SAP for the Chemicals Industry: Challenges and User Recommendations
Written By: Predrag Jakovljevic
Published On: June 1 2006
No One Is Immune to Challenges
As said many times before, SAP AG (NYSE: SAP) has ruled for some time in the upper tier of the chemicals kingdom, but competition in the chemicals mid-market is far from non-existent, given strong offerings from vendors such as Oracle, Ross Systems/CDC Software, Infor, 3i-Infotech, SSI-World, and SSA Global. These are only the mainstream enterprise resource planning (ERP) vendors focusing on the chemicals industry. There are also a number of point solution providers that cater to several industry-specific needs. For a detailed tutorial on the chemicals industry see So What's the Big Deal with Chemicals?.
Part Three of the series SAP for Chemicals: A Packaged Solution for Mid-market Companies.
SAP offers enterprise applications software tailored to the chemicals industry. For a discussion of the SAP approach to packaged solutions see SAP Industry Solutions for Mid-market Companies. For a discussion that is directly concerned with SAP and the chemicals industry, see SAP for Chemicals: A Packaged Solution for Mid-market Companies, and SAP for Chemicals Functionality.
SAP as a whole, including SAP Chemicals IBU, has admittedly been battling some hard-to-kill beliefs about its complexity, price, rigidity, and so forth—even with these preconfigured solutions. Lately, the vendor has been making the following claims, which are slowly gaining credibility (although prospective customers should continue to challenge SAP for tangible proof of concept, and talk to similar reference customers):
- Some SAP packaged industry solutions are poster children for mid-market success: 65 percent of existing customers have less than 1,000 employees, but the belief is that it is only for the truly "big" guys.
- SAP packaged solutions often drive high value returns for their customers, with value-based selling included as critical step in the sales process.
- These solutions provide the customers with industry expertise and capabilities (such as industry business process support, best practices, breadth of solutions, and so on) that often drive greater value than competitive offerings.
But to disprove the so-called myths of its cost, complexity, and inflexibility, SAP will have to continue by documenting successful case studies. Without these well-documented and substantiated positive returns on investment (ROIs) or favorable total cost of ownership (TCO) metrics, the market might still be led to believe that that SAP is trying to circumvent the market perception by highlighting a much-talked-about claim of a 32 percent increase in profitability for many high-profile customers (along with the claim that running SAP was the main cause thereof (see What Are Your Competitors Telling You? A Case Study: SAP's New Advertising Campaign).
SAP Avoids Mid-market Trap
To be fair, it appears that in the chemicals industry, it is possibly SAP who has made the best efforts not to fall into the usual trap of mid-market product oversimplification (see Cookie-cutter Solutions Won't Cut It with the Mid-market). SAP's flexible building block technology enables midsize businesses to implement and adapt their solutions and to incrementally exploit the potentials of mySAP ERP, mySAP CRM, mySAP SCM, mySAP BW, and mySAP SRM. The template currently covers fifty-four industry-specific building blocks, on top of the numerous baseline building blocks. Still, despite an impressive array of capabilities for the chemicals industry, SAP needs to fill many more functional gaps, and this is where it can try to convert independent software vendors (ISVs) into allies rather than leaving them as competitors.
This could be a win-win opportunity for both sides: while ISVs can work with SAP rather than being distracted by competition with the giant (where it is difficult to win in the long term), SAP obtains an aggressive external support for its efforts to quickly fill the gaps in its industry maps. In this way, its internal resources can be directed at the massive service-oriented architecture (SOA)-based rewrite of existing functionality into a more agile business process platform. SAP xApps combine Web services and data from multiple systems, with the SAP NetWeaver technology platform providing the interoperability. They consist of software that combines new business logic (the packaged part) with functionality borrowed from pre-existing components (the composite part). In practice, an SAP xApp is an application layer that sits on top of other applications, which therefore can provide a cross-functional process that is collaborative and integrative.
Given that there are nearly a hundred common customers between SAP and Lighthammer (prior to the acquisition), and about twenty shared customers with Vendavo, it is obvious that customers are amenable to a tightly integrated partner solution rather an endless wait for SAP functionality. The Chemicals IBU thus wants to develop and grow an ecosystem for the chemicals industry that should provide value to its customers, partners, and SAP. Indeed, the chemicals unit is one of the first within SAP to pilot SAP's Industry Value Network (IVN) program.
One example of critical industry needs that SAP addresses via partnership is profit analysis and price management (meaning how to manage price changes in market with central control and direction). Margin compression and (recently) comparative analysis of relative customer profitability are real issues for the chemicals industry, and pricing analytics and support tools can be used to better manage pricing and improve margins. To that end, SAP has partnered with Vendavo, a provider of price management software solutions, to offer an SAP xApp or packaged composite application for pricing management called SAP Price and Margin Management (SAP PMM) by Vendavo that runs on SAP's NetWeaver (see Applications Giants Bolster their Pricing Management Capabilities). There are other vendors with pricing optimization routines, but this is not the current functionality of Vendavo. SAP strongly believes that all commodity producers (and many specialty producers) should start with price management, while only the more complex specialty chemicals producers should start with optimization.
