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Market

Pulse

Increasing the Value of erP with Cloud-Based Business Commerce Solutions


New It paradigm fuels greater collaboration, transparency and efficiencies to extend value of investments
Enterprises of all sizes have invested billions in enterprise resource planning (ERP) systems. By integrating such applications as financial, accounting, inventory and sales, ERP systems give executives the power to gauge the performance of their organization in real timein stark contrast to the situation just a few years ago, when separate applications performed each task in isolation, making it difficult to grasp the state of an organization at any given time.
But ERP has its limitationsparticularly in supply chain management, where the inability to share data with external trading partners is leading to inefficiencies and missed opportunities for cost savings. Additionally, the time and resources required to implement ERP can significantly delay time-to-value. But theres good news: A new breed of solutions has emerged to address these weaknesses. Delivered in the cloud, these solutions leverage a network-centric model to connect partners, processes and spend across multiple systems. And enterprises of all sizes are leveraging them to streamline financials, increase visibility and collaboration across the supply chain and improve the efficiency of their trading relationships. According to the CIO Market Pulse survey, CloudBased Business Commerce Solutions, the majority of organizations52 percent of survey respondentsare open to or aggressively pursuing cloud-based applications that can enhance their current ERP systems. Half the survey respondents were based in the U. S., while the other half were located in EMEA (Europe, Middle East and Africa). With some variation, responses were consistent across these regions. Organizations spend months, sometimes years procuring, customizing and deploying ERP systems. In spite of or perhaps because of this, organizations are turning to the cloud. Only 14 percent of respondents to the CIO study said their companies large investments in ERP solutions were a concern when adopting cloud-based applications offering evidence that IT leaders are open to the implementation of cloud-based business commerce applications to complement and extend the value of their existing ERP systems. And even though security is still top-of-mind for CIOs and CSOs, interest in cloudbased financial applications indicates a growing trust in qualified vendors. Why the interest in cloud-based business commerce applications? Because the ERP system is traditionally set up to handle processes from an internal standpoint, says Mickey North Rizza, research director at Gartner. Cloud apps allow you to take a piece of information you need to use with your partners out into the world where you both can see it. In other words, ERP systems integrate internal business processes that exist within an organizations four walls. However, many of those processes naturally extend beyond the organization, and ERP systems dont. As a result, there is an entire set of critical business processes that ERP does not manage well or, quite simply, manage at all. Demand generation, order management, and spend management, along with aspects of finance, are all moving parts in the supply chain that are not fully addressed by ERP systems. But the integration of cloudbased business commerce solutions can change this. In cloud computing, services and technologies are delivered over the Internet in real time. The supporting infrastructure is separate from the customers IT envi-

Market

Pulse

What are your organizations policies regarding deployment of new cloud-based applications that are not from your ERP provider?
11% We are aggressively pursuing cloud computing applications that can enhance our current systems 24% We have no formal policy regarding this

a particular proposal or request for information. By coming together within a cloud-based demand-generation app, suppliers can see a 20 percent to 30 percent increase in sales yearover-year.

In every other supply chain application category, enterprise organizations (those with revenues over $500 million) lead the way to adoption. However, small organizations (with less than $50 million in revenue) lead the way in the adoption of cloud-based demand 24% generation applications at 20 percent. EnterWe have standardized on our ERP and it is strongly prises come in second at 18 percent, and the discouraged to add new systems midmarket (revenue between $50 and $500 41% We are open to cloud computing million) at 12 percent. These organizations benapplications that can enhance efit from exposing their products and services our current systems and meet businesses needs to a network of organizations they normally wouldnt be exposed to. The Ariba Network, Source: IDG Research, March 2011 for example, connects more than 500,000 trading partners and sees more than $350 billion in ronment. The customer sends only the data it needs commerce per year. Sellers have easy access to share with partners to the cloud, where partners to buyers with money to spend who are interested in can access and respond to this data. When supply their products. chain management applications are integrated with ERP systems, buyers and sellers benefit from a robust Order management in the cloud network that enables more efficient trading relationOrganizations are also considering cloud-based order ships and collaboration across a shared community, management applications. According to the CIO survey, regardless of which back-end systems a party uses. 33 percent of organizations around the world have

Demand management in the cloud


Of these supply chain management functions, demand generation is the most sought-after by the respondents to the CIO Market Pulse survey, with 41 percent of respondents indicating that their organization has deployed, is currently deploying or is very likely to deploy cloud-based demand-generation applications. Another 34 percent will possibly consider deploying them in the next 24 months. Demand generation simply isnt an ERP capability. An ERP system might connect a buyer to a seller to transmit a purchase order (PO), but it will not connect the seller to the buyer to generate business for the seller. Demand generation in the cloud is not your typical demand generation app with a marketing bent. Cloudbased demand generation allows sellers to reach out and find buyers. It connects sellers with buyers in active purchasing cycles with specific needs, such as

deployed, are currently deploying or are very likely to deploy cloud-based order management applications, while 38 percent will possibly consider doing so in the next 24 months. These enterprises and small organizations both lead the way at 17 percent, with the midmarket trailing behind at 12 percent. In certain areas ERP can do order management and do it well. It all depends on the type of order and the complexity of the supply chain that fulfills the order. For example, services procurement (like temp labor) is not done well by ERP, because it does not allow for the interactions that tend to occur between the buyer and seller during these transactions. Cloud-based order management applications can facilitate the collaboration of a request for candidates, resume submission and proposal, counter-proposal and acceptance. Order management is typically thought of as a supplier-side element. But a cloud-based application can

