This week, I attended the Consumer Goods Forum in Chicago. The networking was great.
My takeaway is a serious concern by attendees on the impact of SAP RISE on global supply chains. Here I share observations and take aways.
Definition: “The RISE with SAP offering includes an AI-powered cloud ERP that’s managed and optimized by SAP. It provides services and tools built on the clean core approach by SAP, so you can migrate on-premise systems, transform business processes, drive continuous innovation, and unlock cloud agility.”
Source: SAP Website
The Discussion Not Held on the Stage
The main event at the Forum was not on the main stage. Instead, it was the discussions behind closed doors and over coffee. On the top of mind for many retail and consumer goods executives is the looming forced upgrade by SAP named RISE. The Consumer Goods Forum follows on the heels of Sapphire.
SAP is the maestro of charging customers for software upgrades. While their customers pay a hefty percentage (my typical client pays 15-22%) of the original licensing cost of the software license for maintenance, these forced upgrades are mandated outside of the maintenance contracts. So, one might think that the evolution of a new product named RISE would be a part of the maintenance agreement. If this is your thought, you are wrong. This forced upgrade follows forced upgrades for R3 to ECC 6.0 and ECC 6.0 to HANA. In the words of one participant, “Each of these upgrades cost us millions of dollars, and we received no incremental value.” He continued, “We just completed the upgrade to HANA. It was painful. And now they want us to migrate again to RISE? I feel like we are being held hostage. What happened to the concept of SAP providing maintenance?”
The industry is a buzz. I listened. Remember, I like my coffee black.
Definition: A software maintenance agreement, or SMA, is a legal contract that obligates the software vendor to provide technical support and updates for an existing software product for their customers. It may also extend the expiration date of certain features, such as new releases or upgrades. Source: AI Query
What To Do?
There are few options:
- Change Providers. One of the customers I spoke to is switching to Oracle. They feel burned by the HANA upgrade, and this is a tough decision for most executives.
- Stand at the Back of the Line. Another topic was how to delay the inevitable effectively.
- Use Third-party Support. Another investigated using a third party to support their current ECC 6.0 environment.
The answer is not easy. My advice for supply chain leaders is to maximize the value of current SAP assets by focusing on improving results through Forecast Value Added (FVA), Schedule Adherence, Analysis of Inventory Health, and Customer Service with a focus on On-time and In-Full Performance. Use simple approaches like Simplement to unlock data from the SAP prison for easy access by the business user.
Simultaneously, focus on lowering your dependency on SAP. While the traditional wisdom is buying more and more SAP applications to have one throat to choke, this assumes that anyone can get their hands around a greedy throat. Consider alternatives.
Market Pull
One of the most valuable advice from a CEO at the forum was an angry comment, “Don’t waste your time looking for value. This is an opportunistic cost play by SAP. There was no value in HANA, nor do we believe there will be in RISE.” This statement is controversial and not uniformly held across the average manufacturing or retail company.
The pull to invest will be decisive for the average supply chain organization. RISE will be a gravy train for the consultants with bench-strength SAP teams. Consultants will knock hard on doors to compete for the windfall of deals. Within an organization, the pull will also come from the SAP experts within their own IT organization. Most companies have hundreds of SAP specialists who will push this agenda.
My Concern
Today’s supply chain technologies investments are primarily a result of obsolescence avoidance. First, it was Y2K, followed by the shift from the mainframe to the client server. This was followed by the client-server to the cloud. In this evolution cycle, the focus is on IT implementing a project. A getting’er done mentality. This obsolescence cycle kills the opportunity to drive innovation. The opportunity cost to drive innovation is high.
My second concern is the lack of resources. Yes, the budgetary costs are high, but my worry is the opportunity cost to other programs due to the lack of trained resources. I would love to see innovation in supply chain planning, investment in networks, a reduction in the environmental impact of supply chains on the planet, and the building of outside-in processes using technology advancements like large language models, ontological frameworks, the graph, Vector DB/RAG and R/F#. RISE will consume capital and resources, delaying these investments. My frustration? We are rearranging the deck chairs and installing yet another forced upgrade to process transactions when we need to innovate.
My third concern is where and when does this cycle end? Forced upgrades and obsolescence outside of maintenance is an art SAP has perfected. My primary question is, “Where does this cycle end? When is enough enough?” Is it time to rise-up? And, if so, how?
I welcome your thoughts.
