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

The Fast-Payback SAP Projects for Saving Money in 2009: Detailed Data for Business Expense Projects

June 2009

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.

by Derek Prior

SAP Peer Forum

© Copyright 2009 by AMR Research, Inc.

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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.

©2009 AMR Research, Inc.SAP Peer Forum | June 2009 1

SAP Peer Forum

The Fast-Payback SAP Projects for Saving Money in 2009: Detailed Data for Business Expense Projectsby Derek Prior

Enterprises are under huge pressure to cut all SAP-related costs. This Report was written to help business audiences looking for every opportunity to exploit their huge, existing investments in SAP to help reduce their total business expenses. It summarizes the detailed data generated from an online survey of 18 respondents in a field study conducted exclusively for AMR Research SAP Peer Forum clients.

This confidential cost-savings survey was split into two halves:

Fast-payback projects for business expense reduc-•tion for a business audienceFast-payback projects for SAP operations cost •reduction for a technical audience

We’ll present data for the former half, where there appears to be considerable potential to squeeze further cost savings by exploiting SAP investments, especially in classic ERP and supply chain business process areas. Findings and best practices rising from this data were identified in the SAP Forum Summit Sessions held on April 14, 2009, in Palo Alto, CA and April 28, 2009, in Walldorf, Germany.

The fast-payback lowdown: results from our field study

The highest-potential areas for business expense reduction opportunitiesRespondents were asked to rate the potential of a pre-defined list of business process areas to generate a fast payback for a moderate, overall project expenditure. This potential was expressed through a score of 1 to 5, where 1 is the lowest potential and 5 the highest. Table 1 shows the results.

The business process areas in Table 1 have been ranked by highest average score (first column) for potential fast payback. For some respondents, particular business pro-cess areas have a higher impact, so those with the high-est score (4 or 5) are shown for additional information (second column). This shows that business intelligence (BI) and manufacturing have a higher impact, with some companies currently engaged in related projects.

Overall, these are relatively high scores, indicating the respondents believe there’s high potential still to reduce business expenses, especially in the upper half of the table.

June 2009

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.

©2009 AMR Research, Inc.2 SAP Peer Forum | June 2009

Detailed data for sample fast-payback projects to reduce business expenseRespondents were asked to select their most successful fast-payback project to reduce business expenses to date for any business process area. They were then asked to supply some detailed data about its financial character-istics (see Table 2). Note: Not all survey respondents were able to supply such detail.

Of note, four of these projects were justified on the basis of strategic need, with another four justified by cost savings. There’s also a fairly broad range of business process categories, although purchasing and order ful-fillment were the most popular choices. Detailed data for the costs and benefits are provided for each project, as well as project team size and duration.

Summary of financial performance metrics for sample fast-payback projects to reduce business expenseTwo basic financial performance metrics—what we call time to payback and bang for the buck—were calculated to identify the most successful fast-payback projects to reduce business expenses (see Appendix A for definitions of these metrics). The results of this calculation are presented in Table 3.

For time to payback, an order fulfillment project that featured drop-ship with third-party providers had the best overall financial performance. For bang for the buck, a purchasing project, featuring a supplier rela-tionship manager (SRM) procurement implementa-tion, generated the best performance.

Table 1:

Source: AMR Research, 2009

The highest potential SAP business process savings

Average Score/rank

Percentage of 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

©2009 AMR Research, Inc. 3SAP Peer Forum | June 2009

Table 2:


Detailed data for some fast-payback projects to reduce business expense

Cost SavingsCategory

BusinessJustification

Type Description

ActualAnnual

Cost Saving

Approx.external

Project Cost

Approx.Internal

Project CostTotalCost

Financials—operating expense

Strategic need

ERP/SCM single back-office systems

$120,000 $200,000 $400,000 $600,000

Supply chain Cost savings Reduce inventory, in-crease ROA

$2,200,000 $6,100,000 $1,800,000 $7,900,000

Financials— operating expense

Cost savings Consolidate systems, low-cost countries

$20,000,000 $22,000,000 $7,000,000 $29,000,000

Business intelligence

Revenue im-provement

BI for customer and product profitability

$1,000,000 $500,000 $500,000 $1,000,000

Manufacturing Cost savings Plant reliability im-provements

$12,000,000 $7,000,000 $3,000,000 $10,000,000

Order fulfilment

Compliance requirement

Drop-ship with third-party providers

$250,000 — $80,000 $80,000

Purchasing Cost savings SRM implementation for procurement

$1,041,000 $435,200 $489,000 $924,200

Purchasing Strategic need

Establish global sourcing agreements

— — — —

Order fulfilment


Reduced staffing to manage complexity

700,000 $1,500,000 $500,000 $2,000,000

Manufacturing Strategic need

Replace legacy with SAP

$5,000,000 $10,000,000 $20,000,000 $30,000,000


Strategic need

EDW plus common metrics and scorecards

— $20,000,000 $5,000,000 $25,000,000


Table 3:


