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"While small Indian enterprises cite
automating business processes and
enhancing effectiveness as top priorities, Brazilian SMEs rely on SAP software mainly for achieving operational
excellence and establishing integrated business processes that allow them to manage growth."
Source : SAP
Delivering the Business Value of Automating Business Processes to Small and Medium Enterprise
Business Processes is also known as :
Automating Business Processes,
Business Development Processes,
Business Intelligence Process,
Business Planning Process,
Business Process Analysis,
Business Process Architecture,
Business Process Automation,
Business Process Change,
Business Process Data,
Business Process Definition,
Business Process Development,
Business Process Engineering,
Business Process Flow,
Business Process Guide,
Business Process Improvement,
Business Process Improvement Software,
Business Process Integration,
Business Process Layer,
Business Process Lead,
Business Process Management,
Business Process Management System,
Business Process Management Tool,
Business Process Manager,
Business Process Mapping,
Business Process Mapping Software,
Business Process Mapping Tools,
Business Process Methodology,
Business Process Model,
Business Process Modeling Software,
Business Process Monitor,
Business Process Optimization,
Business Process Orientation,
Business Process Outsourcing,
Business Process Questions,
Business Process Reengineering,
Business Process Review,
Business Process Server,
Business Process Simulation,
Business Process Software.
EXECUTIVE SUMMARY
Enterprises of all sizes today face common problems dealing with handling increasing
business complexity while reducing costs. The solution continues to be the
automation of business processes. SAP is an established leader in addressing the
needs of large enterprises. Building on that performance and identified best practices,
SAP built and launched SAP Business One. SAP Business One was designed to
offer small and medium businesses the same business streamlining and efficiencies
at a scale and scope appropriate to their needs. IDC recently interviewed a number of
companies that have successfully deployed SAP Business One. The purpose of our
interviews was to determine what impact the software had on their productivity and
cost reduction.
The companies interviewed were able to reduce their cost of operations for such
functions as accounts receivable by two-thirds while significantly improving overall
business process automation. Better purchasing and sales operations allowed one
company to realize $1.5 million in new revenue. Financial staff was able to increase
their productivity by 45%. Altogether these companies have realized $2.4 million in
benefits at a cost of $.458M. Over a three-year period IDC estimates that these
companies will see a net present value (NPV) of $109,364 per user at 12% and a return on investment (ROI) of 431% (See Table 1).
Introduction
Companies continue to automate business processes to achieve the goals of
consistent quality and responsive customer service while eliminating cost
inefficiencies. The SMB marketplace faces many challenges:
- Growing their revenue
- Controlling their costs
- Generating and disseminating accurate data
- Getting the right information in time to make a difference
- Meeting customer commitments and service level agreements
- Providing better customer experience
- Managing inventory
- Running an efficient and effective operation
- Meeting the challenges of change in their markets
- Optimizing their supply-value chains
- Integrating disparate point applications
SAP Business One software enables small and medium businesses to effectively and
efficiently automate the following core operations necessary to run a successful
business, including:
- Administration - Provides tools that enable the customization and backup of
critical data, define currency exchange rates, configure permissions and alerts,
and access information from non-SAP software
- Financial accounting - Handles financial transactions, including general
ledger, account setup and maintenance, journal entries, foreign currency
adjustments, and budgets
- Customer relationship management (CRM) - Provides a solution that:
- Connects front- and back-office functions into a single customer-centric
operation
- Enables collaboration across the value chain by providing access to
relevant, personalized information from multiple data sources and business
processes
- Connects employees, partners, processes, and technology in a closed-loop
customer interaction cycle
- Delivers functionality throughout the customer engagement cycle providing
the capabilities needed to manage marketing, sales, service, analytics, field
applications, interaction centers, e-commerce, and channel partners
- Sales and distributions - Helps create price quotes, enter customer orders,
set up deliveries, update stock balances, and manage all invoices and accounts
receivables
- Purchasing - Manages and maintains vendor contracts and transactions,
