SAP Industry Solutions for Mid-market Companies
Written By: Predrag Jakovljevic
Published On: May 25 2006
For well over a decade, SAP AG (NYSE: SAP) has been offering market-leading enterprise applications software tailored to specific industries, starting with the oil and gas and the utilities industries (the original SAP industries). Other industries, such as media, insurance, chemicals, banking, and the public sectors have followed, highlighting SAP's lesser-known side as a market-oriented provider of industry-tailored solutions for midsized enterprises. For instance, SAP software has mapped standard business processes as well as particularly specific core banking processes in financial accounting since 1997, with solutions for other industries following suit. Over the years, the vendor has created twenty-eight industry-specific products, thus offering customers a mass of expertise, along with information technology (IT) solutions particular to their respective industries.
This segmentation is also reflected in the company's organization: in 1996, SAP started creating specialized departments called industry business units (IBUs) for groups of targeted industries, such as financial services, manufacturing, public services, trading, and service industries. Accordingly, the SAP NetWeaver platform and standard enterprise suites like mySAP ERP and mySAP CRM, as well as applications for user productivity and analytics, have all recently been designed with an industry perspective. Certainly, insights from SAP's core or standard developments, along with partner solutions, benefit all of SAP's industry units, and cover common business processes. But each industry has particular demands that cannot be met by generic solutions, and SAP thus invests in complementary programs, with the goal of a complete and integrated solution portfolio that will eventually support every process in each industry.
In close cooperation with leading industry customers, and with consulting and independent software vendor (ISV) partner companies, SAP has created more than fifty SAP "solution maps," which chart consolidated best-practice approaches for specific industries. These maps are checked and updated annually with the latest business and technical requirements, enabling SAP to promptly react to regulatory requirements such as the US Sarbanes-Oxley Act (SOX), Basel II, and a raft of other environmental compliance measures. Many SAP solution maps even provide specific requirements for sub-segments of certain industries. For instance, media customers can leverage microvertical maps designed for broadcasting, entertainment, newspapers and magazines, and premium-content publishing houses.
Consequently, perhaps, most of the chemical, high tech, and pharmaceutical Fortune 500 are SAP customers. The vendor boasts eight of the world's top ten banks, thirty-three of Europe's leading fifty financial institutions, and nine of the ten most successful insurance companies in the world. SAP also claims leadership in ten of the eleven manufacturing industries it targets, and asserts that over 900 utility companies in seventy countries are using SAP software, in nearly thirty languages. To better understand the market, SAP maintains close contact with relevant industry players, and organizes and attends industry-specific user events and forums. There are a number of regional and international information days aimed at continuing an in-depth dialog with customers, so as to identify new specific market segment requirements, and to assess the vendor's current functional and technological fits and gaps in its portfolio.
SAP has also created advisory councils and architect forums for thought leaders from the individual industries to maintain close and regular contact with the market, with the focus on ever-evolving business issues and IT infrastructure landscapes. Finally, SAP also contributes to the development and definition of industry standards as a member of industry associations, standards committees, and various user groups worldwide. The best examples include RosettaNet for the high tech and electronics industry, Chemical Industry Data Exchange (CIDX) for the chemical industry, Petroleum Industry Data Exchange (PIDX) for oil and gas, and Automotive Industry Action Group (AIAG)/ Standards for Technology in Automotive Retail (STAR) for the automotive industry.
For instance, the Chemical Industry Data Exchange (CIDX) (http://www.cidx.org) is a nonprofit, industry-funded standards body whose mission is to improve the ease, speed, and cost of conducting business electronically between chemical companies and their trading partners. Industry players, through the central coordination of the CIDX group, have created standards for about sixty business transactions: this standardizes the transmission of data between chemical company buyers and sellers. For example, in a transaction such as create purchase order, a 50-character alphanumeric field that shows line #1 of the vendor address might be prescribed for field #32. Using CIDX standards to transmit data via extensible markup language (XML) technology means that everyone should thus know where to store (or look for) information, allowing everyone to speak the same language when exchanging data. This enhances the industry's overall ability to automate business and increase data visibility.
