receives supplier quotation information through makes it simpler for employees to access the enterprise services vendor quotes developed specifically for a third-party CRM of the ERP system and other systems. solution. Information is then automatically communicated to the manufacturer’s system with enterprise services. Example: Reengineering the Procure-to-Pay Process Consider the example of a federal agency in the United States Example: Reengineering the Employee that acquires goods and services from suppliers. Today, federal On-Boarding Process agencies are mandated to use standard forms to conform to Consider the employee on-boarding process that affects personnel Federal Acquisitions Regulations (FAR). Depending upon certain in a number of departments, including the hiring manager, criteria, such as acquisition value and type, specific contractual human resources and facilities employees, IT administrators, and provisional clauses must be presented on any forms and so on. submitted to suppliers and contractors for bidding. (Agencies still rely upon standard forms to accommodate suppliers and With ESA, organizations can compose new business processes by contractors who might not have online or Internet access.) orchestrating and rearranging existing enterprise services into a composite application that automates the new-hire process as With ESA, agencies can submit standard forms as Adobe PDF follows: files to suppliers and contractors (see Figure 3). Suppliers and 1. Initiate new-hire request (hiring manager) contractors can print a form and fill it out offline, or enter 2. Approve request (approver) the information directly into the PDF file and submit it. 3. Generate offer letter and employee contract (automated) 4. Accept or reject offer (candidate) Using enterprise services, the unstructured data in the PDF 5. Initiate service request to provision users on IT systems document is easily transported to ERP systems and stored as (automated) structured data. The benefit of this approach is that agencies 6. Initiate purchase request to acquire new laptop and other can reuse existing online and offline forms to comply with supplies (automated) federal requirements. At the same time, the competitive bidding process is simplified for contractors and suppliers. 12
  13. 13. real-time information between a desktop tool and a financials system in the context of managing appointments with Microsoft Outlook. Time Recording Plan Execute Control Schedule Assign Submit and Appointment Project Charge Time Figure 3: Sample RFQ in Adobe PDF Format Example: Integrating Desktop Productivity Tools with ERP Applications ESA Integration Time and attendance management offers a prime example of • Real-Time Access and Updates from Desktop Tools to ERP the need for a services-oriented approach. To manage time and • Data Integrity attendance, employees must record their activities in HCM • Corporate Governance • Real-Time Insight and financials systems and maintain the same information using desktop tools such as Microsoft Outlook and Microsoft Figure 4: Enhanced Time Management Process Project. An abundance of information that, for compliance and control purposes, is scattered throughout the universe of Business-Process Outsourcing available systems and is unnecessarily difficult to track further By outsourcing context activities, organizations enable their complicates the process. IT and business employees to focus on the next differentiating practice and still ensure proper governance of service levels. Using enterprise services, time and attendance information is Organizations can use enterprise services based upon open automatically exchanged between third-party desktop tools, standards to communicate and exchange information between HCM systems, and financials systems, thus saving employees internal and third-party systems rather than building time and effort and greatly improving the accuracy of reporting. proprietary, costly integration with third-party systems. Figure 4 illustrates how employees can improve productivity Because multiple systems can reuse enterprise services, this while meeting corporate compliance requirements by exchanging approach significantly reduces IT complexity. 13
  14. 14. Example: Outsourcing Logistics Operations parties to exchange product, bill-of-material, order, inventory Consider the outsourcing of logistics management for a global availability, pricing, and customer information. The interfaces high-tech original equipment manufacturer. The company has are required to ensure that the third-party provider can share manufacturing plants, logistics centers, and third-party ware- real-time information at any time on shipments, including houses located across Europe, the Middle East, Africa, the Asia- those in transit and held up at customs, such as details on Pacific region, and North America. Each location has varying expected delivery dates, damaged shipments, inventory at inventory levels of finished goods, from 0 to over 120 days of distribution centers, and so on. supply, to meet service-level agreements (SLAs) with customers. Now, suppose the company decides to establish a new process to A key objective for the