Bar chart

Reducing Total Cost of Ownership with Cloud ERP Solutions

“Digital Masters are 26 percent more profitable than their industry peers and generate 9 percent higher revenues from their physical assets,” according to a Harvard Business Review Press publication, “Leading Digital – Turning Technology into Business Transformation.” In my recent posts, I’ve discussed ways organizations can become digital masters and achieve these success, and I’m continuing that discussion here.

With my last blogs, Part 1: Accelerate Time-to-Value and Part 2: Continuous Improvement,  I discussed major advantages businesses can achieve by replacing traditional ERP with cloud ERP solutions. This blog will focus on Reduced TCO.

Stay competitive in digital business leveraging cloud ERP to provide high performance processes and reduced TCO.

As we get started, there are a number of questions you might want to be consider:

  • How can I improve profitability or margin growth?(This the No. 1 question in manufacturing.)
  • How can I reduce my IT total cost of ownership (TCO)?(No. 1 question in industries such as mid-market, professional services, wholesale and distribution and No. 4 question cross industries.)
  • How can I lower my upfront cost?(No. 2 question in professional services and No 3. question in mid-market industry.)
  • How can I reduce my cost of capital funding?(No. 5 question across industries.)
  • How can I reduce the cost and efforts of ERP upgrades?(No. 5 question in mid-market and No. 6 question in professional services industry.)

As you reflect on those questions, also consider which of the following scenarios would best describe your current situation or plans regarding cost reductions within your ERP environment:

Do you have a strong need to improve operational efficiency? Even before transforming to digital business, operational efficiency is crucial in all industries to stay competitive. ERP solutions, including SAP, in traditional IT environments are notorious in their significant degree of customization and high total cost of ownership (TCO).

Rigid, previous-generation data center technologies make it difficult to manage costs. They impede the drive to meet customer expectations. And they cannot scale capacity to meet seasonal or changing demand.

The need to shift is clear and undeniable. Your business applications should no longer be deployed in monolithic, on-premise solutions. Instead you need to deliver business-relevant solutions that are agile and efficient, serving as a platform for innovation while delivering cost savings. On-demand models offer significantly greater advantages than traditional cloud deployment models.

As for IT resources, a cloud ERP approach allows organizations to focus on business services and accelerate the shift to digital business. It improves time to market by shortening the time to upgrade by months and executing pilot project schedules. It reduces TCO by optimizing infrastructure and core applications.

Regarding IT staff spend, this approach results in less need to pay for internal IT staff. All of the IT support and maintenance for the cloud ERP solution comes from the solution vendor. At the same time, subscription payment models make it much more feasible to utilize an ERP solution according to demand and without making a large, up-front capital expenditure.

If a digital business model requires an IT platform supporting customization, such as embedding new technologies to enable new features or significantly improving process efficiency, consider cloud ERP solutions provided as Application Platform as a Service (aPaaS), including respective DevOps capabilities (like DXC ESO for SAP). You can optimize process efficiency and reduce TCO by:

  • Applying automation to both the infrastructure and application layers to measurably reduce IT spend
  • Using Dev/Ops to eliminate manual steps; detect and correct negative incidents; and embed new technologies to enable new features
  • Reducing the time and expense of respective project deployment up to 25 percent
  • Saving up to one-third on SAP total cost of ownership through monitoring and automation
  • Applying pay-per-use economies, i.e. pay for SAP resources only when you need and consume them

Do you have a dispersed ERP landscape across multiple systems and business units or geographies? Are you looking for the ability to standardize your ERP with a single system across multiple entities?

Leading organizations choose to transform their existing ERP landscapes to cloud ERP and, if appropriate, with multi-tier architectures. With a centralized cloud approach, you also benefit from regular updates (across the entire ERP landscape), which supports best practices, regulations and emerging technologies.

Similarly, TCO savings could be realized by an optimized infrastructure and core applications, while IT support for operations, maintenance and updates is provided by the cloud ERP solution vendor.

As this scenario is about consolidating and standardizing data repositories, processes and users, a centralized cloud ERP solution helps to achieve significant improvements in operational efficiency by providing enhanced capabilities as follows:

Figure 1: Cloud solutions enable improved collaboration, decision making and agility (turned into efficiency).
Figure 1: Cloud solutions enable improved collaboration, decision making and agility (turned into efficiency).

Enhanced visibility enabled by centralized cloud ERP and integrated new technologies (such as IoT sensors) provides manufacturers with valuable insight into processes. This leads to more informed decisions, agility and efficient operations. Manufacturers can better trace materials, monitor quality and compliance and understand the components of profitability.

Wholesalers and distributors can more effectively react to demand signals from customers and work with suppliers to receive products when they are needed. Similarly, services organizations can use this information to staff more effectively.

The ability to share and integrate data with the extended enterprise provides the professional services industry with greater analysis capabilities, including the ability to study important metrics such as profit margins.

Centralized training, support portal, as well as management of work instructions, documents, best practices and reports provides to mid-market enterprises reduced cost for field technicians. This enables first-time fix and better customer service.

Retail customers could take advantage of new features related to online sales or food and beverage customers could look to ensure emerging compliance regulations are supported.

Are you planning for a major SAP release migration? A major SAP release migration can take 18–36 months in a traditional and highly customized environment, while migration to a cloud-based and more standardized SAP could take 6 months or even less.

Are you keen to transform to S/4HANA, but fearful of a large-scale transformation program? Starting the migration from a cloud-based SAP implementation could significantly simplify the project.

