Benefits and tradeoffs of on-demand SAP SRM

Most companies that deploy SAP SRM on-demand reap savings, but they face reconfiguring challenges as well as the risk of delegating responsibility for strategic supplier management processes to a third party.

On-demand versions of SAP Supplier Relationship Management (SRM) provide almost all the same capabilities as the installed version of SAP SRM, except for the ability to customize and configure the system at a truly granular level.

More information on SAP SRM
Learn more about how SAP SRM 7.0 bolsters firms' procurement processes.  

Learn more about the benefits of implementing SAP SRM.  

Get an understanding of the supply process and concepts in SAP SRM.

For some SAP SRM users, this might turn out to be a plus: The more an organization moves toward a completely customized package, the more likely it is to move away from accepted best practices.

Regardless, SAP SRM on-demand can provide a complete solution along the lines of an installed SRM deployment, including the ability to search catalogs, create requisitions, manage approval workflows and order management, receive goods, monitor order status, oversee basic invoicing and approval processes, and reconcile invoices on the back end.

On-demand SAP SRM users can also take advantage of many of the same capabilities that users of other hosted and network-based solutions enjoy, including:

  • Capabilities and services to streamline the supplier enablement process.
  • An online supplier network and connection hub for document exchange and management.
  • Holistic content management capabilities (built around the need for both buyers and suppliers to interact with and take ownership of different types of information).
  • Invoice automation functionality that extends the basic capabilities of core ERP and SRM components.

Considering SAP SRM deployment

Procurement departments and IT organizations should also take into account several deployment considerations in their evaluation process of behind-the-firewall or hosted models. These include deployment costs tied to software and hardware, such as software licenses, database licenses, operating system software, hardware, and hardware installation. They also include costs tied to professional services that an organization would otherwise have to purchase, such as software installation, configuration/customization, implementation services, supplier on-boarding, catalog formatting, and loading.

In performing these calculations, one must consider the time value of money and acknowledge that many installed deployment times are measured in years, not months or quarters. Companies should also factor in recurring supplier management costs, such as automating and managing document exchange (e.g., PO, ASN, invoice), once a system is running.

On-demand procurement-to-pay systems can introduce significant ongoing benefits and savings. In addition to reducing IT overhead and foot-dragging (e.g., "You'll need to wait until next week for that new direct supplier connection"), on-demand SRM systems can provide a lower TCO over a longer timeframe.

On-demand procurement-to-pay systems also deliver a range of soft benefits, from around-the-clock service and support (for buyers and suppliers) to shifting the burden of catalog and content management to a third party rather than making the IT department or procurement organization own a time-consuming process.

Most important, on-demand approaches nearly always accelerate spend under management, as measured by the number of catalogs enabled, the number of suppliers, overall percentage of spend capture, and ongoing reporting and analytics.

In the case of SAP SRM 7.0, customers can take advantage of the latest SAP technology, regardless of which version of SAP ECC they're running on the back end (albeit with some limitations around services procurement and contract management). In today's climate of delayed ERP upgrade cycles, this last point represents yet another reason for companies to explore the on-demand SAP SRM option.

Challenges of an SAP SRM on-demand approach

On-demand approaches to SRM -- and procure-to-pay in general -- come with their own set of challenges. Companies must often reconfigure their own processes to adapt to the customization and configuration limitations of on-demand providers. And when choosing to work with an on-demand provider, risk-averse organizations must find a way to get comfortable with delegating responsibility for key strategic supplier management processes to a third party, not to mention agreeing to limit their choice to work with multiple providers in areas such as supplier enablement, content management, and search.

Taking the on-demand route requires plunging in head-first with a single key provider rather than hedging bets between multiple options and partners. For some organizations, the long-term TCO equation of on-demand providers can actually be higher than for installed software (though in the case of procure-to-pay and SRM, this is rare, given all the external and internal supplier management costs). Finally – and this limitation is critical in complex heterogeneous environments – the on-demand option will also limit integration capabilities relative to highly customized deployments.

Graham Packaging significantly increased the levels of spend it was able to bring under management by migrating from an installed to an on-demand model.
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Which companies are best suited to consider the SAP SRM on-demand option? One group is obvious. Any company considering an SRM deployment should at least investigate the on-demand option, examining how it can help overcome many of the supplier enablement and adoption hurdles posed by behind-the-firewall approaches.

Less obvious is the second group of organizations that should consider SAP SRM on-demand: SAP customers already using SAP SRM. Spend Matters research shows that at least one former SAP SRM user, Graham Packaging, significantly increased the levels of spend it was able to bring under management by migrating from an installed to an on-demand model.

Based on this analysis, Spend Matters recommends that:

  • All companies considering an SAP SRM 7.0 purchase or upgrade decision should investigate on-demand options available to them.
  • Organizations should determine whether they are a good fit for an on-demand implementation based on many factors, including organizational and systems structure and complexity.
  • Both procurement and IT evaluate other options to reconfirm that SAP SRM 7.0 (and on-demand) is the right decision.
  • Companies build a business case examining all the cost factors that go into not only an SRM implementation but the ongoing lifecycle requirements of a solution over a three- to five-year timeframe (for both installed and on-demand options).

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 techniques. 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).

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