company is to reduce the finished goods monitor and enforce SLAs with the third-party logistics provider. inventory across its distribution centers and warehouses. How- Because of the existing complexity of IT and the inflexibility ever, the staff is consumed by the day-to-day activities of tactical of the tightly coupled systems, the organizations will face chal- logistics and warehouse management related to global ship- lenges in decomposing existing functionality and composing ments, such as working with logistics carriers, custom agents, a new application that can span business and IT boundaries. and third-party warehouse providers. Platform For Packaged Business Processes As a result, the manufacturer decides to outsource its logistics Flexible Packaged Business Applications and warehouse operations to a third-party provider with Custom and SAP® xApps™ mySAP™ specialized expertise in multimodal transportation and planning, Composite Applications Powered by Powered by SAP NetWeaver contract negotiation, competitive pricing, insurance manage- SAP NetWeaver® ment, import and export, taxation, warehouse management, Innovation Standardization to Pay Procure and so on. These activities are clearly mission critical for the Mission- Order to Cash business, but the company recognizes that it does not have the Critical Activities core competency in-house to differentiate itself. Manufacture to Inventory Enterprise Services Existing Logistics Outsourcing Process Commoditization The company uses an ERP system for sales and distribution and materials management, legacy systems for HR and CRM, Enabling Activities Enterprise SAP NetWeaver Services and third-party solutions for warehouse management. The IT Repository environment is complicated by a myriad of unique business Invention processes and proprietary, tightly coupled integrations. Custom CRM SCM SRM PLM ERP The outsourcing initiative requires interoperability of the company’s internal ERP and legacy systems with the home- grown, sophisticated transportation and warehouse manage- Figure 5: IT Landscape Before Logistics Outsourcing ment tools of the third-party provider. Without proper ESA, the company will be forced to build and maintain custom, proprietary interfaces between its ERP system and all third 14
  15. 15. Enhanced Logistics Outsourcing Process What’s more, enterprise services enable organizations to compose In ESA, ERP, HCM, financials, and operations software can use and fine-tune business processes more easily. In the case of build- enterprise services to communicate and exchange information ing a process that governs an SLA across company boundaries, with the external systems of the third-party logistics provider. the use of enterprise services can ensure that business-critical Both parties can leverage their existing IT systems and publish information is exchanged in real time between the third-party enterprise services that can be found and invoked over a provider and the manufacturer. For example, the manufacturer network. Some of the services might include product details, can monitor the actual service levels of deliveries from order pricing, inventory availability checks, delivery status checks, receipt (in the ERP system), to shipment in transit (in the third- purchase order details, purchase order changes, partial party system), and ultimately to shipment delivered (in the third- shipments, and bill-of-lading details. party system), even though the process spans different systems. Platform For Custom Business Processes Compose Differentiating Processes . . . by Leveraging Packaged Solutions Custom and SAP® xApps™ mySAP™ Composite Applications Powered by Powered by SAP NetWeaver SAP NetWeaver® Innovation Standardization Source Procure Procure Mission- to Pay Critical Activities Order Ship Order to Cash Order to Cash (with Logistics Outsourcing) Plan Manufacture Inventory Manufacture to Inventory Enterprise Services Commoditization SAP NetWeaver Enterprise Services Invention Repository Tracking Custom Mgmt. house Trans- Ware- Third- Third- tation CRM SCM Party Party SRM PLM ERP por- Figure 6: IT Landscape Enabling Logistics Outsourcing 15
  16. 16. UNLOCKING THE POTENTIAL OF ESA To address the business context in communication between SAP NetWeaver also enables delivery of role-based user inter- applications, SAP elevates Web services to enterprise services faces through an enterprise portal that allows organizations to through its Enterprise Services Architecture Adoption Program, structure business processes and deliver relevant financial, which helps companies develop a blueprint for their ESA. operational, HCM, and other business information tailored to Through the program, organizations can expand the concept a specific role. This approach improves user productivity and of Web services into an architecture that supports an enterprise- provides a more consistent user experience. With SAP NetWeaver, wide, service-enabled business architecture. organizations can provide their users with access to structured and unstructured information scattered throughout an enter- The mySAP™ ERP solution, the mySAP Business Suite family of prise, including information stored in SAP