One should never neglect the importance of a partner ecosystem, given that even the formidable SAP cannot be all things to all people. Thus, early in 2006, in order to expand its offering of business management software solutions for the resource and industry requirements of small and medium enterprises (SMEs), SAP introduced 39 new qualified mySAP All-in-One partner solutions to an overall portfolio of over 600 such solutions. The solutions were developed and delivered by SAP partners in countries including Australia, Belgium, China, Denmark, Germany, Hungary, India, Italy, Korea, New Zealand, South Africa, Spain, Sweden, the UK, and the US.
Each offering includes built-in best practices for managing business processes within a specific industry, giving these new solutions the ability to address diverse industries ranging from biotechnology, plant construction, and transportation services, to aviation and fashion retailing. The latest additions to the world's largest portfolio of microvertical solutions for SMEs, the thirty-nine new offerings are part of more than a hundred new solutions introduced in the last twelve months. Nearly 600 qualified mySAP All-in-One partner solutions are available in over 50 countries; they are used by more than 7,100 customers worldwide.
Midsized enterprises require business management solutions that provide the same advantages enjoyed by larger competitors, but that are also priced and sized to fit their resources and demands for fast results, rapid return on investment (ROI), and high quality support. A wealth of research shows that mid-market companies are concerned about the price and complexity of enterprise packages, along with the scope of associated implementations; all this is bundled with limited in-house IT resources and high project risks (in terms of cost overruns, project methodology, and the need to find the right partners with the necessary industry expertise). Also, there are inevitable ROI concerns, such as which measurable key performance indicators (KPIs) can be produced, and which solution is future-proof. For these enterprises, it all comes down to determining whether the headaches are worth the trouble.
The mySAP All-in-One solutions from SAP partners aim at enabling these companies to adopt industry best practices for managing core areas of the business, while allowing modifications (configurations) to maintain the unique processes that distinguish companies from competitors of all sizes. SAP channel partners build solutions based on "SAP best practices," the building blocks developed by SAP and its partners over more than thirty-three years of serving leading companies of all sizes. Templates (consisting of core processes, industry-specific processes, pre-configuration, and accompanying documentation) assemble the savvy and experience coming from user groups, representative clients in the industry, partner input, industry analysts, SAP's industry experience, and SAP's own industry surveys. Partners can then add capabilities to support microvertical processes based on their distinctive industry knowledge and expertise.
These mySAP All-in-One solutions are sold, deployed, and supported by SAP channel partners as defined- or fixed-scope implementations. The packaged implementation offering contains a specific mid-market methodology, project management, implementation roadmap, and pre-filled "accelerators." Basic services, which are part of SAP best practices (and not necessarily restricted to partner services), entail project management, delta (fit-gap) requirements workshops, implementation, key-user training (on the job), user documentation, predefined sheets for master data migration, predefined test catalogs, predefined forms, standard SAP reports, and go-live support. However, optional additional services, still within the fixed price arrangement, feature the development of offshore components (custom forms, custom reports, data migration, and authorization concept), user training, post-implementation support, and hosting.
Recently Added Solutions
Some of the new solutions include Ki4 Medical Devices, developed by Ki Solutions, LLC to address the needs of midsized makers of medical devices. With preconfigured capabilities for managing industry processes such as US Food and Drug Administration (FDA) compliance, patient device tracking, and shelf-life management, Ki4 Medical Devices has harnessed the power of SAP's manufacturing industry expertise to fit the price, resource, and process requirements of midsized manufacturers and distributors of medical supplies, diagnostics, and implants.
The Pharmsys solution, from CVSIT Services India, Pvt. Ltd., provides capabilities for midsized pharmaceutical companies to manage industry-specific processes such as the manufacturing of bulk drugs, generics, and formulations; loan licensing; customer material tracking; planning and costing; and active-ingredient material quantity calculations.
