Deploying Modular Public Cloud ERP with Two-Tier (part 1)

Historically, IT organizations have struggled with agility in responding to business user needs to the business processes and systems. This often leads to gap between the potential value that companies can extract from their IT systems and real value they are getting. With rapid adoption of cloud technologies in ERP systems, IT leaders have access to new, agile options to serve their business users with timely adoption of innovation.

My goal in this blog post is to provide reader with understanding of what it means to operate your business in the cloud, explain how successful companies embraced cloud technology for their ERP systems, showcase key business scenarios and help you start on your transformation journey.

Innovation in SAP S/4HANA Cloud

Before we get into the details, let me outline some of the recent innovations SAP delivered in SAP S/4HANA Cloud. We at SAP understand from years of running business systems for our customers that business grade solutions require much higher level of reliability and stability compared to consumer grade applications. Disruption of cloud service for businesses has much larger impact than say limited access to your on-line e-mail account or social media application. While delivering reliable and stable service, SAP also continues to innovate in key areas to support our customer’s needs. Recently SAP delivered following innovations:

  1. Expanded business scope of SAP S/4HANA Cloud with new capabilities delivered in regular upgrades and through continuous feature delivery that enables organizations to adopt innovation at their pace. You can read about latest innovations in the blog post from Jan Gilg, President of SAP S/4HANA and in my recent blog outlining the SAP S/4HANA Cloud 2111 innovations here.
  2. Embedded intelligent technologies include solutions and services for artificial intelligence (AI), machine learning (ML), robotic process automation (RPA) embedded into intelligent processes that customers can leverage to run their business operations.
  3. Flexible extensibility options with embedded ABAP in the cloud allows organizations with existing development teams to use existing knowledge to develop extensions directly on the application stack.

Customers adopting SAP S/4HANA Cloud in their organization have a clear path provided to them in SAP Activate, that guides your project team through the entire implementation journey and details out activities that are necessary to keep your solution up to date after the initial go live. You can find more details about recent updates to SAP Activate in this blog post from Jan Musil, SAP Activate CPO.

Central vs. de-centralized federated deployment

Traditionally, SAP ERP deployments in on-premises organizations have been architected in a monolithic centralized way that provided organizations a way to standardize and centrally govern the business processes and systems. During this deployment the focus was on standardization of business processes across the enterprise. This function was important to keep the processes the same or very similar across the entire enterprise. With introduction of cloud solutions and a standard-first mindset, customers don’t need to oversee standardization of business processes and instead can leverage the standard business processes delivered by SAP while at the same time gaining benefits provided by cloud deployment.

SAP has introduced a Two-Tier ERP deployment strategy that enables customers to maximize their existing investment in their existing ERP system while incrementally introducing flexibility and agility of cloud solution into their environment to run their business.

With Two-tier customers can start shifting their monolithic deployment to a decentralized federated model that provides the needed speed, flexibility while allowing the organizations to stay standardized leveraging the SAP delivered standard processes. Decentralized federated deployment strategy enables business and IT to work together to build sustainable, scalable solutions that provide the benefits offered by cloud (speed, standardization, low TCO), while maximizing the existing investment in cases where an organization is not ready to fully transition to the cloud. This also allows organizations to build the necessary expertise and shift employee skills from a traditional on-premises skillset to a cloud skillset. And build skills around standardization, use of a fit-to-standard, extending the core around the edges, and agile deployment. Customers that already deployed this approach realized the following benefits:

  • Instant value with accelerated go-live, rapid deployment and quick adoption to changing business needs
  • Continuous innovation through instant access to latest technology, up-to-date best practices for business processes, keep-up with regulatory changes
  • Predictable, lower TCO shifting from CapEx to OpEx, better transparency of cost and usage as well as avoiding the need to invest in dedicated infrastructure
  • Simple, reliable and safe – a solution that is easy to configure and extend, fully managed by 3rd party with complete data security and protection

Two-tier deployment scenarios

Two-tier ERP provides the opportunity to leverage the best of both worlds to customers – an option to modernize via transition to a cloud ERP and at the same time an option to transition leverage investment existing infrastructure and gradually move away from the on-premises monolith in a phased manner.

Below are customer use cases to leverage current investments:

