how to hear the answer “yes” for your sap initiative building a business case and roi...

How to Hear the Answer “Yes” for Your SAP Initiative

Building a Business Case and ROI Justification for Your SAP Initiatives

Introductions

Jack SpringerJack has been involved in ERP consulting for the last seven years, assisting clients in

determining the appropriate solutions that deliver return on investment. Previous consulting projects have involved Business Case and ROI Rationalizations, business strategic planning, acquisition and divestiture strategies, project planning and management throughout the full SAP implementation cycle, including strategic planning, analysis, design, development, and implementation.

Prior to consulting, Jack has over 15 years of experience as V.P. of Finance and CFO in the Discrete Manufacturing and Retail industry sectors. He has worked in multiple computing environments. He possesses extensive functional expertise in financial, manufacturing and distribution systems in a variety of industries, including medical products manufacturing, discrete, repetitive and process manufacturing, consumer products, distribution, and others.

Jack has led multiple business process reengineering activities and ROI Rationalizations for initiatives during his career within industry and consulting. In Q1 of 2002, he was the featured speaker in the “Achieve Tangible Returns on Investment’ Summit, held in ten cities across the United States. This Summit was sponsored by Microsoft, HP and SAP.

Agenda

• IntroductionIntroduction• The State of Business Has ChangedThe State of Business Has Changed• The Business Case is Critical to “Yes”• A Successful ROI Approach

– Case Study on ROI Rationalization for an Upgrade

– Case Study on ROI Rationalization for SCM

• Questions and Answers

Today’s Business Drivers are Different

The State of Business has Changed

Business Drivers Necessary ResponseBusiness benefit and value is a priority and must be immediately evident

Every initiative must focus on how the business will be supported and improved

Poorly executed SAP initiatives have made organizations sensitive to return on investment

The business and executive management must clearly see tangible return combined with a mitigation of risk

Companies are striving for competitive advantages

An initiative in SAP should extend a current competitive advantage or create a new competitive advantage

Every organization has many initiatives competing for the same budget dollars

You must take a different approach and justify your initiative differently than your internal competitors for the same budget

The Decision Process has Changed


The hottest issue for business and IT initiative today is whether ROI exists for the initiative

– ROI is rapidly transitioning from a buzzword to a discipline

CFO’s are involved in nearly 85% of all business and IT initiatives

– As a key influencer (58% of the time) or with final approval (27% of the time)

– CFO’s require a different approach because of their objectivity and their immense respect for discipline, facts and concrete information

– 86% of CFO’s use financial metrics to prioritize business and IT initiatives

– Important metrics include TCO, ROI, IRR, NPV

Executives Make Decisions Based on Winning in Multiple Dimensions


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Marks Stars

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Value Proposition

Investors Customers

Operations

Core Competencies

Today, it is Necessary to Speak Executive Language


Infrastructure (Technical)Cost Avoidance &

Risk Mitigation

Processes &

Functionality Cost Reduction & ROI

StrategicROI and ROO

Your opportunity for approval increases in relation to the ability to move up the pyramid to supporting strategic objectives that the executives own.

Agenda





When is a Business Case Necessary?

The Business Case is Critical to “Yes”

A Business Case will probably be necessary for acquiring approval and funding for the following circumstances and initiatives:

– When the investment will exceed a low, internal threshold

– Implementation of new SAP modules and functionality needed to support the business processes

– Upgrades to Enterprise or 4.6

– Strategic next generation tools (SCM, PLM, CRM, BW, SRM, SEM)

– Centralization versus Decentralization opportunities

What Comprises a Business Case?


The Business Case comprises one or more of the following solutions– Business Benefit Analysis (Required at a minimum)– Strategy Roadmap Prioritization– ROI Analysis and Rationalization

Organizational questions that are answered include:– What are the business reasons and benefits for:

• Specific modules and functionality within SAP?• Upgrading to Enterprise or 4.6?

– How can the initiative support the strategic objectives of the organization?

– What is the tangible ROI?– How will the initiative support business processes?

Integrated Building Blocks to a Successful Business Case


A Business Event not a Technical

Event

Access is a Must Have

Focus on Competitive Advantage

Build it Around Your Business

= Approved

Characteristics of a Successfully Managed Business Case


Deliverables result from a clear directionDeliverables result from a clear directionfor the Business casefor the Business case

Set the correct expectations with theSet the correct expectations with the

businessbusiness

Business experts with strong process Business experts with strong process knowledge are a requirementknowledge are a requirement

Maintain a sharp focus for quick-hittingMaintain a sharp focus for quick-hittingresultsresults

FocusFocus

ExpertiseExpertise

ExpectationsExpectations

DeliverablesDeliverables

A Suggested Business Case Approach


Execute DiagnosisMobilization

Phase Two Phase Three Phase One

Objectives

Deliverables

• Identification of basic business processes and sub-processes

• Baseline business benefits identified

• Gather process, functional, technical, and financial data

• Identify and document business benefits and ROI by business process/functional area

