Products, D. Hope-Ross Research Note 1 July 2003 mysapsrm3.0isaworkinprogress SAP's mysap SRM 3.0, which became available in June 2003, includes major enhancements, but its functionality lags the market. Core Topic ERP II, Supply Chain & Manufacturing: Supply Chain Management Strategies, Applications and Technologies Key Issue How will successful enterprises select, deploy and manage SCP and SCE solutions to minimize risk and achieve optimum ROI? SAP Headquarters: Walldorf, Germany Web Location: www.sap.com Founded: 1972 Ownership: Public Employees: 28,900 (as of June 2003) Financial Data: FY02 Results (in euros)/fy01 Results Corporate Revenue and Income Total Revenue: 7.4 billion/7.3 billion License Fee Revenue: 2.3 billion/2.6 billion Net Income: 509 million/581 million Regional Revenue EMEA Total: 4.1 billion/3.8 billion mysap SRM Compatible with mysap ERP As of June 2003, mysap SRM 3.0 became available. It includes functionality improvements designed to help enterprises manage their supplier expenditures. It also includes e-procurement and strategic sourcing capabilities. SAP will market mysap SRM 3.0 as a broad solution for managing the full life cycle of supplier relationships, including analysis of historic purchasing patterns, supplier "scorecarding," supplier negotiation, contract management and procurement transaction execution. mysap SRM 3.0's new functionality will help address gaps in previous versions of SRM and improve SAP's competitive positioning. However, the improvements in functionality are insufficient to meet all end-user requirements or make SAP competitive against best-of-breed vendors in all areas. We rate mysap SRM 3.0 as "promising." mysap SRM 3.0 includes four components: Strategic Sourcing Operational Procurement Supplier Enablement Content Management This research examines mysap SRM 3.0's functionality and the implications for enterprises considering licensing and implementing this solution. Strategic Sourcing Strategic Sourcing includes spending (or "spend") analysis, supplier scorecarding, negotiation and contract management. The biggest improvement in mysap SRM 3.0 is in supplier negotiation, given that SAP has lacked request for quote and auction functionality. Because this is new, major reference accounts are not available. However, enterprises can have high 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.
confidence in SAP's ability to refine and improve this function during the next 18 months. SAP was able to add this functionality quickly because the requirements are well-understood in the vendor community and easily replicated (as evidenced by the rapid expansion of other vendors, such as Oracle, PeopleSoft and Ariba, into this field). For the same reasons, the survey capabilities of supplier evaluation, which enable enterprises to consolidate survey feedback on supplier performance, will quickly mature. Sourcing Analytics, which is used for spending analysis, will not meet full user requirements or be as fast to mature for two reasons: SAP lacks proven tools (or services) needed to improve the quality of notoriously poor purchasing data, which is a critical part of spending analysis. Sourcing Analytics is delivered as a set of preconfigured reports. Preconfigured reports seldom deliver the flexibility or item-level information required for spending analysis. The effectiveness of this approach by all ERP vendors has been limited. mysap SRM 3.0's contract management functionality falls short of end-user requirements. mysap SRM 3.0 is able to record summary-level contract data that is useful for expiration tracking and tabular discount calculations. However, mysap SRM 3.0 does not provide the required document management, contract configuration or procurement office planning functions (see "Six Keys to Better Procurement Contract Management"). Operational Procurement Operational Procurement includes Self-Service requisition management, Services Procurement and Plan-Driven Procurement for consolidated purchase order (PO) processing. SAP has reached functional parity with best-of-breed competitors for self-service requisition management based on the quality of customer implementations, improvements in the user interface, configurable requisitions and the use of roles. mysap SRM 3.0's Plan-Driven Procurement function provides PO management in scenarios where other applications (for example, materials management, maintenance management or demand planning) generate demand information. mysap SRM 3.0 does a good job supporting PO processing because it is bundled with SAP's traditional purchasing application. Although this introduces implementation and maintenance overhead (for example, setting up and maintaining a copy of vendor masters or item masters), it provides several advantages, including: 1 July 2003 2
Flexibility: Users can process POs within the Operational Procurement module or Materials Management application, or some combination of the two. Centralization of PO processing: mysap SRM 3.0 can accept POs from other instances of SAP or other enterprise resource planning (ERP) applications through the use of an open demand interface (ODI). ODI is an application programming interface used to pull ordering information (such as demand plans, material requirements and scheduling information) from SAP and non-sap applications into mysap SRM 3.0. Enterprises should be careful in how they select and implement centralized PO processing capabilities. The value of centralization via mysap SRM 3.0 may be offset by the integration efforts required or by the summary data available from POs for subsequent analysis. SAP's applications for service procurement are new and untested. Human capital service procurement is the most mature because it relies on well-established