including issuing purchase orders, updating in-stock numbers, calculating value
of imported items, handling returns and credits, and processing payments
- Business partners - Controls all the information on customers, resellers, and
vendors, including profiles, contact summary, account balances, and sales
pipeline analysis
- Bank transactions - Takes care of financial processing, such as cash receipts,
check writing, deposits, advance payments, credit card payments, and bank
reconciliation
- Warehouse management - Handles inventory levels, item management, price
lists, special price agreements, transfers between warehouses, and stock
transactions
- Final assembly - Delivers product production tools that define multilevel bills-
of-materials and create work orders while it enables the verification and reporting
of product and material availability
- Controlling - Enables the definition of profit centers and overhead absorption
factors as well as generates profit-and-loss reports for each center
- Reporting - Creates powerful reports for nearly every aspect of an operation,
including customer and supplier debt, credit history, sales, cash flow, customer-
contact summaries, bookkeeping, warehouse stock, financial statements, pricing,
customer activity, and more
- Service management - Optimizes the potential of service management
departments, providing support for service operations, service contract
management, service planning, tracking of customer interaction activities,
customer support, and management of sales opportunities.
While not every company that we spoke with was using all of this capability, the
richness of the available functions and process support were highly valued. Users felt
that SAP Business One not only met today's needs but also positioned them well for
the future.
The Companies
The companies in this study were U.S. based. More detailed information is included on
two companies ? a systems integrator and a food processor & distributor. Both of
these companies have between 100?500 employees. The companies faced significant
opportunities and challenges trying to manage their quickly growing operations while
maintaining a competitive cost structure. In each case they selected SAP Business One
to automate critical business operation and processes.
Both of these companies had SAP Business One in production for less than 12 months
prior to the interview and were using some of the components. Both are planning on
adding other components of SAP Business One over the coming months. The flexibility
to prioritize component implementation was seen as a positive part of the SAP Business
One value proposition.
SITUATION OVERVIEW
The Big Challenges for Small and Medium Businesses Today
The roughly 8 million small and medium-sized businesses (SMBs) in the United
States have become an increasingly attractive target market for providers of
advanced technology products and services. IDC estimates that the compound
annual growth rate (CAGR) for medium-sized companies will be 6% and 11.7% for
smaller companies. While it is common to speak of small and medium-sized
businesses as a single market, they are very diverse, varying considerably by
company size and industry. Vertical market expertise is a vital part of strategic
planning. IDC research indicates a number of SMB trends that the SAP Business One
offering should be able to capitalize upon, including:
- Companies want to deal with companies that understand their specific industry
needs. SAP's proven strengths and experience match well with the verticals with
the top potential:
- Business/other services
- Retail
- Construction
- Wholesale
- Healthcare
- Manufacturing
- Budgets are typically lower, and delivery expectations considerably shorter, than
those at the enterprise level. The cost-value proposition for SAP Business One
seems to fit the budgets of the marketplace. Companies interviewed were in
agreement that SAP Business One can be implemented quickly and easily.
- SMBs in many cases are less interested in technology and more interested in
how software can help their business - many are simply looking to improve
internal efficiencies through the automation of specific manual processes. The
modularity, ease of use and reporting flexibility of SAP Business One fit this
mindset.
- While focused on today, SMBs are interested in the future. It is important in such
an environment to provide a solution that can be implemented quickly with the
least amount of integration cost but that is robust enough to address more
complex processes at a later date, if that time comes at all. All indications are
that SAP Business One can deliver on both the needs of today and tomorrow.
- SMB's clients include both consumers and other businesses. SAP Business One
offers the capability to handle both.
- The needs of SMBs are often as sophisticated and complex as those at large
enterprises. Globalization trends, real-time integration with business ecosystems
and the proliferation of wireless and mobile workers impact these organizations.
SAP Business One offers solutions to these needs.