• Benefits analysis and defined ROI opportunities

• Identification of benefits aligned to business needs and processes

• Kick-off Meeting

• Identification of key stakeholders

• Clear plan of action

• Alignment of expectations to work scope

• Mitigation of surprises

• Opportunities and points of pain

• Cost of ownership and ROI opportunities

• Preliminary Business Case

• Understanding of how the initiative will support the business processes

• Business acceptance of the initiative (s) in the process areas

• Finalized Business Case and delivery to management

• Strategy Roadmap prioritizing business needs and timeline

• Assurance the initiative supports strategic and tactical objectives

• Business reasons for the initiative that can be tracked

Benefits



Activities

• Plan site visit (s) and logistics• Identify business processes and sub-processes• Identify the Stakeholders, Process Owners and Action persons• Plan and schedule interviews• Establish preliminary list of KPI’s per process• Begin collecting ROI detail (P&L, Balance Sheet) if ROI Rationalization

is part of the Business Case• Confirm current hardware and technical landscape• Plan and execute the Kick-off meeting





Activities• Conduct site visit (s) for process review• Identify manual versus automated processes today and what can be automated• Interview Stakeholders, process Owners and Action personnel• Document the areas of pain and how the initiative will provide business relief

and benefit• Analyze the technical environment• Identify obstacles and constraints• Begin building the Business Case containing business benefits, Strategy

Roadmap, agreed to ROI metrics, technical recommendations, training and change management recommendations and cost of ownership metrics





• Finalize ROI opportunities as agreed• Confirm Strategy Roadmap (including recommended prioritization and

timeline) that will provide significant benefits and support your strategic objectives

• Finalize cost of ownership for the initiative (s)• Complete Business Case and present findings to management



Activities

Deliverables from a Business Case


• Kick-off meeting

• Confirmation of business processes and sub-processes

• Baseline benefit areas identified

• “Points of pain” and opportunities identified from the business process site visit reviews and interviews

• Specific recommendations regarding:

• SAP

• Change management & Training

•Business processes

• Preliminary Business Case information

•Cost of ownership

• Finalized Business Case per engagement scope

• Delivery of Business Case presentation to management

• Gross & Net ROI and other metrics required

• Strategy Roadmap



The Holistic View of a Strategy Roadmap


AprilMarch May JulyJune Aug Sept

SAP GAP Analysis & Recommendations Complete

Oct Nov Dec Q1 Q2

2003

SAP Functional Enhancements

Establish Steering Committee and Business Process Leadership Council

Warehouse Best Practices & Optimization

Q3 Q4 Q1 Q2 Q3 Q42004 2005

Reporting Strategy & Implementation

Product Costing & COPA

Global Harmonization Strategies and Actions

Planning Optimization (3 months)SD Continuous Improvement, Production & Procurement Optimization

PCA

Capacity Planning (2-3 months)

RF Integration with SAP

Agenda





Characteristics of Successful ROI Rationalization

A Successful ROI Approach

Executed correctly, will allow an organization to evaluate their return on investment and cost of ownership

Can be as extensive or as targeted as desired

The focus is on substantive, tangible ROI

The ROI Analysis should focus on your P&L and Balance Sheet and should be specifically applicable to your organization

Focus on Hard Dollar ROI from Multiple Sources


The days of ‘Faith Trip Justification’ are dead and gone– “X minutes of additional productivity per day” = ‘Just Trust Me’

If ROI is not built from the bottom up and tied to the financial statements, it is an erroneous approach

ROI will derive from:– Reductions in inventory– Reduced cycle times– Decreased cost of ownership for system costs– Costs of production– Headcount reduction and realignment– Lower freight and transportation costs

Shareholder Contribution Analysis


Metrics• Market Share

(units, $)

• AverageUnit Price

• Sales per R&D $

• Gross Margin

Financial Contribution

ROIC

Revenue

Costs

Profit

Volume

Price

R&D

COGS

SG&A

Inventories

Receivables

NetP,P & E

InvestedCapital

NetWorkingCapital

Payables

Delivered through SAP and business

processes

• Indirect unit costs

• A/R Days• Write-offs

• RM, WIP, FG DSO

• RM unit costs

• Increased turns

• Days Payable

22


Case Study: ROI Rationalization

for Upgrade

Case Study: ROI Rationalization for Upgrade


In October of 2001, IT management included an upgrade in the Fiscal 2002 Budget– The upgrade was seen as a cost by business process owners and

Executive Management– Only 20% of the requested IT budget was granted and the upgrade was