and third-party business solutions, and many partner solutions are powered by systems, databases, data warehouses, desktop documents, and the SAP NetWeaver® platform – the open integration and Web content. application platform that provides the best way to integrate all systems running SAP or non-SAP software. SAP NetWeaver Rather than establishing, managing, and maintaining a myriad unifies integration technologies into a single platform and is of IT systems, organizations can cut costs and reduce IT preintegrated with business applications, enabling change and complexity by consolidating their infrastructure. SAP intends to reducing the need for custom integration. SAP NetWeaver develop SAP NetWeaver into a business-process platform, or enables customers, partners, and SAP to unlock the potential “applistructure,” that helps organizations merge enterprise of ESA. Based upon open standards like Web services, Java, and applications with infrastructure technology. This approach XML, SAP NetWeaver unites information and functionality allows business analysts to compose applications by assembling from SAP applications and offers them as enterprise services for enterprise services from the enterprise services repository, a communication with SAP, third-party, and legacy systems. central repository for modeling enterprise services and storing metadata as defined by customers, SAP, and partners. SAP plans Traditionally, organizations have had two options when it comes to make the repository an integral part of both SAP NetWeaver to IT infrastructure: build or buy. With ESA, organizations have and mySAP ERP as they evolve to enable an ESA. Figure 7 illus- a third choice: compose. Organizations that leverage ESA can trates the different components enabling the evolution of develop applications more quickly and with less effort to support mySAP ERP and mySAP Business Suite to ESA. next or evolving business practices. Portal Devices Office RFID Organizations with an ESA can use the SAP NetWeaver Visual Composer tool to compose applications. In the past, teams of business analysts and application developers have translated Composite Applications business requirements into detailed, procedural logic. With ESA, the language of business becomes the language of IT. Enterprise services within mySAP ERP are defined with simplicity and at a granularity that allows business analysts to understand them Enterprise Services SAP NetWeaver® easily. Thus, business analysts can leverage the appropriate Repository enterprise services for composite applications that support new mySAP™ business scenarios. Existing Systems Figure 7: mySAP ERP in ESA 16
  17. 17. mySAP ERP AND ESA: ALIGNING IT AND BUSINESS TO ACHIEVE OPERATIONAL EXCELLENCE The following table illustrates the difference between pursuing business strategies using a traditional IT environment and doing so with an ESA in place. Adopting ESA Enables Operational Excellence Business Strategy ERP Examples Traditional IT Environment With Enterprise Services Architecture in Place Consolidate common ERP and legacy Accounting Different applications might have differ- Enterprise services can be used by systems to provide shared services and • Time and expense management ent technology platforms and proprietary multiple applications, so consolidation reduce total cost of ownership • Credit and debt analysis interfaces – difficult and complex. will be more efficient and effective. • Collections • Invoicing • Accounts payable • Billing dispute resolution Self-services • Employee interaction center for centralized management of IT and HR Compose applications to support unique HCM Custom-built applications with Enterprise services are modular and can business needs • Employee on-boarding proprietary code are not designed for be easily rearranged to support composite reuse by other systems. applications. Extend existing applications to drive Supply management and procurement Special skills and proprietary interfaces Enterprise services are modular and can further operating efficiency beyond • Procurement are required to integrate multiple be orchestrated to enable other business existing boundaries • Logistics management systems, meaning higher costs and effort. processes by other systems. • Warehouse management Changes would also drive total cost of ownership higher as a result of additional coding, testing, documentation, and training. Outsource core business processes and Human capital management Core business processes are difficult to Business-process outsourcing is simplified their IT systems • Payroll outsource because the underlying IT because enterprise services are modular • Benefits enrollment systems are tightly integrated. and loosely coupled and can be more • Benefits management easily out-tasked without affecting the • Training rest of the IT landscape. Supply management and procurement • Procurement • Logistics management • Warehouse management Demand management • Call center operations • Analytics 17
