Moving Beyond Production Towards a Service-Oriented SAP Paradigm

The writer is Klaus-Christoph Mueller, Senior Expert Global Industries, itelligence AG

Looking on nearly 40 years of history in the ERP market, we have actually come a long way. From the original Production Planning Systems connected to finance and controlling to the highly functional and complex solutions of today, a stunning success story has taken place.  Not only the inventors were completely overwhelmed by the possibilities of today: Especially for production companies of all kinds there is hardly any functionality which is more or less available “off the shelf” in terms of software solutions.

But we should ask ourselves, if and how this current situation will continue. For me it seems that this production-centric approach has to come to an end sooner or later. Most of the ERP systems are still relying heavily on production integration in the logistic lifecycle.  In other words, they are seeing the world from the perspective of a company that is mainly concentrating on producing every kind of goods.

But is this still the right perspective for the future?

I will give you a short explanation of what I mean.  SAP is by far the market leader in the ERP field with an extremely high penetration rate. There is, however, a downside. Especially in the German market, at least from the larger company’s perspective, the market is mostly saturated. Nearly all companies already have an ERP solution in place and new projects often are simply replacements, release changes or added functionality instead of start-from-scratch opportunities like in the “golden days” 15 years ago.

If this only presented a problem for software and consulting services, it wouldn’t be that relevant. However, the missing chances for future growth have a direct impact on our customers. In times where the financial markets are asking for double-digit return on equity due to a very intense competition, core production is hardly achieving such challenging margin goals.

So the production-centric approach has to come to an end, equally regarding the markets from our customers’ perspectives, as well as that of ERP vendors and their partners in the eco system. Addressing and supporting new markets is the solution for potential growth for our customers as well as for SAP and ERP vendors.  These new business opportunities include professional or value-added services (like e.g. financing or rental offers) or integrating with downstream activities along the value chain. These are areas where the competition is focused on service and value, rather  than on cost.  Hence better margins could be achieved.

One example is the rising importance of rental offerings, as well as an outright service on its own or as a supplement to existing offerings. Rental business has become a big industry over the last decade with high further growth potential and a revenue of more than €20 billion  in Europe alone. (source: European Rental Association). This business was entered by many original equipment producers which want to tap new business opportunities or who simply had to follow the demand of their customers for more flexibility, wishing to rent rather than own the equipment.

So the good news for customers and ERP consultants is: There is a large potential for growth. Follow your respective customer in addressing new business opportunities with new functionality (not necessarily new products). In the ERP market, SAP as a very active player that started with building specific industry solutions or even additional products like Dealer Business Management for car dealers  This particular solution  addressed the special requirements of selling and servicing cars in the end-customer business. This included also the development of a complete new customer-triggered service order process. Other good examples for the shift of perspectives from a pure production orientation towards an end-to-end solution are the developments in Product Lifecycle Management (PLM) or the integrated view on the customer and all its related activities with Customer Relationship Management (CRM).

This development has started already some years ago, but from a practical perspective we see that the challenges are still rising and solutions are not always obvious, with challenges including:

  • How to keep pace with the broad variety of processes due to the individual character of the offerings serving as a differentiator to the competition?
  • How to keep track with the flexibility in adding new services and deleting others “on the fly”?

These are real challenges to be reflected in the ERP system, especially if it should be coupled with  good usability and low costs and the complexity kept at bay, in particular for smaller and midsized companies. So at itelligence we have developed several individual functionality add-ons especially for our small and midsized customers. (My colleague Wolfgang Harbaum mentioned some of the challenges and answers in his blog entry as well).

But what is even more important is to find out an ideal way through the very widespread offerings of the SAP Business Suite in order to consult the customer. So even if we don´t have the right solution “on the shelf”, it will become more and more important to open up the mindset from the existing scenario set and to find out new combinations and approaches out of the existing portfolio.

The history of ERP is closely related to SAP and its modular approach. I think it is the best basis and flexible enough to cope with today´s requirements and challenges.  However,  it does require a new approach to leverage this potential to the full extent. Also,  sometimes SAP reminds me of a bottle full of pure malt whiskey: If you are left alone with it, you are either taking it nip by nip and then it is a pure pleasure. If you down it at once, you should either be an expert in drinking or….

We should rather find an intelligent way to take the best out of it, reducing the complexity for our customers and opening new business opportunities in a saturated market. This will require a fresh, clever approach taking the opportunities of the SAP modules, but opening the perspective far beyond this modular or production-oriented mindset.

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