‘killed’ during the first round of the budgeting process

In September of 2002, the upgrade was to be included in the 2003 Budget request– The ‘going in’ IT budget exceeded available dollars by 250%– Only high priority requests across the entire organization that

demonstrated tangle business benefit would be approved

Using the proven approach, a Business Case, followed by an ROI Rationalization was conducted to validate the business value of an SAP upgrade– The Business Case identified immediate opportunities in the 3.1i version– Documented 124 specific business benefits– Detailed 12 hard dollar ROI benefits for four business processes



Invested Capital

Net Working Capital

Net PP&E

ROIC

Profit

Revenue

Costs

Fixed Costs

SG&A

COGS

Inventories

Business Objectives: Identify Business Benefits for an SAP upgrade Specific ROI rationalization in four business processes



Fixed Costs

Enabling Technologies ROIMetrics RationaleConstraints

BusinessProcess Enabler

SG&A

COGS

Reduction of fixed system costs and maintenance

Elimination of headcount

Reduction in “No-charge” shipments

Elimination of interfaces

Reduction in headcount and overtime

Reduced transportation and freight costs

Freight costs in Contract negotiation

SAP WM

SAP 4.6c enhanced functionality

SAP 4.6c enhanced functionality

Inventory Mngt & order Fulfillment

Order Fulfillment

Order Fulfillment

Order Acquisition

Transportation

Change management & training

Change management from manual to SAP automated processes

Specific process improvements

Replacement of Catalyst with integrated WM reduces system and maintenance costs

Elimination of subsidiary system and maintenance results in a net reduction of $151,000, annually

Elimination of headcount for manual picking bundles

Elimination of headcount for manual hazmat process

$37,000 annually

Specific interfaces to be replaced with 4.6

Distribution overtime will be reduced by 15%

CSR headcount and overtime reductions from 4.6 customer service functionality

Transportation and freight optimization enablements will yield identified cost reductions

$10,000 impact from “No-charge” shipments

$16,000 reduction for interface

$12,500 reduction in Sacramento Distribution O/T

$84,500 reduction in CSR headcount and overtime

$2,115,000 through optimization of air/ground and skipping decisions

$75,000 improvement in lost margin from Contracts

None





Inventories Reduction in FG

inventory buffer stocks as a result of bad processes and tools

Forecasting, SOP tools in SAP 4.6c

Forecasting Process change improvement and acceptance

$770,000 reduction in buffer FG inventory related to SAP forecasting improvement


Case Study: ROI Rationalization

for SCM

Case Study: ROI Rationalization for SCM


The Company had strategic business objectives to reduce inventory and related costs

Current benchmark was 30 days supply of FG inventory, representing $30 million– The Target FG inventory was 20 days of supply ($20

million)– FG inventory was spread over 18 Distribution Centers and

2 Replenishment Centers− Incorrect inventories were held at DC’s− Inconsistent substitution rules

– Safety stock represented a significant % of FG inventory– Costs included transportation from distant DC’s, leases,

storage, interest on borrowing and repetitive materials handling



Invested Capital

Net Working Capital

Net PP&E

ROIC

Profit

Revenue

Costs

Fixed Costs

SG&A

COGS

Inventories

Business Objectives: Reduce FG Inventories Reduce Related Costs



Fixed Costs



SG&A

COGS

Reduced Lease Facility Costs

Reduced Interest Costs

Reduced Material Handling Costs

Improved Order Fulfillment Cycle Time

Decrease in % of Obsolete Inventory

Improved Forecast Accuracy

Supply Network Planning

ERP Supply Network

Planning Detailed

Scheduling

ERP Supply Network

Planning Demand Planning Detailed

Scheduling Global ATP

Order Fulfillment

Order Fulfillment

Forecasting

Order Fulfillment

Production Forecasting

Non-negotiable leases or prohibitive buy-outs

Change management in consistent substitution rules

The number of DC’s will not be needed for 1/3 less inventory

Consolidation/elimination of two DC’s will generate a $440,000 savings

FG inventory reductions will lower available formula borrowing against inventory

Interest savings of $625,000, annually

Improved forecast accuracy through ‘Focus Forecasting’

Optimum safety stock levels

Realistic demand planning and master scheduling

Correct FG composition and levels at DC’s

Global supply chain visibility

$3 million reduction in COGS for carrying costs, reduction of obsoletes

$200,000 reduction in inter-facility transportation





Inventories Lower Days on

Hand Avg Supply of FG Inventory

Decreased FG inventories

Inventory Turns

ERP Supply Network

Planning Demand Planning Detailed

Scheduling Global ATP

Order Fulfillment

Forecasting

Change management in consistent substitution rules

$2 million safety stock reduction across all DC’s

$7 million FG inventory reduction

Consistent application of substitution rules resulting in further $1 million reduction

Agenda





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Session Code:6

how to hear the answer “yes” for your sap initiative building a business case and roi...

Documents

business case

initiative roi

business strategic planning

changedthe state of

multiple business process

todays business drivers

roi rationalizations

roi justification