  18. 18. WHAT’S NEXT? In 2005, SAP announced its ESA preview system with more than To demonstrate its continued leadership in helping customers 500 live enterprise services. Developed and deployed on the move toward SOA and build upon its commitment to provide latest version of mySAP ERP, the preview system offers partners, the partner community with a development platform, SAP’s developers, and customers an opportunity to test the enterprise road map for ESA includes the following milestones: services, and more importantly, to influence the definition and • SAP plans to publish an inventory of its enterprise services development of service-enabled solutions that help enterprises that customers and partners can use for planning. run business-critical processes more efficiently. Customers’ and partners’ composite applications and longer- term planning can leverage the list. Additional service- The following are just a few examples of the ways that the enabled functionality will be made available, focusing on enterprise services can be used: business-process flexibility and anticipating the needs of new • A third-party provider of tendering software uses enterprise composite applications. services to extend the purchasing functionality in mySAP ERP • In 2006, SAP intends to create an enterprise services repository to address the public sector’s unique regulatory requirements. based upon the next release of SAP NetWeaver. The purpose is Enterprise services from mySAP ERP help the company to make all relevant enterprise services actively available from verify budget availability before the release and publication the repository for use by selected partners and customers. of RFQs. Once the award is determined and the tendering process between the customer and supplier is complete, the company uses enterprise services to generate purchase order information and pass the information to mySAP ERP for invoicing and payment processing. • Using enterprise services, another third-party software and services company integrates its time and attendance tracking application with the mySAP ERP Human Capital Management solution some 90% faster than it could with traditional methods. Enterprise services enablement of mySAP ERP allows the vendor to provide its customers with comprehensive and real-time insight into time and attendance status in a fraction of the time it would have taken otherwise. • A large infrastructure management software company is working to extend its asset management and infrastructure monitoring systems into the purchasing functions available in the mySAP ERP Operations solution. Traditionally, these systems have been implemented independently, without integration with SAP systems. ESA will enable the company to use enterprise services from SAP to exchange asset details, pricing, and contract terms and conditions from the purchasing functions to its asset management systems. The company also plans to trigger an event from its infra- structure management tool to automate the procurement process in the purchasing module. 18
  19. 19. CONCLUSION FOR MORE INFORMATION Today, enterprises are burdened by complex IT landscapes that For more information about how ESA can help your drive up the cost of innovation and slow down the pace of organization deliver operational excellence and realize new change. With rapidly shifting business conditions – such as levels of innovation, please contact your account executive mergers and acquisitions, business consolidations, new business or visit us on the Web at, ventures, new partnerships, and changing market dynamics –, or enterprises must find a better way to effect change and employ innovation. There is a better way. The market is recognizing the value and potential of SOA – a new approach to help organizations make their IT operations leaner, more responsive, and more easily adaptive to enterprise solutions. SAP is among the first to recognize this vision and is leading the market with an ESA vision to support the next generation of ERP innovation. mySAP ERP, powered by SAP NetWeaver, is evolving into an ESA with a new repository of enterprise services developed upon open standards for exchanging information with a variety of systems, such as ERP, HCM, SRM, CRM, and SCM. The evolution will enable customers and their trading partners to seek greater efficiency and differentiation as they become empowered to implement new business strategies with less IT complexity, lower total cost of ownership, and increased agility. With ESA, mySAP ERP enables organizations to increase efficiency and growth by doing the following: • Extending existing processes across new business boundaries • Consolidating business and IT to leverage economies of scale and eliminate redundancy • Innovating existing business processes by developing composite applications that leverage existing investments • Replacing custom programming with model-driven composition of applications • Delivering flexible and highly productive user interfaces • Simplifying the IT landscape and reducing the costs and effort associated with integrating internal and external applications Organizations of all sizes around the world now have the choice, flexibility, and freedom to evolve into adaptive enterprises using an enterprise services approach that keeps them open to innovation and responsive to change. 19
  20. 20. /contactsap 50 077 977 (06/02)