- Small and medium-sized businesses use an average of 6.4 software
applications. SAP Business One components address many of the software
applications used by this market segment in a single offering.
- Industry standards are preferred over proprietary platforms by SMBs. SAP's
support of multiple server and desktop platforms will ensure and extend existing
technology investments.
Automation and integration of business processes have been instrumental in enabling
enterprises to grow revenue while streamlining operations. The real challenge for
every business, regardless of size or industry, is to constantly make business
operations better, more efficient, flexible, integrated, and reliable. On top of this
challenge is the current shortage of resources that forces companies to be very
careful how they spend their capital.
IDC's ROI Methodology
This study was conducted by interviewing companies regarding their business
processes prior to and after the implementation of SAP Business One. These
companies were identified by SAP. The study primarily focused on the costs to
purchase, deploy, and support these automation systems and the impact these
solutions had on the business operations automated by SAP Business One, the
productivity of the users and the overall business.
Analysis Methods
Benefits
IDC quantifies the total business benefit by examining the dollar value of cost savings
and additional revenue that occur in the following ways: IDC measures five areas of reduction in actual hard costs associated with the
operations of the department deploying the software.
- Staff efficiency. Automation enables the operational staff in direct support of
other users or corporate support operations to do more with less and therefore
downsize or redeploy staff or ? in a high-growth environment ? to postpone or
eliminate additional hiring. The net result is an increase in the ratio of software
users to staff. Cost reductions resulting from improvements in staff efficiency are
based on the loaded annual salary (1.4 x salary).
- Travel. The enhanced ability to launch applications and solve problems centrally
reduces travel costs.
- Replacement of other business automation tools. Tools and the costs
associated with the ongoing internal support and upgrade of the replaced
products.
- Elimination of outsourcing contracts. Improved reliability and automation
enable staffs to perform at a higher level, and their companies can cancel
outsourced support contracts.
- Purchase avoidance. Automated, integrated business process resources enable
businesses to meet growing demands without adding systems.
Operational Productivity
Operational productivity measures the direct result of automation ? how IT staff use
their time. By decreasing the time required to execute various operations functions,
the software frees up managers and staff for more proactive, business-related
activities that improve the quality of service. Quality of service is a difficult aspect to
measure, so productivity is a "soft" benefit. The value is estimated as hours saved x
loaded hourly salary.
Impact on Revenue
Improving operations, even of a support function, can have a direct impact on a
company's revenue. This may take the form of reducing lost revenue or shortening
time to market and revenue recognition cycles or creating new products or services.
Deployment
Because IT products require a deployment period, the full benefits of the product are
not available during deployment. To capture the delayed impact of the benefits, IDC
prorates the benefit on a monthly basis and then subtracts the deployment time from
the first-year savings.
Investment
Investment includes costs for initial purchase and installation to include all hardware,
software, outsourced installation services; in-house time and training, which take place in year zero; and three-year annual upgrades and changes and direct support
and maintenance.
Financial Methods of Computing Benefits
For this model, IDC used the payback and net present value (NPV) methods for
evaluating the return on investment (ROI). The NPV method calculates the value in
today's dollars for the three-year returns on an investment. Payback period is the
point at which cash flow exceeds investment. IDC uses a very conservative approach.
Rather than discount the cash flow, we discount only the benefits (at 12%). The
investment is not discounted; rather, it is treated as if it were all spent in the first year.
Therefore, NPV is the discounted benefit less the total nondiscounted investment.
ROI is NPV/nondiscounted investment.
Results of the Study
Benefits to SAP Business One Users
The primary benefit to the companies that deploy SAP Business One is to enhance
the efficiency of the operations enabling the companies to not only do more with less
but to improve operations at the same time. On average, companies were able to
reduce their direct operational staff requirements by 43%. Not only were companies
able to reallocate staff to other financial functions, but the staff productivity also
increased and the staff that remained was able to complete their jobs in 45% less
time.
For example, NextiraOne Federal, a systems integrator serving a federal government
customer base, deployed all three components of SAP's financial accounting module.
