SAP WMS Will Become a Contender in 2005

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1 Products, J. Woods Research Note 6 May 2003 SAP WMS Will Become a Contender in 2005 Account control in "SAP shops" combined with SAP's global presence, momentum and viability and a few key wins are positioning the company to become a strong contender in the warehouse management system market. Core Topic ERP II, Supply Chain & Manufacturing: Supply Chain Management Strategies, Applications and Technologies Key Issue How will SCP and SCE vendors and markets evolve? Strategic Planning Assumption By 1Q05, SAP will offer competitive and mature warehouse management components as part of an SCM suite (0.7 probability). Note 1 Goods-to-Person vs. Person-to-Goods Functionality Reflecting SAP's traditionally strong presence in Europe, its WMS strengths are in facilities predominantly focused on "goods-to-person" processes (where automation equipment such as a conveyor or an automated storage/retrieval system (AS/RS) brings the goods to people) as opposed to "person-to-goods" processes (where people go to the goods and perform tasks without automated equipment). European warehouse facilities tend to be more automated than U.S. facilities, using more materials-handling subsystems. U.S. facilities tend to use more labor vs. materials-handling equipment. Depending on the architecture of the WMS implementation, an automated facility can be less demanding on the WMS than a nonautomated facility, because much of the product movement is handled by materialshandling subsystems, as opposed to the WMS. SAP has been unjustly and loudly ridiculed in the warehouse management system (WMS) market as a "non-player," lacking the credibility needed to compete for WMS customers. However, in a number of accounts around the world, SAP is putting together what it needs to compete in the global WMS market with R/3 Enterprise. The vendor already has a credible offering for moderately complex environments and even certain types of complex automated warehouses (see Note 1). SAP Will Take Longer Than Expected to Deliver WMS Functionality Gartner previously stated that, by 2004, SAP will offer competitive and mature WMS components as part of a supply chain management (SCM) suite. However, given the pace of progress on some key accounts and the implementation time frames that some customers are reporting, we are revising the time frame for SAP to deliver a credible WMS offering for complex warehouse environments. By 1Q05, SAP will offer competitive and mature WMS components as part of an SCM suite (0.7 probability). Because SAP WMS implementations tend to take longer than industry average (see Note 2), this extended time frame will also enable users to verify reference account implementation before concluding that SAP, in fact, does offer the functionality suitable for their complex environments. SAP is working closely with a few strategic customers to validate, build and test some key components of its WMS strategy for complex environments, and, if any of these customers withdraw from the relationship with SAP on WMS, it would likely derail the momentum the vendor is building in WMS. If SAP suffers a major setback, such as a major customer failure, we are concerned that SAP would not remain committed to becoming competitive with best-of-breed WMS solution providers in complex warehousing Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Note 2 Why SAP WMS Implementations Take So Long SAP's WMS implementation process often takes place in the context of a broader R/3 implementation which can take years to go live. This can cause the WMS implementation to drag out, because, even if the SAP WMS is ready to go live in six months, the rest of the R/3 implementation may not be ready, and the user will need to wait for the go live. Many SAP WMS users report implementation times of a year or longer, compared to an industry average of six to nine months for a complex WMS implementation. This is important, because long implementation times often point to an immature product, because users must find ways to solve software problems and then wait for the vendor to deliver new functionality the user will need to go live. Although SAP's WMS is less mature than many best-of-breed WMS offerings, this is not the primary cause of the extended implementation time frames. Decentralized WM deployments of R/3 can enable rapid deployment, because the decentralized instance can be deployed before the rest of R/3 is upgraded or ready to go live. Product Strategy: Sell increasingly sophisticated WMS functionality into its user base Strengths: Momentum from its corporate viability and extensive account relationships Integration with the rest of the SAP applications Proven product in less-complex to moderately complex facilities Large customer commitments to SAP WMS, which make continued aggressive investment by SAP into WMS applications likely Challenges: Functional immaturity in complex facilities Lack of commitment to WMS throughout SAP Long implementation times Dependence for momentum on continued commitments to SAP from a few key customers the loss of any of these customers could validate fears about SAP in WMS environments. However, SAP is working at an executive level with some key customers to ensure customer satisfaction. Because WMS is in R/3, and R/3 has essentially been placed in a code freeze (meaning only minimal changes will be made to the code and little new functionality will be delivered to established R/3 modules), new functionality for WMS will be delivered in R/3 Enterprise Extensions. Users should, therefore, become familiar with SAP's approach to using R/3 Enterprise Extensions and SAP's road map for supporting them. There's No Evidence SAP Is Cheaper Than Best-of-Breed WMS The primary reason enterprises are considering SAP for warehouse management is because they believe that the WMS will be integrated with the rest of the R/3 application, reducing long-term total cost of ownership (TCO) by avoiding a usermaintained interface to best-of-breed applications. However, gains from the enhanced functionality and flexibility of a best-ofbreed solution may outstrip the savings from the reduced integration costs. Although SAP might prove to be cheaper in some cases than best-of-breed software, this comparative long-term TCO reduction has never been validated empirically for any enterprise resource planning (ERP) II vendor and remains theoretical at this point (see "Thriving in Supply Chain Management Market Chaos in 2003"). Users should validate exactly how much it will cost to deploy and maintain R/3 for warehouse management, especially in a decentralized deployment, to make sure they aren't engaging in wishful thinking. Decentralized WMS Is Becoming a Viable Option Because SAP's warehouse management functionality is a component of R/3, SAP users have typically run the warehouse management functionality from the central R/3 instance. This creates two challenges: Upgrades The most-important functionality for WMS applications is only available in r.4.6c or R/3 Enterprise, requiring many users to upgrade their entire ERP instance if they want to implement SAP WMS. Performance The transactional performance and uptime requirements of a WMS may be greater than what R/3 can provide for a mission-critical, transactionally intensive system such as WMS, which requires subsecond response times. 6 May

