Developing an SAP Procurement Technology Strategy SRM 7.

0 and Beyond

Table of Contents

The Rise of SRM Background and Context

2 Spend Management Business and Technical Considerations 3 5 SAP SRM Rapid Evolution Demystifying the SAP Acronym Malaise SAP SRM 7.0 and Beyond We Can Help

Contacts

The Rise of SRM Background and Context

Organizations are reconsidering their existing investments in spend management solutions. To understand why, one must rst understand how the original value proposition of spend-management software vendors has evolved. To nd the origins of automated procurement, you do not have turn back the pages very far. Ariba, one of the original pioneers of eProcurement along with Commerce One, began selling its original Operating Resource Management System (ORMS) to companies in 1997. The ORMS value proposition was quite simple: It aimed to automate the buying process for indirect materials for all employees in a corporation, thwart maverick purchases, and reduce spending by letting everyone know that their buying actions were being monitored. This value proposition proved to be hugely successful, allowing the early pioneers to garner tremendous market share. During that land grab, the ERP players largely failed to keep up with advancements in Sourcing, Category Management, and Contract Management as well as supplier enablement capability. That situation changed, however, when the early pioneers decided to focus their R&D efforts on the Software-as-a-Service (SaaS) solution. This shift gave ERP vendors sufcient time to catch up: They enhanced their spend-management offerings, ultimately eliminating many of the advantages once held by the early pioneers.

1 Developing an SAP Procurement Technology Strategy SRM 7.0 and Beyond

Spend Management Business and Technical Considerations

Most companies take a number of business and technical considerations into account when re-evaluating their investments in spend management solutions. These considerations include the capability to rationalize their supplier portfolios and the long-term integration requirements from ERP and legacy applications to their existing spend management solutions. Many companies are also examining the long-term viability of their existing providers from both nancial and product standpoints. These factors are changing the playing eld, especially since many of the earlier challenges that companies faced when considering spend-management solutions from ERP players are no longer an issue. Consider how it is now possible in todays environment to separate supplier enablement from the broader spend management implementation. For instance, companies can turn to specialists in supplier enablement and on-boarding to help speed implementation times. They can also rely on existing supplier networks to reduce transactionprocessing costs and bring even larger amounts of spend under management regardless of which underlying platform is chosen. After all, the business case behind technology-enabled spend management usually hinges upon how much spend an organization can push through its online environment. Greater percentages of spend and larger numbers of suppliers processed through the online channel can help companies in their efforts to maximize visibility into spend, drive contract compliance, reduce cost, and improve efciency all while addressing regulatory considerations. SAP SRM Rapid Evolution SAPs SRM application has grown rapidly. According to a book published by SAP Press, the SAP SRM solution has been the fastest growing SAP application in two of the last three years, up to 2006. Figure 1, below, shows the evolution of the SAP SRM product set. With each subsequent release, SAP has gained additional customers and traction. Figure 1: The SAP SRM Evolution
B2B Procurement 1.0 SRM 1.0 SRM 3.0 SRM 5.0 SRM 7.0

1999

2000

2001

2002

2003

2004

2005

2008/ 2009

SRM 6.0 (Ramp Up Only) B2B Enterprise Buyer 2.0 SRM 2.0 SRM 4.0

The analyst community criticized earlier versions of SAP SRM for having rudimentary workow and procurement capability relative to the solutions offered by best-of-breed providers. But when SRM 5.0 was released, the analyst community changed its tune, recognizing the SAP SRM solution as falling into the leaders quadrant1. The SRM 5.0 release also marked a period of rapid up-take in the marketplace, causing some existing SAP ERP customers to rethink their investments in spend-management software. However, upgrade plans would have to wait: SAPs SRM 6.0 general release, scheduled for the 2007 timeframe, was cancelled as the company focused its R&D efforts on the SAP SRM 7.0 release, which would include the ability to synchronize multiple, functional solution sets. This integrated solution is what SAP now calls Business Suite. SAPs SRM 7.0 release is now planned for ramp-up in late November 2008 and general availability is expected sometime in the second quarter of 2009. SAP also made two acquisitions during the evolution of its SRM suite: Frictionless Commerce, an e-sourcing software vendor, and Analytics, Inc., a spend analytics and data classication provider. Additionally, a third SAP acquisition, the larger and more recent purchase of Business Objects, has already found its way into SAPs portfolio of procurement products.

