As companies push toward greater operating and management transparency, systems like SAP SRM 7.0 will help create new levels of compliance to reduce costs and commercial risk (e.g., eliminating the possibility of doing business with a supplier that does not maintain the proper insurance levels or lacks specific environmental or diversity certifications that top-line contracts require).
But perhaps more important, at a time when the cost of capital for many organizations is at a 15-year high, systems like SAP SRM 7.0 can form part of the procure-to-pay foundation that enables companies to begin exploring ways to reduce working capital requirements.
More and more companies are looking for faster returns from their systems, scrutinizing total costs (and near-term ROI) more than ever. In this regard, SAP SRM is one of the few application modules that can actually deliver results in an 18-month window – and even faster in certain cases.
Moreover, business users and IT are working more closely than before to make decisions together versus selecting packages and defining end-user requirements in a vacuum.
Think about the real cause of IT's need to get closer to the business – CIO marginalization. To this end, CFOs are increasingly looking at IT as a place to reduce costs rather than to drive innovation or internal tech operating efficiency by targeting systems TCO. All of these factors point to the rising need for companies to prioritize SRM and procure-to-pay investments in today's internal IT climate.
SAP SRM overcomes shelf-ware problem
Procurement, for what will be the first time in many organizations, could be a significant beneficiary of this alignment with internal and external needs. In many companies, finding a place to hide all of the unused SRM "shelf-ware" – software that was purchased but went unused – was a significant problem.
But now, thanks to new capabilities resident in SAP SRM, not to mention the SAP partner ecosystem, the shelf-ware challenge should become a thing of the past. In addition, SAP is presenting a new face to procurement that represents a faster and less expensive option than ever before. From an on-demand perspective, SAP has finally listened to the market and developed both an internal and partner-based on-demand ecosystem to drive more rapid results and value (and what often amounts to lower TCO.
And from an analytics perspective, SAP can now claim to help procurement organizations not only with transaction efficiency, but with overall visibility into spending, strategy development and reporting perspectives as well. In other word, procurement finally has reason to talk to SAP (versus simply waiting for IT to consummate an arranged marriage).
SAP SRM 7.0 represents the culmination of a new major release cycle for the company. SAP's early releases of SRM were completely outclassed by competitors such as Ariba, Commerce One and Rightworks. From 2001 to 2003, SRM 1.0 suffered from limited workflow, catalog management and other capabilities that made it difficult to bring material portions of spend under management.
By SRM 4.0, SAP had solved many of these challenges. SRM 5.0, which came in 2005, layered on additional capabilities but was the last major release until May 2009, when SRM 7.0 exited the ramp-up program (SAP cancelled the SRM 6.0 release after numerous challenges).
Shortcoming of previous SAP SRM releases addressed
Let's examine some of the capabilities that are beneath the surface of SRM 7.0 – some of which are enabled by SAP partners – which address many of the shortcomings of previous releases that drive to the most important usage and adoption metrics (including spend under management, compliance, savings, etc.) Among these are the business benefits that an on-demand variant of SAP SRM can bring, many of which specifically overcome some of the weaknesses that remain in the traditional behind-the-firewall deployment model.
If you were to take at face value SAP's attempt at positioning SRM 7.0, it's unlikely that the enhancements would sound appealing. SAP claims that SRM 7.0 creates big improvements in three key areas: procurement excellence, services procurement and foundational investments. But to take this at face value would be to underplay many of the key enhancements of SRM 7.0.
What really matters in SRM 7.0 are some critical functionality and architectural enhancements that will change how users interact with the system. These include an enhanced portal framework for users to customize and interact with their own view into the purchasing environment. It also includes new workflow usage definition and UI enhancements (including a new work center/workspace).
New controls and exception-base management in SRM 7.0 help to enable strong centralized planning and decentralized execution. In addition, plan-driven and operational procurement enhancements help differentiate the product from its indirect spend-focused competitors like Ariba while improved control management, services procurement and sourcing and analytics enhancements push SRM 7.0 closer to parity with market leaders in core areas (albeit with varying degrees of success).
There are four categories of candidates for SRM 7.0.
- The first group of potential SRM 7.0 users includes customers of best-of-breed providers such as Ariba using a legacy installed version with an eventual plan to migrate off or sunset their current investments (on which they're most likely playing paying 18% to 22% maintenance.
- The second group of candidates currently use on-demand solutions from other providers such as Ketera, Coupa and Global eProcure.
- The third group, which will probably account for at least 50% of the SAP SRM 7.0 users in the next few years, are companies using previous versions of SAP SRM.
- The fourth group comprises companies considering the implementation of any e-procurement or procure-to-pay system, including SAP SRM, for the first time.
One challenge is that SAP SRM remains, even in 7.0, a system designed for internal users versus suppliers. As an example, the content and catalog management capabilities of SRM 7.0 in MDM remain insufficient when it comes to letting suppliers manage their own information and catalog data -- a key requisite to maximizing spend under management.
Moreover, SRM 7.0 requires that users upgrade their core ERP system to specified levels to gain access to key capabilities. But perhaps most important, SRM 7.0 still comes up short when it comes to driving significant and rapid ROI when compared with best-of-breed provides (which can deliver ROI in six to 12 months vs. 18-24+). In addition, SRM 7.0 still lacks many of the key features of more advanced invoice automation and electronic invoice presentment and payment (EIPP) solutions.
Fortunately, however, there is a straightforward way to overcome many of these challenges in SRM 7.0 in an installed environment: considering an on-demand option either as an initial migration or upgrade strategy or as a permanent approach. Many companies find that an on-demand approach not only overcomes many of the limitations of an installed approach, but also costs significantly less to manage on a total cost basis over a set period of time.
About the author: Jason Busch is Principal Analyst at www.spendmatters.com, a blog and research community dedicated to examining spend management issues such as procurement, sourcing, spend analysis and visibility, supply chain and lean. For additional insights on SAP SRM 7.0, visit the Spend Matters site or download the PDF of SAP SRM 7.0 -- The Wait's Over, But Is It Worth It? Making SRM a Total Cost Success in Your Organization -- Background, Tips, Strategies and Tactics (Plus On-Premise vs. On-Demand Costs and Trade-Offs).