Market

Pulse

How do these cloud-based applications perform against your expecations and goals?
Far exceeded expectations Exceeded expectations Met expectations Slightly below expectations Did not meet expecations at all

Demand Generation Applications

13%

60%

13% 13%

Order Management Applications

13%

25%

38%

13% 13%

Spend Management Applications

11%

67%

11% 11%

200 or 300. Combining these two elements means poor adoption of the system and as a result, a low percentage of spend managed. Finally, ERP systems do not effectively handle advanced contract compliance during the requisitioning process. That means getting it right the first time by checking the contract during the requisition process for the approved supplier and the preferred product at the right price. Checking compliance during the invoice stage can mean the proverbial getting the horses back in the barn after the barn door is opened. This wastes time and money. Organizations are turning to the cloud to address these issues. Thirty-one percent of respondents to the CIO survey say their organization has deployed, is currently deploying or is very likely to deploy cloud-based spend management applications; and 34 percent say their organization will possibly consider deploying cloud-based spend management applications in the next 24 months. Enterprise organizations are more likely to aggressively pursue spend management in the cloud, at 11 percent. Once again, the midmarket trails behind at 7 percent. Cloud-based spend management applications are easy to use and do not require extensive training. Anyone in the organization that needs to use the application not just the ERP finance professionalcan do so. And, because they are accessible through a common platform and easy to update, companies and their trading partners are more likely to enable many more catalogs for procurement. An intuitive user interface plus more catalogs enabled for procurement means greater adoption and increased spend managed, resulting in both efficiencies and savings. Additionally, contract compliance capabilities ensure that contracts are fulfilled correctlythe right products and services are delivered for the negotiated price from the preferred vendor. With these three issues addressed, organizations see more value not only from their spend management capabilities, but also from their ERP systems. Cloud-based spend management isnt confined to catalog requisitioning. Applications that drive it can manage the entire source-to-settle process including procureto-pay activities that require collaboration between buyers, sellers and financial institutions. Organizations that use such solutions can save from 4 percent to 20 percent or beyond, based on the amount of spend

Financial Applications

19%

56%

13% 13%
Source: IDG Research, May 2011

go beyond managing the receipt and collaboration of an order to include managing the settlement process (delivering the PO electronically and automating twoand three-way matches before posting for payment) on the buyers side. A cloud-based order management solution can benefit both the buying and selling portions of the organization. Interestingly, the survey found that EMEA enterprises were generally ahead of their U.S. counterparts in implementing cloud-based order management, indicating that EMEA enterprises are more likely to reap the associated collaborative benefits.

Spend management in the cloud


ERPs spend-management capabilities are limited. While they can allow a company to procure through the system and transmit an order, three limitations common to ERP systems minimize their potential value: ease-of-use for casual users, supplier catalog enablement, and advanced contract compliance. Unless these three things are in place, an ERP system doesnt do any good when it comes to spend management. ERP systems are generally difficult for non-finance professionals to use. Casual users who infrequently order office supplies typically have difficulty navigating, searching and requisitioning on these systems. It is also resource-intensive to enable and maintain supplier catalogs in ERP systems. As a result, it is not unusual for a buyer to have only 10 or 20 catalogs enabled for procurement use when they should have

Market

Pulse

Which of the following types of applications is your organization deploying or likely to deploy to the cloud in the next 24 months?
Already have deployed Currently deploying Very likely to deploy Possibly will consider Will not consider

able outstanding (DPO) and cash, while providing trade and receivables financing options that ensure their mutual financial healtha must in todays still recovering global economy. Interest in and adoption of cloud-based financial applications demonstrates that security concerns associated with cloud computing are on the wane. Organizations are becoming increasingly comfortable with the idea of putting data in the cloud as providers become more transparent about their security controls. With relatively few exceptions, cloud computing providers understand their customers need and desire for stringent security requirements. Many organizations especially those with limited resources, as is the case for many small and midmarket organizationsare finding that cloud computing providers implement more robust security measures than they are able to afford otherwise. They understand their application vendors disaster recovery program along with security certifications such as WebTrust and SAS 70. Its not surprising then that the midmarket is leading the way in the adoption of cloud-based financial applications at 16 percent, with enterprise adoption closely behind at 14 percent. Organizations are seeing substantial cost benefits with cloud-based financial applications. It is not uncommon to see a $15 million improvement in working capital for every $1 billion in spend. This includes a 70 percent cost reduction in invoice processing and substantial cost savings from improving compliance to contracts and preferred suppliers, along with expanding early payment discounts while maintaining or extending DPO.

