The Fast-Payback SAP Projects for Saving Money in 2009

1. 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

2. © 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.

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. Notes
SAP Peer Forum | June 2009 ©2009 AMR Research, Inc. 7

10. 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