Developing an SAP Procurement Technology Strategy SRM 7.0 and Beyond

Demystifying the SAP Acronym Malaise

SAP breaks SRM down into six categories: Purchasing Governance, Sourcing, Contract Lifecycle Management, Collaborative Procurement, Supplier Collaboration, and Supply Base Management. In addition, SAP provides various sourcing and procurement capabilities outside of its specic SRM offering, e.g., SAP E-Sourcing. These capabilities are not on the same code base, yet they may share some base-level functionality, thereby adding another alternative for users to consider. To better explain this solution offering, we have placed the capabilities of the SAP SRM Suite in the context of how we believe customers typically view the source-topay business. Accordingly, we have broken down the components of SAP SRM 7.0 into the following groups: analytics, sourcing, contract management, procure-topay (for indirect, direct, and services spend), and supplier collaboration. This depiction is based upon our review of SAP documentation and marketing materials as well as our observation of testing activities. Analytics SRM 7.0 analytics provides the ability to capture, analyze and present procurement information from both SAP SRM and other sources, e.g., third-party data enrichment or other source systems. It offers an OLAP environment for power-analyst types as well as dash-boarding and workbook-level viewing for all team members. Built off SAP NetWeaver BI, SRM analytics can also integrate with a separate deployment of SAP Spend Analytics (another product) to allow drill down and navigation over specic spend and supplier information contained outside of the immediate SRM environment. Organizations that need to deploy a stand-alone spend analytics solution should consider SAP Spend Analytics. Sourcing SRM 7.0 offers core sourcing capability including a centralized sourcing hub, RFx/auctioning, and bid evaluation/awarding. SAP continues to sell the current release of the E-Sourcing tool (formerly Frictionless) separately. Specic sourcing capabilities in SRM 7.0 include: support for services procurement in sourcing, line-item revision levels on documents, chat, withdrawal and versioning of bids, enhanced bid comparisons and new auction formats. Other new capabilities include exible routing of information (i.e., to temporary contacts), RFx processing and bidding exibility, automation and globalization features, and streamlined sourcing processes to model real-world strategic sourcing activities. SRM 7.0 still does not provide some of the advanced sourcing capabilities available with the SAP E-Sourcing solution, but it may still be sufcient for certain organizations. SAP E-Sourcing should be considered for its complex lot structures and bidding formats, exibility around workow and role denition, and collaborative sourcing capabilities. Contract management SRM 7.0 has a unied contract object that allows companies to build one central contract that reects both local SAP SRM contracts as well as contracts within an ERP environment. SRM 7.0 contract management also includes the ability to let users provide additional information such as contract line descriptions and supplier part numbers within the SRM portal environment, exibility to control and access payment terms on both the item and distribution levels, and contract search capability, e.g., searching on the basis of payment terms. In addition, SRM 7.0 contract management also offers: Grouping of items Audit trails New alert thresholds for contracts Distribution and integration of contract data and catalog information Change, revision control and versioning for contracts New exchange rate thresholds Flexibility around currencies within a contract Systems and record integration Revision-level management Flexibility around discount release management based on pre-dened criteria Procure-to-pay SAP offers an array of enterprise purchasing features designed to support self service requisitioning, complex services requisitioning, and plandriven direct materials procurement. Self Service - Like the rest of SAP SRM 7.0, procureto-pay enhancements include a new UI and workow that allow users to organize, plan and modify their work in a customized portal framework. Actual tasks, such as catalog search, take place in separate application windows. Other features involve control and exception

3 Developing an SAP Procurement Technology Strategy SRM 7.0 and Beyond

management over decentralized processes (such as front-line user requisitions) and role-based tasks and workows for all user-levels dened in the application. Catalog management/MDM capabilities include message handling (including status and warnings) and running totals for shopping carts. Enhancement Package 4, which will become available around the same time as the SRM 7.0 ramp-up, will provide the ability to consolidate business documents and queries from both ERP Central Components (ECC) and SRM in a single screen. It will also guide users to the appropriate tool for direct, core purchases in the case of ECC and indirect in the case of SRM for a specic logon, shopping cart, requisition process, and/or purchase-order creation/ management. Plan-driven procurement SRM 7.0 plan-driven procurement capabilities support integration across both procurement and operational functions. Many processes such as sourcing, order management, contract management, collaboration and payment are now linked in a common environment. This function can automatically create orders based on long-term contracts, automatically create and route content such as RFxs inside an organization as well as externally to suppliers, and allow centralized search of content across SRM components. Services procurement SRM 7.0 includes a range of new features designed to help companies drive endto-end services procurement processes, starting with services-specic sourcing templates and workow, then extending to monitoring of services categories based on time, deliverables and goals. SRM 7.0 also provides support for third-party services ranging from contingent labor/stafng to maintenance and construction services. SAP Services procurement now includes a services-driven supplier collaboration capability to help align internal and external resources as well as facilitate compliance. From an administrative perspective, SRM 7.0 incorporates the transfer of external services items including hierarchical structures into the application.