The KBMS solution targets midsized food and beverage manufacturers. This company's extensive operational experience in the food industry joins meaningful SAP expertise within this sector. KBMS offers preconfigured solutions, along with a series of extensions that address needs unique to the food industry, as well as specific categories within the food industry.
Additional new mySAP All-in-One solutions from SAP partners address microvertical industries including pharmaceuticals, consumer products (food), grocery retailing, sea transport, project management, construction components, trucking and warehousing, chemicals, textiles, publishing, automotive dealership, steel products, and diamond trade and promotion. For more on these new solutions, including information about where they are available, and about the partners that offer them, SAP provides fact sheets at its corporate Web site.
Mid-market companies searching for enterprise systems should certainly put SAP and its burgeoning consulting, development, and implementation service partners on their initial list, if SAP offers tailored software support for their industry.
And although SAP offers extensive functionality, these companies should compare their needs to the offerings of SAP and alternative vendors, in order to find the best fit. SAP still has a reputation as being difficult to implement, change, and manage. The company has made strides in addressing these issues, but mid-market companies should decide for themselves (via detailed real-life business scenario demonstrations) whether SAP is "overkill" for their needs or not. While SAP has done an excellent job of gaining industry knowledge from its network of customers, consultants, and so on, the majority of this input is derived from larger companies. A midsized company should inspect the SAP solution relative to the appropriate fit for a company of their size (rather than as compared to a Fortune 500 company, for example).
Using a solution based on SAP ERP may represent a significant advantage—but only if SAP is the right enterprise resource planning (ERP) system for the prospective user, and if the prepackaged business processes fit adequately. While SAP rightly claims that the packaged solution is a more rapid, lower cost, and lower risk implementation methodology, these comparisons are mainly relative to implementing SAP without the packaged solution. Companies should thus look at the potential total cost of ownership (TOC) with respect to each viable vendor before selecting an SAP ERP packaged solution as the right implementation approach. For more on avoiding awkward comparisons in situations where there is no real one-to-one correlation, see Prepackaged SAP Best Practices—Are They for You?.
There are several vital elements to consider when looking for a vendor:
- Can the vendor provide a list of pertinent industry references?
- Does the vendor take the unique requirements of the industry into consideration? (If the model does not fully define the realities of the user-specific processes and practices, it cannot possibly manage these realities.)
- Was the solution built especially for the industry in question (good), or does it use a generic solution with templates (OK, but not necessarily excellent), or is it simply a generic product (bad)?
- Is the solution a single, integrated application with a common model, or is it a collection of interfaced modules?
- Is the solution a complete application, or is it a modeling language that obliges users to create their own solution?
- Can existing personnel (such as planners or IT personnel) support the system, or does it require specialized assistance from an operations research or modeling group?
Enterprise systems have brought many benefits to various industry environments, but for specific enterprises, these benefits are contingent on the selection of a solution that can meet the unique needs of the business. Although only a few vendors claim they can support these needs, some first-class options do exist. Only by focusing on the requirements that will make or break the project will the specific industry operation select the right solution and gain these benefits.
About the Authors
Predrag Jakovljevic is a principal analyst with Technology Evaluation Centers (TEC), with a focus on the enterprise applications market. He has nearly twenty years of manufacturing industry experience, including several years as a power user of IT/ERP, as well as experience as a consultant/implementer and market analyst. He holds a bachelor's degree in mechanical engineering from the University of Belgrade (Yugoslavia), and has also been certified in production and inventory management (CPIM) and in integrated resources management (CIRM) by APICS.
Olin Thompson is a principal of Process ERP Partners. He has over twenty-five years of experience as an executive in the software industry, and has been called the "father of process ERP." He is a frequent author and award-winning speaker on topics such as gaining value from ERP, SCP, e-commerce, and the impact of technology on industry. He can be reached at Olin@ProcessERP.com.