Financial performance metrics for fast-payback projects to reduce business expense

Cost SavingsCategory

BusinessJustification

Type Description

Time to Payback (months)

Time to Payback

(rank)

Bang for the Buck (money

Back)

Bang for the Buck

(rank)

Financials—operating expense

Strategic need

ERP/SCM single back-office systems

120 — -$840,000 —

Supply chain Cost savings Reduce inventory, increase ROA

58 — -$4,050,000 —

Financials— operating expense

Cost savings Consolidate systems, low-cost countries

53 5 -$29,000,000 —



BI for customer and product profitability

24 3 $1,000,000 2

Manufacturing Cost savings Plant reliability improvements

— — — —

Order fulfilment

Compliance requirement

Drop-ship with third-party providers

8 1 $565,833 3

Purchasing Cost savings SRM implementation for procurement

19 2 $1,418,050 1

Purchasing Strategic need

Establish global sourcing agreements

— — — —

Order fulfilment


Reduced staffing to manage complexity

52 4 -$950,000 —

Manufacturing Strategic need

Replace legacy with SAP

78 — -$17,500,000 —


Strategic need

EDW plus common metrics and scorecards

— — -$20,000,000 —


Approach to measuring SAP business benefitsRespondents were asked to choose from one of four ways to characterize how they currently measure the business benefits derived from their SAP business proj-ects (see Figure 1):

Analyze benefits once at some point after the proj-•ect is completed.Identify benefits and metrics as part of project plan-•ning and measure continuously within the project team.Assign specific goals to business units and depart-•ments and hold individuals in those groups accountable for achieving them. Do not measure benefits.•

Despite the difficulties with measuring benefits, only one respondent didn’t try to measure. Companies that do measure benefits do so in one of the three methods in Figure 1, but the respondents in this survey were evenly split across all three.

Most respondents feel confident when it comes to handling large IT projects, rating their companies’ abilities to manage them with a high average score of 4.25. However, the same companies were less confident in their abilities to manage large business transforma-tion or reengineering projects, where the average score dropped to 3.50. For the ability to get consensus across business units on common processes and systems, the average score was lower still, at 3.07.

Popular methods used to share SAP skillsTo complete the survey, respondents were asked whether they have the following organizational ele-ments in place. The percentages reported below repre-sent the organizations that do:

SAP center of excellence (COE)—67%•

Dedicated group measuring SAP benefits—28%•

Dedicated group conducting business process •improvements—44%Senior executive responsible for business process •improvements—11%

The SAP center of excellence clearly remains a popular way of sharing and exploiting SAP skills. But most companies prefer to devolve the measurement of busi-ness benefits and business process improvements down to the local level to ensure ownership.

ConclusionsConsider 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-ing capital management, and order fulfillment.Fast-payback projects for reducing business expense •to offer an attractive payback and bang for the buck can easily be executed without high levels of expenditure.Most companies prefer to use local business exper-•tise to ensure ownership to measure the actual busi-ness benefits accruing from business improvement projects.

Figure 1: Managing and measuring benefits


Do not measureor manage

7%Individuals heldaccountable forachieving them

29%

Part of project planningand execution

29%

Analyze onceafter the project 36%

Q: What best describes the process you use to measure andmanage bene�ts from this and other SAP-related projects?


Appendix A: methodologyA set of research questions was built into an online survey tool to gather important data about the follow-ing type of fast-payback project information:

Company profile•

SAP ERP profile •

SAP operations costs fast-payback projects, poten-•tial by project typeSAP operations costs fast-payback projects, profile •of best projectSAP business expense fast-payback projects, poten-•tial by project typeSAP business expense fast-payback projects, profile •of best projectUsefulness of SAP enablers for business expense •fast-payback projectsCompany approach to SAP business benefits •measurement

Appendix B: Financial metrics

Time to paybackFinancial payback time, months = (total project •cost) / (annual project cost savings)Time to payback, months = (project elapsed time) + •(financial payback time)

The time-to-payback metric realistically takes account of how quickly the project pays back as well as the actual project lead time.

Bang for the buckConsider a three-year period:

Available benefit time, months = 36 – (project •elapsed time)Financial savings, $ = (available benefit time) x •(annual project cost savings) 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.

Appendices


Notes

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