Having migrated your traditional SAP environment onto a DXC ESO for SAP environment, you will benefit from dedicated business value realization, shortened project time and reduced project cost. DXC ESO for SAP can help to accelerate your S/4HANA journey and reduce project investment by over 30%.

The key benefits you will gain from undertaking a migration starting from an DXC ESO for SAP environment include:

  • A simplified IT infrastructure, reduced costs, shared and improved services
  • Projects delivered in weeks and months rather than months and years
  • A transformation of your SAP solution to a digitalized business platform

Do you want to exploit new technologies to implement new features with cloud ERP (e.g. SAP) for process improvement? Then let’s talk about how emerging technologies enable new capabilities to work and do business, and how those new capabilities reduce cost or improve efficiency.

Leading organizations are:

  • 4x more likely to have mobile access to ERP, allowing users across the organization to interact with data in more ways than ever before. Faster communication reduces process cycle time and cost.
  • 7x more likely to employ business analytics integrated in ERP, enable users to make more informed, predictive decisions based on data contained within ERP. Better decisions lead to better quality and reduced cost due to reduced level of failures.
  • 4x more likely to use eCommerce integrated into ERP/order management to enable the organization to reach customers in new ways, expanding the potential customer base. Costs go down due to the use of digital channels to reach out to customers and shorter process cycles.
  • 6x more likely to apply social business capabilities integrated into ERP in order to enable their users to interact with ERP in new ways, similar to how they communicate in their lives outside of work. Costs are reduced due to quicker and broader communication on best practices and failure experience.
Figure 2: Emerging technologies help your business improve process efficiency.
Figure 2: Emerging technologies help your business improve process efficiency.

 

Supporting an agile and cost effective digital business

Let’s now look at the business perspective, and how a cloud-based ERP solution can improve the operational efficiency of a digital business by reducing the cycle times of process flows, providing information and real-time data for decision making and connecting process parties no matter where they are.

Aberdeen Group[1] [2] [3] [4] [5] has researched how much better cloud-based ERP is at supporting various business outcomes (KPIs) than traditional ERP. We consolidated the results from various Aberdeen studies into a single table and graph (see Figures 4 and 5). In this article we focus only on KPIs that contribute to Reduced TCO.

Across industries the following business outcome improvements have been identified (see Figure 3).

The benefits of a cloud ERP solution can be determined by evaluating the business outcomes (KPIs) from cloud solutions with those from traditional on-premise solutions. Those with cloud solutions perform better in regards to operating costschedule compliance and on-time delivery. Via access to information no matter where employees are, decision making is improved as well as agility and quality of execution.

Overall this leads to improvements in the cycle time of key business processes, followed by improved operational efficiency materializing in increased profit margins. These data points provide a compelling argument to make the cloud deployment model your choice for your next ERP implementation.

Figure 3: Improved business outcomes with Cloud ERP
Figure 3: Improved business outcomes with Cloud ERP

The business outcome (KPI) improvements from the use of cloud ERP vary across industries (see Figures 4 and 5).

In regards to Reduced TCO, Manufacturing and Professional Services are the industries most successfully adopting cloud ERP.

Manufacturing gains with factor of 9 for improvement of “profitability,” the highest improvement score across all assessed industries. That’s not surprising given the factor of 4.3 has been reported for improvement in “productivity for the past two years”. Contributing to the picture is a factor of 2.3 for improvement in “percentage of time information is received in time for decision making.” That underpins the high-degree process cycle time improvements, which lead to operational efficiency.

Professional Services show across all reported metrics — “complete and on-time delivery”, “internal schedule compliance”, “percentage of time info received in time for decision making”, “operational cost and profitability” — high values of improvements, in the range of factors 1.6 up to 3.6.

Wholesale & Distribution gains a factor of 3 for improvement in “profitability” and a factor of 2.5 for “percentage of time info received in time for decision making”, while factors of 1.1 are achieved for improvement of “complete on-time delivery” and of “inventory accuracy.”

Mid-market shows a factor of 3.2 for improvement for “percentage of time info received in time for decision making” and a factor of 2 for improvement for “operational cost”, while a range of factors (1.3 up to 1.9 improvements) are reported for “complete and on-time delivery”, “internal schedule compliance,” and “operational cost.

Figure 4: KPI improvements from cloud ERP vary across industries
Figure 4: KPI improvements from cloud ERP vary across industries

 

Figure 5: KPI improvements from Cloud ERP vary across industries
Figure 5: KPI improvements from Cloud ERP vary across industries

 

To conclude, overall cloud ERP provides solid if not outstanding improvements for a couple of KPIs having impact on “reduce TCO” across selected industries. We will discuss other KPIs, such as resilience, up-time, time-to-resolution, in the following blog.

Learn more about our offering

[1] Cloud ERP’s Time has come! Nick Castellina, Aberdeen Group, July 2016

[2] Cloud ERP in Wholesale and Distribution: Driving Success Across a Wide Network; Nick Castellina, Aberdeen Group, February 2017

[3] Improve Your Midmarket Business Operations With Cloud Applications; Nick Castellina, Aberdeen Group, September 2014

[4] Cloud ERP Provides The Upgrade Your Professional Services Firm Needs; Nick Castellina, Aberdeen Group, October 2015

[5] ERP’s Role In The Modern Manufacturer: Supporting The Needs Of Industry 4.0; Nick Castellina, Aberdeen Group, February 2017

Joachim Mayer

Author: Joachim Mayer

Joachim Mayer is the DXC global marketing manager for continuity services and Enterprise Solutions On Demand for SAP. With prior experience in product management, sales enablement, sales, and consulting he provides insight from this diverse experience in this blog.