SAP HANA on Cloud: The Opportunity for SMEs to Build Sustainable Competitive Advantage
With growing competition, increasing operating costs and new regulatory reporting challenges, the Indian SME sector has been under significant pressure over the last few years. At the same time, with the rise of digital media, SMEs have also gained the opportunity to access new markets, leverage a global supplier network and build global best practices in various processes like procurement, supply chain management, CRM and revenue cycle management.
Larger SMEs (with annual turnover in the range of Rs. 100 crore to Rs. 1000 crore) are also looking at ERP implementations as a way to bring much needed process efficiencies, incorporate global process benchmarks and lower production turnaround times. ERP technology has simplified enormously over the last decade, and there are many packaged ERP products that can be quickly deployed and easily managed. Forerunners in the SME sector today have the awareness, exposure and the technical ability to deploy and manage ERP systems.
Balancing Capability, Complexity and Cost
The sheer diversity of the SME ecosystem is a core challenge that is very difficult to address for any packaged ERP product vendor. Even within industries, there are often such large variations in processes and standards that it is difficult to create a standardized package to meet every need.
Of course, many of the packaged ERP products may not include all the capabilities and features available in large EMP implementations, but generally have enough to get organizations started towards process standardization and automation. There is a great need for organizations to go beyond basic functionality and leverage powerful new ERP capabilities like supplier collaboration and predictive analytics. However, this would require considerable changes to existing processes, team structures and governance models. The added complexity and resultant cost increases are reasons why SMEs are still apprehensive about implementing ERP systems with best-in-class capabilities.
Let’s take the example of the Indian automotive industry, a complex ecosystem of OEMs and parts suppliers who face persistent challenges around cost control, supply chain innovation and scalability. In an uncertain economy, demand forecasting, supply chain efficiency, quality control and regulatory compliance become critical to companies in this space. ERP systems often need to be highly customized to manage specific inventory tracking, traceability and supplier relationship management needs. Other important areas include making the revenue cycle management more efficient by minimizing the paper trail and introducing greater automation in the inspection and approval process.
Many of these processes are so unique to the Indian automotive industry that they need to be handles using specialized tools and reporting software. A large number of processes continue to be manual, and paper based, requiring significant transformation and process reengineering. Custom ERP packages often do not meet such specialized requirements. However, the cost and complexity of customization is often prohibitive and is a deterrent.
SAP HANA on Cloud: Enabling SMEs to Go Up the Maturity Curve
In a vastly competitive landscape, where SMEs have to go head-to-head with global organizations with immensely deep pockets and high ERP maturity, the challenge is twofold.
- SMEs need to match global benchmarks in terms of process turnaround times, supply chain agility and real-time decision support
- In the absence of equitable scales, SMEs need to further optimize their cost structures and keep working on supply chain optimization
This is where a next-generation ERP system like SAP S/4 HANA can help SMEs get a head start over larger organizations. HANA is a new database architecture that allows in-memory analytics. This is a completely new capability that has been developed from the ground-up, and is not available in earlier SAP products like the R/4, which are based on traditional relational databases. HANA claims to provide ‘unprecedented insight-to-action capabilities’, to help you solve complex business problems.
Now, while organizations are free to implement and run SAP HANA in their own environment, this often involves very high investments in SAP certified infrastructure. Effective in-memory analytics requires highly resilient memory (RAM) and much higher processing power, as compared to conventional relational databases. Over time, as the scale of data and depth of functionality grows, in-memory analytics will require greater investment in memory and processing power.
This is where SAP HANA on cloud comes with prebuilt components to address cost and complexity concerns of SAP implementations, without needing make large investments in infrastructure and software licenses. While the public cloud version of SAP S/4 HANA has been available for some time, SAP recently launched the SAP S/4 HANA Cloud, Private edition, targeted at the SME sector. According to SAP, the private cloud version offers “standardization, TCO and scalability of the cloud combined with the full functional scope, extensibility and geographical reach of the S/4HANA on premise solution.”
Organizations can choose a single package that provides a unified license, platform, infrastructure services and enterprise support, for both the private and public cloud options. According to SAP, the private cloud option provides enterprise-class security features and very quick implementation (as short as s few weeks). SAP offers two different approaches for deployment of its cloud ERP – Appliances and Tailored Datacenter Integration (TDI). The more commonly used Appliance method involves implementation of preconfigured appliances, managed and supported by SAP and its certified infrastructure partners. The TDI approach involves implementing SAP licenses on certified SAP infrastructure, that may be on-premise or through a managed infrastructure provider.
Key Takeaways for SMEs
The fact that SAP sees cloud as a dominant component of its ERP strategy means that SMEs that use the SAP HANA on cloud will be at an advantage, as compared to on-premise ERP installations, in the future. This is quite evident from the fact that the SAP Activate methodology for SAP S/4 HANA implementation, launched in 2016, lays greater emphasis on the cloud variant (4 of the 6 implementation tools in SAP Activate are related to S/4 HANA on Cloud).
From a capability standpoint, SMEs can gain tremendously from state-of-the-art features that are part of the SAP HANA offering, including:
- Powerful, real-time analytics and data processing, courtesy in-memory technology
- Dynamic displays and prebuilt libraries that provide deep insights and allow better, faster decision making
- Identifying trends and deriving value from large, unstructured data sets using big data processing and predictive analytics tools
- Ability to create business simulations and use statistical models to calculate risk
- Flexibility to scale their storage and compute power as needs evolve
- Benefit from centralized updates and product enhancements