On the other hand, Technidata has been helping shape environmental health and safety (EH&S) functionality for several years, as well as providing the SAP xApp for Emissions Management (SAP xEM), a targeted SAP xApp for the chemicals industry. Regulations such as the US Clean Air Act require companies to reduce emissions, and SAP is thus providing a tool now that evolves around real-time processes to help chemicals companies with compliance. Technidata has also been helping to develop a content server for SAP EH&S that includes data for over 200,000 substances.
The SAP Plant Maintenance (PM) suite includes such modules as Preventive Maintenance, Breakdown Maintenance, and Structuring Technical Systems, so as to execute and record planned and unplanned maintenance activities, including maintenance tasks and work orders. SAP will also work towards full-fledged reliability-centered maintenance (RCM) capabilities, which are becoming standard among asset-intensive manufacturers (see Reliability Driven Maintenance--Closing the CMMS "Value Gap"?). The connected nature of agile manufacturing will probably elevate asset management capabilities to a higher level, whereby attached sensors will monitor the equipment and provide the data that can be used to more accurately predict inefficient operation or failure, reducing the chance of downtime and lost production. This is particularly true in light of Infor's recent acquisition of the enterprise asset management (EAM) specialist Datastream. Again, partnering with the likes of Ivara might come in handy, as with AspenTech or WAM Systems for some tricky chemicals SCM functional nuggets (see WAM Systems Offers Supply Chain Planning Packaged Solution For Chemicals), or with a chemicals-focused logistics prospective partner such as Odyssey Logistics.
Mid-market chemicals companies searching for enterprise systems should certainly put SAP and its burgeoning consulting, development, and implementation service partners on their list. SAP Best Practices for Chemicals is a strong, free-of-charge foundation for partner templates, new installations, and global rollouts. It is based on a new technology that enables users to create their best practices, and it can even be used for software evaluations or implementations.
But although SAP offers extensive functionality, these companies should compare their needs to the offerings from SAP and alternative viable 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.
Using the SAP ERP Packaged Solution for Chemicals may represent a significant advantage. However, it is only an advantage if SAP is the right ERP system for the prospective user company, and if the prepackaged business processes fit adequately. SAP acknowledges that they typically find a 70 to 85 percent fit, but even companies with very distinct processes should see benefits as they get a blueprint starting point: they can in most cases adopt many of the core' processes out-of-the-box, and with best practices, they can then pick and chose any process. While SAP rightly claims that the packaged solution is a more rapid, lower cost, and lower risk implementation methodology (at a minimum, best practices can even help with a quick pilot installation to evaluate scenarios, train people on SAP, and so on), these comparisons are mainly relative to implementing SAP without the packaged solution.
Companies should thus look at the total cost of ownership (TCO) picture with respect to each vendor (assuming the vendor can meet their needs) before they embrace the SAP ERP Packaged Solution for Chemicals as the right implementation approach. For more on avoiding awkward comparisons between "apples" and "oranges," see Prepackaged SAP Best Practices—Are They for You?.
When looking for a vendor, there are certain questions which companies should never fail to ask, under any conditions:
- Can the vendor provide a list of relevant chemicals industry references? It goes almost without saying, but time spent on evaluating which references are in fact relevant is time well spent. Too many companies, in all industries, have made rash decisions based on irrelevant references.
- Does the vendor address the unique requirements of the chemicals industry? If the model cannot fully define the realities of the user-specific chemicals processes and practices, it cannot possibly manage these realities.
- Was the solution built specifically for the chemicals industry (good), or does it use a generic solution employing templates (OK, but not necessarily excellent), or is it simply a generic product (almost certainly bad)?
- Is the solution a single, integrated application with one common model, or is it a collection of interfaced modules? Obviously, the appeal of unity of structure is more than simply aesthetic: a single, integrated application may make it easier to trace unexpected data to its source. On the other hand, it may be the case that interfaced modules offer more aggregate functionality.
- Is the solution a complete application, or is it a modeling language that forces users to create their own solution? The trade-off here is that a vastly greater ability to customize comes with a vastly greater investment of resources.
- Can existing personnel (such as planners or IT staff) support the system, or does it require specialized assistance from an operations research or modeling group? Again, a company's preference may be determined by the sheer number of headaches it is willing and able to accommodate.
Enterprise systems have brought many benefits to chemical environments, but for individual enterprises, gaining these benefits requires the selection of a solution that can deal with the unique needs of the business. Although only a handful of 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 chemical operation select the right solution and gain these benefits. And that can make all the difference between a pipeline and a pipe dream.
This concludes the three-part series SAP for Chemicals: A Packaged Solution for Mid-market Companies.
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 being a consultant/implementer and market analyst. He holds a bachelor's degree in mechanical engineering from the University of Belgrade (Yugoslavia), and he 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.