Demand Generation Applications

7% 10%

24%

34%

25%

Order Management Applications

4% 13%

16%

38%

29%

Spend Management Applications

4% 9%

18%

34%

35%

Financial Applications

8% 8% 13%

29%

42%
Source: IDG Research, May 2011

thats being managed. The more thats managed in the cloud, the more organizations save.

Financials applications in the cloud


Perhaps most surprisingly, organizations are supplementing their ERP systems with cloud-based financial applications. Despite organizations concerns about the security of cloud computing services and financials being a strength of ERP systems, 29 percent of respondents to the CIO Market Pulse survey say their organization has deployed, is currently deploying or is very likely to deploy cloud-based finance applications. Another 29 percent say their organizations will possibly consider deploying them in the next 24 months. Clearly, there is a need to supplement ERP systems in the area of financials. ERP systems excel at managing financial transactions within the organization. But processing an invoice involves collaboration between buyers and sellers, and ERP systems dont do this well. For example, ERP systems do not effectively manage the electronic settlement process, such as enabling suppliers to convert paper-based purchase orders and invoices into electronic ones, delivering detailed remittance with electronic payment, and enabling dynamic or sliding-scale early payment discounts. Cloud-based financial solutions can enable the kind of collaboration between buyers, suppliers and financial institutions required to better manage their payables, days pay-

The benefits of cloud-based supply chain management


The underlying benefit of cloud computing is improved collaboration, both within the organization and externally. Not only do internal customers benefit from being able to more easily share information, but buyers and sellers and other trading partners benefit from being able to collaborate with each other using a common platform. Respondents to the CIO survey who report that it is possible their organization will deploy all business commerce applications to the cloud in the next 24 months are much more likely to cite improved access to resources and information as among their

Market

Pulse

top three perceived cloud benefits, compared to respondents not considering moving at least one business commerce application to the cloud (47 percent vs. 29 percent). Using a technology that your company and others can come together on to share information allows you to come together much faster than you would in the past. You can have conversations with suppliers right there. Theres no need for a separate email or separate bidding package. It allows for more visibility between all trading partners, says North Rizza. The cloud is uniquely suited to provide visibility and improve collaboration when it comes to supply chain management, but cloud computing services offer other benefits as well. The majority of respondents to CIOs Market Pulse survey see cloud-based applications cost benefits (54 percent) and agility benefits (52 percent) as two of the top-three business benefits offered by the technology. Visibility and transparency are the main benefits that you get immediately [from cloud-based supply chain management]. The second part is lower cost. Its like a many-to-many environment. Its not a zillion serial emails you have to read. Its everybody coming to the table at once, says North Rizza. Buyers and sellers spend less time finding each other, negotiating and making transactions. This lowers overhead and increases profits. MarkMaster, a manufacturer of marking and identification products, has seen great benefits in this area with the Ariba Network. MarkMasters electronic orders soared from 2 percent in 2000 to 95 percent today, and e-business efforts have driven sales growth of 20 percent a year since 2000even in a mature market. During the same time period, staffing increased by only 10 percent while overhead was reduced in every facet of the business. This is a clear demonstration of cost savings and effectiveness. Of course cost savings go beyond collaboration. Most organizations are well aware of the savings that can be achieved by offloading the implementation and maintenance of applications to a cloud services provider. ERP systems require complex integration and customization, for which organizations hire costly consultants and systems integrators. However, with

cloud-based business commerce solutions there is no need to implement complex technology or procure expensive systems to run them. Configuration is easily achieved based on requirements ranging from lookand-feel and fields, to workflow and permissions. Application updates and other maintenance is automatically handled in the cloud by the service provider; no more being one or more releases behind on the latest technology. Due to the ease of integration, organizations can get up and running in weeks, compared to the months or years it can take some organizations to begin using their ERP systems. As a result, organizations can unlock more value from the significant investment in their existing ERP systems. They enable internal customers to work more efficiently by improving their access to information today, not years from now.

Conclusion
Only the largest organizations have the resources to procure, implement and customize an ERP system. However, weaknesses in ERP systems leave huge gaps in key business processes, which can hamper productivity and performance for organizations of all sizes. Cloud computing changes all of that. Moving portions of the supply chainnamely demand generation, order management, spend management and financialsto the cloud enables greater collaboration, transparency and efficiency among hundreds of thousands of trading partners on a global scale. Now companies of all sizes can benefit from an inter-enterprise operating system that lowers costs while increasing profits. Cloud computing also enhances ERP systems to provide faster time-to-value for the cloud-based application as well as the ERP system. For more information: Ariba can help your organization extend the value of its ERP systems with its collaborative commerce solutions, which combine industry-leading technology with the worlds largest Web-based trading community to help companies discover, connect and collaborate with a global network of partnersall in a cloud-based environment. For more information on Aribas offerings and the value they can deliver to your organization, visit www.ariba.com.

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