The software, in conjunction with improvements in NextiraOne Federal's financial
operations, enabled NextiraOne Federal to reduce its accounts receivable staff from
three people to one while improving the quality of invoicing a billing acceptance by
500%.
Another example is Variety Food Incorporated, a food producer and distributor, was
able to grow its business by 15% without adding staff.
Not all benefits were quantifiable but will contribute to overall business success. All
companies reported that SAP Business One demonstrated qualities inherently
essential especially to small and medium-sized businesses:
- Easy to deploy (four to six weeks)
- Ease-of-use features that reduce or eliminate user training
- Excellent reporting capabilities
- Supports business growth goals
Benefits to Business
Not all companies realized a direct impact on their revenue as a result of the SAP
Business One deployment. NextiraOne Federal, however, was able to fully automate
its accounts receivables operations, reducing errors and streamlining the processes
so that it was able to bill its government customers in a more timely and accurate
manner. NextiraOne Federal greatly reduced its 90-day receivables and as a result
recognized $1,500,000 in additional savings.
Average Investment in SAP Business One
The full average cost for deploying SAP Business One included the purchase and
installation of the server hardware and operating system software, the purchase or
lease cost of the SAP application, an annual maintenance cost of 20% of the
purchase costs, and the IT staff directly responsible for support (Figure 1). The
estimated three-year investment required was almost $460,000, which equated to
$25,367 per user. Another way of gauging the investment is that the annual
investment came to about .2% of annual revenue.
Payback
Companies were happy and had positive returns with SAP Business One. Payback
periods as calculated by IDC vary from 6 to 19 months.
CHALLENGES/OPPORTUNITIES
Challenges for SAP
SAP's value proposition for SAP Business One is solid today. Maintaining the value
proposition in the future will require continued commitment and investment. The signs
are that SAP has a long-term view and is backing that with the required resources.
Serving a marketplace as diverse as SMB in different verticals will be challenging.
While SAP is not alone in its pursuit of the rewards of the SMB marketplace, they are
well positioned to address its needs. The challenges of margin pressure and support
will pressure the business models of the SMB competitors. SAP has a great deal of
experience and expertise meeting these challenges in the large enterprise arena.
SAP Business One is a strong entry and should provide quite a challenge to its
competitors.
SAP's success is based on knowing the large enterprise environment, but it has a
limited history of selling into small companies. Moving into the SMB space will require
new positioning and messaging that resonates with this new group of prospects. SAP
Business One's capabilities when communicated to this audience should play well.
CONCLUSION
The SAP Business One customers interviewed were solidly behind the belief that they
had made a good business decision. They had put in place a system to address their
core needs and had every confidence that it would serve the needs of their future
requirements. The choice of SAP Business One made by these pragmatic
businesspeople was made from a perspective of knowing what their specific
businesses needed to succeed. While wanting business solutions for business needs,
they also appreciated that they were buying a technology platform to build their
futures upon. SAP Business One met both of these requirements in their minds.
IDC believes that SMBs looking for new software solutions for their businesses
should include SAP Business One on their short list of potential software solutions.
SAP Business One offers solutions to meet the needs of today and tomorrow.
CASE STUDY
NextiraOne Federal: Streamlining Accounts Receivable
NextiraOne Federal is a systems integrator to the federal government. Headquartered
in Herndon, Virginia, the operation serves as the federal arm for a group of Nextira
One technology companies. NextiraOne Federal is chartered to focus exclusively on
the federal government. Although the name is new, the company has over 40 years of
experience serving the needs of different U.S. government agencies. NextiraOne
Federal's 138 employees include a specialized "federal" sales force as well as a specialized service and support organizations. They understand their niche market
and serve it well.
From Quote to Sales Order to Invoice
NextiraOne Federal's recent merger with two other companies strained their existing
systems. None of the installed software packages could meet NextiraOne Federal's
needs. Duane Taylor, the CFO who was instrumental in the selection of SAP
Business One, was not satisfied with the existing systems, especially the lack of
relevant information and the amount of manual labor required to research contracts.