application metaphors (for example, requisitions, time sheets, rate pricing and consolidated invoicing) that are understood by ERP and niche vendors. In contrast, mysap SRM 3.0's functionality for configurable service and complex service capabilities is more risky because requirements are in flux in this slowly developing market segment. Supplier Enablement Supplier Enablement includes a portal for supplier interaction and an integration broker used for message-based supplier integration. mysap SRM 3.0 includes a good set of tools for supplier enablement, namely the portal and integration broker of SAP NetWeaver. The integration broker is used for exchanging business documents (for example, an electronic data interchange PO) among internal applications, as well as between a buying organization and its suppliers. The SAP Business Connector, which is provided based on an original equipment manufacturer (OEM) relationship from WebMethods, is still supported and may provide a better alternative for some enterprises because of functionality and the way it is exposed to end users (see "Magic Quadrant for Application Integration Vendors, 2Q03"). mysap SRM 3.0 also includes a portal for self-service, unstructured communication and message exchange with enterprises that are unable to use document-based techniques. This tool will be effective in scenarios where buyers can coerce less-powerful suppliers to conduct business on their terms. The highest potential for the supplier portal lies beyond mysap SRM 1 July 2003 3
3.0 in the ability to tie multiple applications (for example, Accounts Payable, Materials Management and Advanced Planning Option) into a consolidated view that is accessible to suppliers. This will help reduce the training thresholds and administration overhead that are typically associated with extranet-style application extensions. However, the tools that SAP has assembled are only a partial response to the challenge of supplier enablement. Although tools help, complementary services, such as those offered by valueadded networks (VANs) and transaction delivery networks, are needed to increase the speed and reduce the cost of implementation. VANs typically deliver network services, integration services, application services and trading partner services (see "The 'Value' in Value-Added Network Services"). Although SAP maintains agreements with VANs, such as GE Global Exchange Services, it has not prebundled solutions to match customer needs. Value-added services will be required to speed the deployment of mysap SRM 3.0 across large numbers of suppliers and reduce long-term costs. Content Management Content Management includes an electronic catalog and an application used to improve the data quality prior to the spending analysis. mysap SRM 3.0 includes two applications for content management: Requisite Technology's Catalog Management and Content Consolidation using SAP's Master Data Management (MDM) product. These applications are used to maintain consistent representation of item data within self-service procurement catalogs and sourcing analytics. For detailed discussion of the challenge of maintaining consistency in the structure of item data, see "Product Content and Data Management Promises Savings." SAP's approach to managing master data via MDM shows promise, but it is at least 24 months from a release that is able to support global, large-scale deployments of heterogeneous purchasing environments. This will be a critical obstacle to the deployment of multiple applications within mysap SRM, especially regarding spending analysis where buyers require item-level or attribute-level information. Prospective mysap SRM 3.0 customers should consider complementing SAP with best-ofbreed solutions. SAP maintains an OEM relationship with Requisite Technology for catalog management. However, SAP's MDM initiative will cannibalize the Requisite partnership. Joint customers are 1 July 2003 4
encouraged to seek contractual protection against the demise of this relationship, including functional equivalence clauses. SAP positions mysap SRM 3.0 as a single solution with components tightly integrated to each other and to SAP NetWeaver. In reality, however, mysap SRM 3.0 bundles some older, established applications and some new, less-proven applications. Proof points of tight integration across all product sets are absent, even for previous versions of the SRM product. For these reasons, Gartner rates mysap SRM 3.0 as "promising." Thus, enterprises should not license or implement mysap SRM 3.0 based on the rationale of a single solution. Rather, enterprises need to evaluate each component individually, taking the time to speak with reference customers (where available) for each module. In addition, enterprises must assess their own ability to manage the business process change associated with implementing multiple modules. Figure 1 provides Gartner's summary view on the maturity of mysap SRM 3.0 modules. 1 July 2003 5