3 Consider This Product When: You've made a strategic commitment to SAP across the enterprise You have a long time frame for implementation You need to use the product in lesscomplex facilities You have an environment with a predominantly goods-to-person workflow Your enterprise only needs parity with peers in terms of WMS performance Consider Alternatives When: You have a rapid implementation time frame You need functionality for complex warehouse environments You need WMS capabilities to be a competitive differentiator for the enterprise You have an environment with a predominantly person-to-goods workflow To solve these problems, SAP has created a "decentralized" deployment model for R/3 in warehouse management. This is essentially an instance of R/3 that is run separately from the central R/3 instance specifically to support the operations of a warehouse or group of warehouses. Users do not have to upgrade the central R/3 instance, and, because the application is isolated, performance and uptime issues are more easily addressed. SAP supports this model via a set of preconfigured IDocs back into the central R/3 instance. Users with morecomplex distribution environments should evaluate decentralized deployment methodologies. SAP now claims that more than 120 users are deploying R/3 WM in a decentralized mode at this time, mostly in Europe. Early users reported that decentralized WM deployment took a considerable amount of time to deploy, and it required close cooperation with SAP product development personnel. However, SAP claims that these issues have been fixed with more-recent customers, although SAP has not been able to provide references to verify this. Native Support for RF Capabilities A key WMS best practice is to deploy radio frequency (RF) data collection devices (that is, RF terminals) to enable real-time capture of information into the WMS. This enables the WMS to know exactly what's happening and respond to changes in warehouse operations in real time, replacing a flurry of paper that once supported many processes in warehouses. This improves responsiveness and the accuracy of warehouse operations. SAP has finally added native support for real-time WMS transactions, beginning with R/3 release 4.6b, and continuing with r.4.6c and R/3 Enterprise. Before this, users had to contract with a third-party vendor to provide RF middleware for the SAP environment. Essentially, the RF middleware was a separate application that managed RF terminal sessions, served data entry forms to RF users and translated these transactions into the R/3 environment through a combination of remote procedure calls (RPCs) or idoc interfaces. The challenges with this approach are that customers were required to support yet another application and vendor, and the interfaces were not always real time. In addition, because realtime data input was not inherent in the SAP warehouse management system, SAP could not exploit real-time data entry in system design. However, with native RF support, SAP is exploiting this real-time functionality with task and resource management capabilities. 6 May

