BCG Platinion Case: ERP strategy & S/4HANA migration for “DekoKonzept”

In the SAP context, the terms "Brownfield" and "Greenfield" are often used. A pure Brownfield approach is more likely to mean a technical migration or upgrade of an existing SAP system while (largely) retaining existing processes and data. In contrast, in the Greenfield approach, the SAP system is implemented from the ground up, regardless of existing systems or processes, to create a fully optimized solution.

Since DekoKonzept still wants to use an SAP product, the typical approaches for an SAP transformation are explained below in particular.

Brownfield approach:

• Advantages: A technical migration ("Brownfield") is the potentially faster and cheaper approach. It tends to require fewer resources from the business (e.g., only for testing), provided that the migration is actually purely technical. The risk that the transformation will be costly or take a very long time is relatively low.
• Disadvantages: Problems and inefficiencies of the existing process designs are not touched. The potential for innovation and flexibility stays at the pre-transformation level, and some SAP products may remain untapped.

Greenfield approach:

• Advantages: Legacy processes / systems and inefficienciess are addressed and a modern IT and process landscape can be created. Business processes can be redesigned towards the system standard, enabling standardization and harmonization that can reduce costs in the future, e.g. through more favorable update processes. Additionally, the company becomes more flexible.
• Disadvantages: Analyzing and modifying the processes requires a lot of time and budget. Significant amount of resources are required from both business and IT. Major change requires sufficient change management to train employees on the new processes. This approach has an increased risk of escalating transformation costs.

Hybrid approach:

A mixed approach is also possible, where only selected processes or modules are redefined (as with the Greenfield approach). The processes should be selected based on a value-based approach - meaning, those that are expected to add the most value are revised (e.g. an optimization in the order-to-cash process).

• Advantages: Allows for the revision of particularly inefficient or high-potential areas and processes, providing a good trade-off between time, effort and benefit. Risks can be managed more easily by scoping the project carefully.
• Disadvantages: Lengthy and complex preliminary work is necessary to select the processes that are to be revised. Some legacy issues will continue to exist, especially if insufficient business value is expected from a revision of the respective process.

The different approaches are considered in terms of their suitability:

Brownfield approach:
It can be assumed that the current IT landscape and processes do not support the strategic goals of DekoKonzept well. A purely technical migration would not address these problems, nor would it create a new basis for doing so. A follow-up project would be necessary to improve the integration of the online shop and data storage.

Greenfield approach:
A full Greenfield approach is expensive and lengthy. Due to time and budget constraints, this approach can therefore be excluded.

Hybrid approach:
The strategic objectives are particularly in the area of "order-to-cash". A targeted revision of selected processes or modules could therefore be more efficient. In the hybrid approach, the relevant areas along the order-to-cash process can be addressed to improve data storage and integrate the online shop more closely. Further standardization, for example in the area of Finance & Controlling (FI/CO), could be discussed and, depending on the effort and budget, may be included in the scope of the project if necessary.

In order to keep future efforts to a minimum, as little custom coding as possible should be used within the ERP system ("Clean Core" concept). However, whether a process should be standardized also depends on its type:

Differentiating processes:
These are processes that can give the company an competitive advantage. Individualization can be considered (for example, via WRICEFs or a side-by-side extension), but costs and benefits must be weighed against each other. In addition, future stability and update security should be taken into account on the technical side. Also, the frequency, i.e. how often the process is used, must be taken into account - especially for very rarely used processes, the added value must be emphasized all the more clearly. Finally, a deviation from the standard must always be justified by a clear business case and the corresponding added value for the business.

Regular processes:
All non-differentiating processes, that do not provide any significant business advantages over competitors or are otherwise highly differentiated. These should be adpoted from the vendor's standard as far as possible in order to keep costs low. The current status can be analyzed in "Fit/Gap" workshops in order to define and implement the desired standardization level.

Exceptions:
Exceptional cases for a deviation from the standard could be legal requirements in the localization or an industry-specific "gap" in the software. These exceptions could potentially also justify individualization regardless of a business case.

The interaction between the ERP and other systems processing inventory can quickly lead to situations where one system does not have the latest inventory data. Especially in the retail sector, there is additional complexity due to the retention of stocks, e.g. a reservation in the shopping cart. In such a scenario, there is a lack of a single source of truth for the inventory data and a corresponding system that takes over this task.

Example of DekoKonzept: The point-of-sale system (POS) and the online shop access inventories directly in ERP independently of each other, but in completely different ways. The online shop, for example, picks up stocks directly, but these are only updated in the ERP in nightly "batch jobs". The POS system, on the other hand, collects its orders and sends an update to the ERP only at the daily close of business. Since the interface encounters errors due to inconsistent data and other technical problems, the sales data is sometimes only updated after a few days.

Basic requirements that are necessary to implement the mentioned requirements (further answers are possible):

• Functionality: The ERP must functionally offer the corresponding processes for Click & Collect (in the SD/O2C module).
• Data model: A consistent data model across all relevant applications (ERP, POS, etc.) is required, so that exchange via interfaces is possible without issues.
• Integration: Real-time data processing via a middleware/integration layer that enables exchange between applications and serves as a central data source for current inventory data.
• Inventory management: Maintain reservations, shopping carts, etc. in a separate application connected to the ERP (such as SAP CAR or "on-the-edge" on the middleware).

There are several approaches to building the business case:

1. Top-down: Rough estimation of key cost & benefit positions using available KPIs and benchmarks - quickly achievable but potentially inaccurate
2. Bottom-up: More detailed calculation, in which cost & benefit items e.g. are calculated along the project timeline and then aggregated - this approach is generally time-consuming, but potentially more accurate than the top-down approach for shorter project periods

Assuming that ERP transformations tend to involve longer project periods, a top-down estimate at the beginning is often a good idea, which can be detailed later.

Possible top-down structure (different or alternative answers possible):

Costs

• One-time costs
  • Initial costs (setup, hardware, initial training, etc.)
  • Implementation costs (internal FTE, external FTE - or split according to workstreams, e.g. PMO, customizing, development, testing, ...)
  • Additional project costs (travel costs, project room/equipment, ...)
• Running costs
  • Contract costs (SAP RISE etc.)
  • Additional maintenance/support by external SI, if necessary
  • Internal personnel costs (e.g. operations, processes)

Values

• Direct savings
  • Cost savings through automation and process efficiencies (in saved FTE)
  • Consolidation of IT systems, Maintenance and support
• Indirect benefits
  • Process harmonization enables easier exchange between different sites/functions
  • Increased customer satisfaction (see the previously mentioned canceled orders due to incorrect inventory data)
  • Strategic advantages through better decision-making / data transparency and modern system as a necessary basis for innovation (e.g. GenAI)
  • Simplified compliance and thus faster compliance checks
  • More attractive processes and interfaces for recruiting new employees

For a bottom-up structure, for example, the different workstreams can be structured either by function (O2C, P2P, ...) or by activities (design, build, testing, ...), and their corresponding personnel requirements are planned across the timeline.

Entry point of positive effects:
Since the ERP transformation can take between 1 and 3 years, even for a small business, and most of the benefits come after go-live, the business case should also consider at least this period. Some benefits - such as process efficiencies - may come later as employees become accustomed to the new processes. There may also be a transition phase in which old and new processes still exist in parallel to ensure stability. The reduction of resources can also only be implemented gradually (depending on company conditions and labor law).

Key Positions:
The largest cost items are typically internal & external RTD (personnel costs) and the greatest benefit can therefore be savings in personnel costs due to process efficiencies.