  1. Migration from SAP ECC to SAP S/4HANA with Two-Tier deployment – a Latin American company was clear that the time was not yet ripe to move critical production systems to a public cloud. Also, these were critical production systems that needed to run with as little latency as possible, that meant running on an on-premises system of SAP S/4HANA for some of the critical operations. The cost-effectiveness of SAP S/4HANA Cloud was also very attractive. The company decided to move its non-critical systems onto an SAP S/4HANA Cloud instance. The result was a Two-Tier ERP system landscape that optimized SAP’s different deployment choices to serve customer-specific requirements.
    Also known as Headquarters and Subsidiary deployment model where the headquarters is running an on-premises ERP and the subsidiaries run Cloud ERP.
  2. Shared services model among the group companies with Two-Tier
    This customer has enabled an organizational unit (low-cost operation team) to act as the leading procurement system. In this case, the leading procurement team can orchestrate procurement processes and needs of the entire organization. The leading procurement unit can aggregate demand at one location to negotiate better contracts by leveraging economies of scale. This gives a greater flexibility for customers to transition to the cloud or to move certain business functions to the cloud in a phased manner. With this approach, also known as Central Services deployment model, customers can realize maximum value from leveraging existing investments.
  3. Running an ERP instance dedicated to all stakeholders
    In this example, typical end-to-end value chain process might need all the stakeholders like supplier, contractor, transporter, service agent to have view of end-to-end process. Also known as, Ecosystem Deployment Model. Organizations can bring their Subcontractor or Dealers on Cloud ERP and they continue to run their on-premises solution to have connected network between group companies and Dealers/Subcontractors.

Two-tier deployment provides customers with wide range of business processes to use in these three Two-tier deployment scenarios across Finance, Sales, Sourcing and Procurement, Manufacturing, Professional Services, Master Data and Human Resources. Customers can always find the latest information about available business processes in SAP Best Practices Explorer (link). We will highlight few scenarios covering the central functions in such de-centralized deployment.

Consolidation and Group Reporting with SAP S/4HANA Cloud – Headquarters & Subsidiaries can leverage SAP S/4HANA Cloud Group Reporting – Financial Consolidation solution for Statutory financial consolidation capabilities across the group. It supports the complete flow of data collection, processing, analysis, and publication. It embeds reporting cycles including plan, actuals and simulations and integration to SAP Analytics Cloud with APIs to input or extract data. Headquarters & Subsidiaries can leverage SAP S/4HANA Cloud Advanced Intercompany Reconciliation solution with Intelligent Machine learning for automating the manual intercompany reconciliation process.

Financial Planning with SAP Analytics Cloud – SAP Analytics Cloud is fully integrated with SAP S/4HANA Cloud and comes with pre-delivered package contents for Group Reporting Planning, Integrated Financial Planning and Budgeting and Financial Planning and Analysis). The import connection can be set up between SAP S/4HANA Cloud and SAP Analytics Cloud.

·       Group Reporting Planning – Group reporting planning enables you to plan your profit and loss and balance sheet based on the group reporting dimensions, such as the Consolidation Unit, Functional area, Financial Statement Item and Partner Consolidation Units in SAP Analytics Cloud. Planning administrators can pre-populate planning screens based on past actual data. The headquarters running on SAP S/4HANA Cloud can do the consolidation & group reporting, and the actual data can then be sent to SAP Analytics Cloud for planning future periods.

·       Integrated Financial Planning – business content comes with demo data in SAP Analytics Cloud and allows you to import your own data from SAP S/4HANA Cloud and to export your planning results back to SAP S/4HANA Cloud. The complete integration is part of the content delivery and is available out of the box. Revenue Planning, Cost Center Planning and Budgeting, Profitability Planning and Product Cost Simulation are based on the SAP S/4HANA data model in FI-CO and fully integrated with it. Headquarters can do Group level business planning and input/edit to Integrated Financial Planning for Subsidiaries (on Actual data from Subsidiary system) in SAP Analytics Cloud. Different business users from both Headquarters and Subsidiary can get involved in the planning process. The planning data in SAP Analytics Cloud can be exported back to SAP S/4HANA systems and is available in analytical reports for comparison with the actuals (Apps like Cost Center-Plan/Actuals, Cost Center-Plan/Actuals YTD, Internal Order-Plan/Actuals, Internal Order-Plan/Actuals YTD). Activity Cost Rates and Statistical Key figures planned can also be exported back to SAP S/4HANA systems.

SAP S/4HANA Cloud for Advanced Financial Closing – this business scenario can be deployed as a standalone application powered by the SAP BTP, which makes the consumption and deployment more light-weight and leaner. It can be seamlessly integrated in heterogeneous systems landscapes to control closing tasks as a unified hub in distributed financial backend systems. This is SAP’s go-to strategic solution for entity close management and orchestration – supporting the planning, execution, monitoring, and analysis of period-end closing tasks for all entities (i.e., typically the headquarters & all subsidiaries) of a corporation.

The above is just a short list of selected scenarios supported in Two-tier deployment of SAP S/4HANA Cloud. For full list, please refer to SAP Best Practices Explorer here..

Thank you for reading this far. Stay tuned for the second part of this blog where I’ll discuss the planning considerations, potential transition journey and share resources your organization should use to prepare for your transition to cloud.

Additionally, you can explore more SAP S/4HANA Cloud and SAP Activate resources in SAP Community using tags SAP S/4HANA Cloud and SAP Activate. We encourage you to consider following the communities to stay up to date on recent innovations. Let us know your thoughts in the comments to this blog post or via questions in the SAP Community.

 

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