4 SAP now supports RF terminals natively through SAP Console. This is based on a graphical user interface (GUI) configuration system that extracts the data from DynPros, intelligently converts the data into a purely textual presentation, and supports the session with RF devices or other character terminals. SAP can also support RF terminals that have graphical support, such as a personal digital assistant (PDA) with a full GUI, but few users will find this particularly useful. Approximately 500 SAP enterprises worldwide have engaged with SAP Console for RF in the warehouse at some level. Users have found the SAP Console solution usable for most situations; however, they also see a number of challenges vs. traditional RF middleware approaches: Uptime With legacy RF middleware, the RF devices could still operate at full speed if R/3 was down or operating slowly. With a direct connection to R/3 through SAP Console, if R/3 goes down, users will not be able to perform any tasks in the warehouse. Using decentralized warehouse management will solve this. Immature Functionality The SAP Console environment is still immature. Some users have reported the need to perform a great deal of configurations and labeling of screens because they were not pleased with the way the basic screens were set up. However, this layout and labeling change was not a significant challenge. Local Implementation Support Users should identify local support resources with SAP or their systems integrators (SIs) before starting a project to run RF through SAP Console. Users should ensure that resources are available that have completed implementations with SAP Console in complex warehouse environments. TRM Is Helping SAP Overcome the Transfer Order Legacy At the core of SAP's WMS model is a transfer order, which determines how all goods movements are performed by instructing a user to move materials from one "bin" or location to another. This model is the most significant reason why users find the functionality of SAP warehouse management too limited for complex environments. In complex warehouses, many tasks need to be independent of a particular bin transfer, such as "pick and pass" or grouped replenishment tasks. To solve a number of these challenges, in R/3 Enterprise, SAP has released functionality that enables a more-granular view of tasks and management in the warehouse Task and Resource Management (TRM). This is the most important functionality SAP has released to move SAP's WMS into more complex 6 May

5 environments. Only two customers are live on this functionality, but 10 others are in progress. TRM enables a user to break down a transfer order into discrete tasks, and assign these tasks to individual users in real time. For example, a transfer order from a narrow aisle to a shipping area could be broken down into two tasks under TRM one narrow aisle pick using a specific forklift that is dropped in a staging area and another task moving multiple pallets from the staging area to the shipping area. Nonetheless, the SAP warehousing functionality still remains somewhat immature, and transfer orders still ultimately underlie TRM. SAP is making incremental progress at finding workarounds for many of the problems that the transfer order heritage places on the WMS. SAP has introduced the concept of bundles and superbundles of tasks, which enable users to perform tasks across multiple transfer orders. This represents a significant step forward in managing complex activities, but Gartner will not be able to verify the ease of use and adaptability of this metaphor for complex environments until live user references are available. As another example, there is no ability to do graphical workload planning in SAP's WMS. This is essential in high-volume operations and is not yet on the "road map." SAP intends to solve this problem with automated workload planning and textbased reporting, but we are skeptical that this will be sufficient to obviate the need for graphical planning. In R/3 Enterprise, SAP added the capability to have a user pick multiple shipments in one transfer order. SAP has also just added the ability for multiple people to work on an order simultaneously without experiencing file locking, thereby enhancing functionality. For Now, Focus on Best-of-Breed for Differentiated WMS Capabilities Gartner encourages users to ask themselves how strategic optimal fulfillment processes are to their enterprises before committing to SAP for warehouse management. Enterprises that need to use warehouse management capabilities as competitive differentiators should continue to look to best-of-breed WMS software. Enterprises whose strategic needs will be met by parity with their competitive peers should determine when SAP's WMS functionality will be ready for them. 6 May

6 Acronym Key AS/RS ERP GUI PDA RF RPC SCE SCM SCP SI TCO TRM WMS Automated storage/retrieval system Enterprise resource planning Graphical user interface Personal digital assistant Radio frequency Remote procedure call Supply chain execution Supply chain management Supply chain planning Systems integrator Total cost of ownership Task and resource management Warehouse management system Bottom Line: Too many users summarily write off SAP for warehouse management systems because of slow progress and market misconceptions about SAP's intentions. SAP is functionally suitable for moderately complex warehouse installations, and the vendor is making progress toward morecomplex facilities. SAP faced its biggest challenges in the area of work management, radio frequency device support and the ability to support an R/3 instance dedicated to warehouse management (decentralized WM). SAP is delivering solutions to each of these challenges; however, users should verify that the specific functionality they require is in use by SAP users, SAP can meet the implementation time frames if new functionality is required and the implementation team has experience implementing the SAP WMS in a complex warehouse environment. 6 May