Figure 1 mysap SRM 3.0 Application Maturity Module Strategic Sourcing Operational Procurement Sourcing Analytics Supplier Evaluation Request for Quote/ Auction Function Contract Management Self-Service Service Procurement Description Provides analysis of historic purchasing activity based on business intelligence from the Business Warehouse technology. This new functionality includes scorecarding, survey and evaluation. Survey capabilities are useful for gathering qualitative feedback from end users about supplier performance. This product is a step forward in addressing long-standing gaps in supplier negotiation capabilities. Product supports requests for proposals, quotes and information, and multiple auction formats. This is new functionality and provides limited extension beyond SAP s Materials Management. This provides summary contract data such as expiration and discount table price look up. This e-procurement capability is much improved with a new user interface and requisition types. Support for purchasing cards and XML-based punch out is available. See below for catalog challenges. New functionality with three major capabilities: 1) time-sheet services are useful for human capital, 2) configurable services are useful for repetitive service buys such as copy repair and 3) complex services support the assembly of bills of service, which is similar to bills of material. Plan-Driven SAP Only Non-SAP Provides a consolidated location for processing purchase orders from multiple applications, including purchasing systems, requisition management and planning applications. Provides a buyer workbench for managing exceptions. Supplier Enablement Portal NetWeaver Connectivity Business Connector Provides suppliers with access to a consolidated view of enterprise buying processes and supports Web-based (electronic-data-interchange-supported) messages. Also provides some supplier self-administration with self-registration and accounts administration. Connectivity leverages SAP s NetWeaver technology for structured document exchange, such as electronic data interchange. SAP s Business Connector, a WebMethods product, is still supported. Content Management Catalog Management Content Consolidation Ratings Key Vendor has yet to develop or demonstrate functionality in the area; is not an active player Provides catalog infrastructure based on a partnership with Requisite Technology, including emerge for authoring and maintenance and BugsEye for end-user searches. Provides a data quality staging environment via search of master data, the identification of similar objects and data cleansing. Exports data to SAP s Business Warehouse for analysis. This will be most useful when data quality is high, structures are consistent and the data is contained only in SAP systems. Meets majority of requirements; good references are available Meets a few expectations or new and untested functionality Meets many expectations; missing some requirements Leadership status Capability is delivered via a partnership Source: Gartner Research (June 2003) 1 July 2003 6
What Users Should Do mysap SRM 3.0 is a complex and evolving solution. Enterprises should: Evaluate components individually. This will help to make clear solution limitations. Some functionality is new and untested, so expect the usual problems as business applications automate complex processes. Decouple licensing and implementation decisions. Test SAP's willingness to grant licensing discounts to early and aggressive adopters. Consider licensing the entire solution, but implement in a phased approach, delaying components of lower priority or maturity. Audit current licenses. The mysap licenses already held by enterprises may include some components of mysap SRM 3.0. Request revisions of the Requisite Technology licenses to protect your interests in the event of a dissolved partnership. Employ best-of-breed products where needed. Consider best-of-breed products because mysap SRM 3.0 products will be evolving during the next several years. Compare the offerings from best-of-breed providers in the areas of content management, contract management and service procurement. Enterprises should view mysap SRM 3.0 as a good framework on which to assemble the applications that meet their supplier relationship management requirements. Use service providers. Retain service providers to deliver VAN services and improve the data quality for the purposes of spending analysis. Budget carefully. Plan on spending substantial sums (between two times and 10 times the cost of the license) on complementary best-of-breed applications and the services needed for configuration, customization and integration. Include gap analysis and the services needed for deployment as part of return on investment (ROI) or project rationale. Product Strategy: SAP's strategy is to capitalize on its installed base by offering a set of process-focused applications to complement its Materials Management application and other modules, such as accounts payable plant maintenance, budgets and projects. Strengths: Breadth of solution 1 July 2003 7
Common architecture Configurability Process integration with other parts of mysap Challenges: Uneven functionality Limited customer adoption Incomplete service and support Lack of established "mind share" Consider This Product When: Enterprise is committed to mysap or R/3 Enterprise Portals and requisition management are priorities Tight integration is a requirement Consider Alternatives When: There is no commitment to SAP Bidding functionality is a priority The item data needed for catalogs and spending analysis is of poor quality Acronym Key ERP MDM ODI OEM PO ROI SCE SCP VAN enterprise resource planning Master Data Management open demand interface original equipment manufacturer purchase order return on investment supply chain execution supply chain planning value-added network Bottom Line: mysap SRM 3.0 will not address an enterprise's total supplier relationship management needs. Enterprises will need additional applications to enable it. Although Gartner would not consider any individual component to be "market leading," mysap SRM 3.0 will provide a framework on which users can build. We rate mysap SRM 3.0 as "promising." Enterprises with a commitment to SAP Purchasing or mysap ERP should add mysap SRM 3.0 to their shortlists, but budget for complementary applications and professional services. Anticipate high variability in the functional maturity of individual applications and capabilities within mysap SRM 3.0's applications. 1 July 2003 8