He began his search for a better business system. NextiraOne Federal's parent
company suggested the upgrade to SAP Business One. The parent company uses
SAP R/3 to good effect. NextiraOne Federal evaluated four offerings over a two-
month time frame and then selected and installed SAP Business One. This took place
about a year and a half after the merger.
A product demo proved to NextiraOne Federal's financial team that it would support
their current and future accounting and financial systems' needs. "The ability of SAP
to offer a solution that fit both our needs and our budget was a pleasant surprise. The
SMB offering - SAP Business One - was affordable."
Taylor was impressed that the installation only took 4 to 6 weeks, adding that it was
"very smooth, surprisingly quick, and our questions were easily answered. American
Express (NextiraOne Federal's system integrator) brainstormed with us for two or
three days, went away, and came back with a system that looked familiar and
facilitated the change of systems. The user-defined fields supported the use of our
terminology. This was a plus when we took it to the end users for training. SAP and
American Express took time to learn our needs," said Taylor.
NextiraOne Federal installed the following modules:
- Financial accounting
- AR
- AP
- General ledger
- Sales and distribution (future implementation)
- Purchasing
- Business partners - partner price lists are stored and maintained on system.
The price and parts lists are extensive, covering suppliers like Cisco, Nortel, and
Sprint. United States General Services Administration (GSA) price schedules are
also maintained on the system.
- Reporting (very strong and flexible)
Taylor describes the package as being able to "take us from quote to sales order to
invoice."
Benefits of the Package
NextiraOne Federal executed several improvements in its business processes at the
same time it deployed SAP Business One. Taylor insists that the benefits are a factor
of both - each supporting the effectiveness of the other. The biggest gain was the
ability to get information ? specifically the end-of-fiscal period roll-up/reconciliation
required by NextiraOne Federal's parent company. Prior to SAP the close took two to
three weeks with people working overtime. Now it only takes three days within regular
business days.
Because of the vast improvement in the financial administration, NextiraOne Federal
was able to redirect assets used for accounts receivable. In the past, three people
were used as collectors. Today one person performs those tasks. Taylor estimates
this to generate a savings of over $300,000 a year in just that one area.
Another positive impact was also in accounts receivable collection. NextiraOne
Federal reduced the over 90-day aging amount by 500%. Their quality of invoicing
supported bills that were accepted and paid without extended back and forth
discussions and time consumption. "The government wants to get accurate bills that
can be paid. If we have an issue, we can find the answers and resolve it," said Taylor.
He estimates that the 90-day receivables were around $15,000,000 and that the
systems saved 10% of that amount. The alert system that supports the ability to set
thresholds has been also quite helpful. The system supports management by
exception and improves quality assurance of orders. "We have caught $15,000 errors
on a single order," added Taylor. Overall value is hard to quantify, but Taylor thinks it
is substantial: "We save real dollars through the control improvement."
Better, Faster, More Accurate Information
The most significant impact on NextiraOne Federal's business was not quantifiable
but clearly positioned the company for success. This was the facilitation of information
flow internally and between partners and customers. Taylor cited the following
improvements:
- Improved communication and reporting with vendor partners. Its five largest
vendor partners (Cisco, Nortel, Sprint, Alcatel, and Avaya) account for over
200,000 line items in the databases, which can be accurately maintained and
updated using SAP Business One.
- NextiraOne Federal can create custom reports that serve internal end users.
Reports that might have taken four hours or longer in the past now take less than
an hour.
- Provide management reports on top customers with the ability to look at their
revenue and even drill down to the level of the products they purchase improves
decision making for NextiraOne Federal. "We can now find out who is giving us
business and what they are buying."
- Responsiveness ? "We can turn orders around more quickly?we can give
answers more quickly?we are just more responsive due to SAP Business One
and our other process improvements. Response time is 2x faster."