Supplier Collaboration SRM 7.0 includes a basic supplier portal and self-service capability for entering information, allowing suppliers to nominate themselves as potential candidates for doing business with the company. Procurement organizations can dene customizable questionnaires for suppliers to ll-out. These web-based surveys provide exibility based on a number of factors including category dependent questions, allowing procurement teams to tailor questionnaires to specic audiences based on initial screen questions in the registration process. SRM 7.0 will also monitor and proactively alert team members based on changes in a supplier prole or a new addition to the supplier database. SAP also now enables companies to manage supplier performance by preparing survey forms and scorecards at any time in the supply management process from initial qualication through ongoing supplier development initiatives. It also aids companies in creating and distributing the surveys both internally and externally and then rolling up the responses into a common environment for further analysis. General Technology Enhancements SRM 7.0 includes a variety of general technology capabilities that the procurement suite uses throughout its components. These include a UI with two distinct interfaces: 1) organization, planning and monitoring; and 2) execution. Transition between the two interfaces is relatively seamless for the user. SRM 7.0 facilitates workow exibility and congurability throughout by featuring congurationbased implementation. This enables exibility without requiring code modication, allowing business users to customize their own environments more quickly. SRM 7.0 will also eventually include Duet functionality. The result of a joint venture between Microsoft and SAP, Duet is a highly differentiated set of functionality that allows frontline users to manage much of their SRM workow, e.g., approvals, within a Microsoft Ofce environment rather than within the SAP application. Other underlying technology capabilities include functional and design improvements to SRM-MDM as well as enhanced integration into both SAP and non-SAP data sources and applications.

Developing an SAP Procurement Technology Strategy SRM 7.0 and Beyond

SAP SRM 7.0 and Beyond

Regardless of which platform SAP customers select for sourcing and contract management and irrespective of the timing of their SRM 7.0 upgrades or implementations there are a number of strategies and tactics that procurement organizations can pursue to improve their existing return on investment. These include focusing, as previously discussed, on supplier enablement and onboarding, and cleaning up and enriching their supplier information on a regular basis. The latter forms the foundation not only of spend analysis but also of supply risk management, supplier diversity initiatives and, in the case of government contracting, small business reporting. Procurement organizations unsure of their specic needs should consult a third-party specialist. As organizations consider this new release, they should also be aware that SAP also offers other procurement technology solutions sold outside of the SRM 7.0 banner. These include SAP E-Sourcing and Contract Lifecycle Management (CLM), both built on the legacy Frictionless application code base, as well as SAP Spend Analytics, a new offering. In the case of E-Sourcing and CLM, SAP continues to support and develop both its organically built technology (SRM 7.0) and its acquired solutions because each of the applications presents different feature/function capability with commercial grade integration targeted for 2010 (based on current roadmap plans). Companies seeking a more strategic application of sourcing and contract management capability may wish to consider SAPs stand-alone modules rather than SRM 7.0. We Can Help Deloitte has provided consulting services to help hundreds of Global 2000 organizations in their efforts to enhance their procurement and operations capabilities. We know that every situation is unique. Our experience, working with SAP and many other technology providers, has given us a vast reservoir of knowledge to help you evaluate solutions for your specic situation. After all, there is no single, predened path that a company can take around spend management and the overall procurementtechnology environment. Indeed, there are many options open. Sorting through them and identifying those that are most appropriate and cost-effective, and that will, above all, provide the best return in a specic situation, is more than possible we help our clients do that everyday. Contacts:

Jonathon Magick Supply Chain Strategy Deloitte Consulting LLP Tel: +1 213 593 3645 Email: jmagick@deloitte.com Michael Cheatham Sr. Manager Deloitte Consulting LLP Tel: + 1 312 486 4012 Email: mcheatham@deloitte.com

5 Developing an SAP Procurement Technology Strategy SRM 7.0 and Beyond

As used in this document, Deloitte means Deloitte Financial Advisory Services LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/us/ about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Copyright 2011 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited