How SAP Failed The Supply Chain Leader

SAP is the market share leader for supply chain planning and Enterprise Resource Planning (ERP). Technology is a substantial spend category for supply chain management. The ERP software market is projected hit $78.4B by 2026.

In 1998, under the guise that tight integration of Enterprise Resource Planning (ERP) to Supply Chain Planning (SCP) could improve enterprise decisions fueled adoption, SAP launched its first supply chain planning solution, APO, in 1997.

Three decades later, the results are in. SAP failed to deliver a solution equal to best-of-breed solutions for optimization and what-if analysis. Business leader satisfaction with SAP supply chain planning is significantly below the industry average for the period of 2020-2023.

In addition, the concept of tight integration of ERP to planning reduced organizational flexibility in decision-making during the past thirty-seven months of disruption. Companies following this strategy rated their supply chain performance significantly worse than their peer groups at an 80% confidence level.

A Closer Analysis

SAP, the fourth largest software company, under-served the supply chain management and planning market during the last decade enabling market opportunity for competition. In addition, manufacturing companies that focused on IT standardization of SAP planning to Enterprise Resource Planning (ERP) significantly underperformed their peer group in inventory and margin management during March 2020-April 2023.

Over the last three decades, SAP produced market-leading capabilities for transactional management fueling the global expansion of supply chains through improved transaction integrity in order-to-cash and procure-to-pay solutions. However, the company was less successful in providing decision support technologies (supply chain planning) to business leaders based on quantitative survey data of 107 business leaders. The survey respondents were sourced from our Linkedin presence of over 330,000 followers.

Note the relatively low importance score in the survey along with the performance gap. (This survey is cross-industry and geographies.) The more successful companies augmented the SAP planning software with other technologies to improve the depth and speed of analysis.

What Can We Learn?

No software company builds better software code when the mission and requirements are clear. However, in the case of supply chain planning, SAP swung and missed. In examining the data, there are five root issues.

1. Evolution. The company’s move in advanced planning from the APO to IBP platform in 2012 was especially problematic. The myopic focus on Sales and Operations planning (S&OP) on the HANA platform was an opportunity cost slowing development in other areas.
2. Usability. The solution is tough to use and rates low on business leader acceptance. The technology also lags the market on scenario analysis and what-if optimization. These gaps grew in significance as demand and supply variability increased.
3. Inside-out. By design, the focus is on the use of enterprise data, but with the increase in market variability, the shift was to use market data in an agile planning platform. SAP did not make that shift.
4. Network Laggard. The purchase of ARIBA in 2012 strengthened SAP’s position in indirect procurement, but the industry leader failed to parlay the purchased assets into the management of direct procurement (materials associated with the manufacture of products). The ARIBA outdated architecture does not enable interoperability with other networks in manufacturing and transportation. Indirect procurement is a relatively small contributor to control in the world of rising inflation and supplier variability.
5. Failed Co-Innovation Projects. Over the past two decades, we tracked multiple co-development initiatives. We know of none that were successful. Ability to innovate with business leaders is a weakness.

How Did This Happen?

The story is an old one of greed, complicity and arrogance:

1. Industry Analyst Complicity. In the past five Supply Chain Magic Quadrants by Gartner Group, SAP is listed as either a leader or a challenger. This endorsement drove buying behavior. As an analyst, taking a stance against a market share leader is challenging and often career-limiting.
2. Greed. SAP garnered the support of significant consultants using selling strategies such as “80% is good enough.” The SAP solutions fit the consulting model well: the solutions were higher price points and longer implementations. Each major consultancy built a “bench” of trained implementors and fought competitive battles to win deployments. The focus was on deployment. Few asked the question, “Is this planning solution yielding a better answer for the organization?”
3. Arrogance. Within SAP, there is deep talent and commitment to customer success. However, the flywheel of becoming a market share leader and the significant license revenues fueled an environment of arrogance low on self-reflection.

Summary

A good supply chain planning solution improves enterprise resilience and provides insights in times of variability. When the rubber hit the road over the past thirty-seven months of disruption, companies sadly discovered that the SAP planning solutions, purchased at a high cost, were not enough and turned off the optimizers using the planning deployment only as a system of record.