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March 9, 2009

SAP moves from 5-1-2 support to 7-2

SAP modifies the support windows

SAP used to follow the 5-1-2 rule till recently. All products were covered under the mainstream support for 5 years at a fixed price of 17% AMC. This was followed by a penalty of 2% for 1 year and 4% for the next two years.

A client had to enter a specific contract for any maintenance outside of the published timelines. However, starting this year SAP has made a few changes. They are encouraging clients to move to Enterprise Support scheme that is at 22% of the license cost. The enterprise support now replaces the 5-1-2 rule with a 7-2 window, where in a client will get 7 years of mainstream support with another 2 years at a 2% penalty. What more, SAP whose last ERP 2005 also known as ECC 6.0 was released in June 2006, but SAP has reset the clock so, the support window starts ticking from March 2008. Under the 7-2 window, a client will be supported under the mainstream support till March 2015 and till March 2017 with additional penalty. Suddenly decision making has become a lot more easier.

 SAP has also provided a breathing room for clients on older versions like 4.6c and now if they sign up for the Enterprise version have another year before they have to start making decisions on Upgrade.

Challenges CIOs face in architecting right procurement transformation strategy

CIOs today are facing a challenging situation especially when it comes to the technology support for procurement domain. The challenge is not in realizing whether technology assistance in procurement domain will help already troubled organizations or not. CIOs are pretty clear that any benefit in this area is right away transforming into bottom line savings and hence is a definite candidate for technology aided alignment.

Key challenges are,

a.  To identify which area ( Sourcing, Procurement, Supplier relationships, External interfacing ) under procurement domain should be targeted first to have a quicker ROI especially in current turbulent environment when investment budgets are hard to come by.

b.  To work out make / buy strategy considering the changing software industry and outsourcing approach of the organizations.

c.  To identify right packages / system integrator that would achieve the basic objectives while undertaking such procurement transformation initiatives.

Lets discuss first challenge today..

Following generic 2*2 matrix may help in deciding the right candidate for investments in the current environment.

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It is advisable to start with the self service procurement ( with or without pre negotiated contracts / catalogues ) wherein employees will be empowered to procure based on their individual authority levels and thereby reducing the procurement process expenditure giving immediate transactional benefits.

While it may not cost too much to have good spend analysis tools in place, the returns will only accrue over a period and would also depend on organisation’s decision making competence / capabilities which are often observed to be constrained owing to multiple factors like supply market, supplier dependencies, master data validation etc.

Strategic sourcing is another area where immediate benefits accrual will start and can provide an excellent bottom line cushion but it would require additional investments towards hardware and supplier licensing costs.

Supplier enablement and thereby fostering long term supplier relationships can provide huge strategic benefits but that can only occur over a stretched period of time.

It is therefore vital for a CIO to take the right path in chossing the target area which will eventually help the organisation achieve its intended objectives while keeping the investments low in current crisis situation.

I will touch upon the other challenges in my future posts on the same topic. Looking forward to your comments and I assure of quick responses.

 

Bye for now,
Atul Chorbele

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