- By linking sales orders and purchase orders, redundant data entry is eliminated,
saving time and reducing errors. In addition, NextiraOne has increased visibility
into all the transactions related to a customer's specific job.
How SAP Business One Supports Company Strategic Imperatives
Over the last year, NextiraOne Federal has been able to move up the food chain and
position itself as a prime contractor rather than a subcontractor. This has been
accomplished by significant improvement in its overall operation. This constant
improvement is an active program, and SAP Business One was part of that
improvement process.
Taylor stated: "Growth is our strategic imperative ? scalability of SAP Business One
will support our growth in the future. The system can grow with us, and we will have
less pressure to expand staff to meet our needs."
Conclusion
SAP Business One has made major contributions to NextiraOne Federal's corporate
goals. It is able to serve both external and internal customers more effectively and
efficiently.
CASE STUDY
Variety Food Incorporated: Meeting Today's Challenges and Positioning for Future Opportunity
Variety Food Incorporated is a family-owned business and has been in operation
since 1928. Variety Food Incorporated produces and distributes snack foods ?
primarily nuts ? in 14 states, predominantly in the Midwest. Headquartered in
Warren, Michigan, it distributes its snack food products directly and indirectly through
140 distributors. A fleet of 40 trucks is used to deliver product. Customers demand
service and have other options if this demand is not met. Processes and systems are
designed to meet internally developed service level agreements. These "contracts"
drive Variety Food Incorporated's success in its demanding market.
Producing a perishable item to the highest standards and assuring that consumers
are satisfied with not only the product but with the services they receive require
commitment. Variety Food Incorporated's reputation is based on that commitment.
SAP Business One Selection
The selection of SAP Business One supports Variety Food Incorporated's product
and service goals. SAP's implementation partner, BM Associates, replaced a system
that had been in place for 14 years. Over those years, revisions and updates, which
at times were costly and tedious, allowed that system to meet Variety Food
Incorporated's needs.
Internal and external dynamics caused Variety Food Incorporated to examine the fit of
the installed system to its current and potential requirements. Working with a BM
Associate consultant, it decided to change to SAP Business One.
According to George Champagne, vice president of operations, "The demo clinched
the deal. The system design was clean?easy to learn and quickly use
effectively?the users wanted the system ASAP."
SAP Business One Utilization
Variety Food Incorporated is currently using the following SAP Business One
components:
- Administration
- Financial accounting
- Sales and distribution
- Purchasing
- Bank transactions
- Warehouse management
More components will be implemented in the future.
The positive feedback from operation's staff, internal management, and direct and
indirect sales reinforces Variety Food Incorporated's decision to implement SAP
Business One. When asked for the top benefits realized by the use of SAP Business
One, Champagne stated:
- "Ease of use...we post information, once and it populates the system. We save
time and reduce errors..."
- "Increased revenues...our sales people have the answers to customer
questions?they have the information needed to get orders?not having
information can mean a lost order..."
- "Improved reporting...solid reports...quickly and effectively...we get timely and
accurate information in a format that is usable by different groups?we have
increased control and increased visibility of our business?better information
about our customers, our products, our sales..."
Business Justification
Using a combination of increased efficiency and cost avoidance, the system should
pay for itself in 10 to 12 months. Each of Variety Food Incorporated operators is
saving an hour and a half a day. This means that more time is available to support the
service needs of internal and external customers. Even higher customer and
distributor satisfaction will mean higher revenue. They are doing more with the same
staff and will be able to support the increased revenue and volume without having to add staff in the near future. SAP Business One's flexibility will support other potential
expansions of Variety Food Incorporated's business model.
Conclusion
Variety Food Incorporated is more than satisfied with its decision to implement SAP
Business One. The current benefits and the positioning for the future reinforce that it
was the right decision. SAP and SAP Business One are a good fit for this service-
oriented organization.
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Copyright 2004 IDC. Reproduction without written permission is completely forbidden.