mySAP™ ERP AND ENTERPRISESERVICES ARCHITECTUREDelivering Operational Excellence with Adaptive Solutions

SAP White Paper

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Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Trends and Strategies in ERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

The Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Islands of Automation and Complexity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Multiple, Hardwired Integrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Redundant Systems and Nonreusable Functionality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Poor User Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Fragmented Structured and Unstructured Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

The Journey to Becoming an Adaptive Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Unlocking the Potential of an ESA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

mySAP ERP and ESA: Embracing Innovation and Achieving Operational Excellence . . . 12Scenario 1: Contract Manufacturing (Business Process Extension). . . . . . . . . . . . . . . . . . . . . . . . . . . 12Scenario 2: Consolidating HCM as Shared Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Scenario 3: Outsourcing Logistics Operations (Business Process Outsourcing). . . . . . . . . . . . . . . . . 14– With Enterprise Services Architecture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Scenario 4: Employee Onboarding Process (Composite Applications) . . . . . . . . . . . . . . . . . . . . . . . . 17Scenario 5: Portfolio Planning with Services-Oriented mySAP ERP Financials . . . . . . . . . . . . . . . . . 18Scenario 6: Time and Attendance with Service-Oriented mySAP ERP HCM . . . . . . . . . . . . . . . . . . 18Scenario 7: Procure to Pay in Public Sector (Interactive Forms) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Scenario 8: Improved Business Insight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

mySAP ERP and ESA: Aligning IT and Business to Achieve Operational Excellence. . . . . 21

What’s Available Today? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

What’s Next? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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CONTENTS

Today, islands of automation, growing IT complexity, governancepressures, and budget reductions are IT realities hampering the ability of companies – small and large – to embrace newbusiness practices and technology innovation. As companies seek better ways to achieve competitive differentiation, marketresponsiveness, and operational excellence, they later find that their existing IT landscapes are too complex, inflexible, andcostly to adapt to evolving business conditions. Even if compa-nies can afford the resources, the time and effort it takes to changeand enable new practices may be too extensive to justify thevalue of the investment. IT, often regarded as a monolithic,rigid, slow-moving, or foreign entity to many business people,must align with business needs and evolve with changing marketdemands to enable future innovation, agility, and efficiency.

The growing importance of IT architectures has led many ITexecutives to rethink their traditional approaches and to lookfor better, smarter, and more efficient ways to serve their orga-nization’s needs. Central to becoming more responsive andagile is the adoption of Enterprise Services Architecture, alsoknown as a services-oriented architecture (SOA). It not onlyfocuses on short-term needs – such as lowering IT costs, improv-ing quality of service, and enhancing existing IT systems – butalso, and more importantly, an SOA establishes a flexible, adap-tive, and open IT foundation for changing business practices,market dynamics, and competitive challenges.

This white paper is intended for account executives and salesengineers. It introduces business strategies and market trends inenterprise resource planning (ERP), financial management,operations management, and human capital management(HCM) that drive the consideration of Enterprise ServicesArchitecture. It discusses the importance of Enterprise ServicesArchitecture and the role it has on guiding organizations to create the next generation of ERP of any size, for any industry.Lastly, this paper illustrates, compares, and contrasts the differentdeployment scenarios in ERP and clarifies why businesses are adopting an enterprise services approach to compete in a marketplace that is continuously changing.

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EXECUTIVE SUMMARY

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Over the past few decades, companies deployed ERP software togain internal efficiency in back-office operations, such as manu-facturing, accounting, human capital management, financialmanagement, purchasing, and other operations. Such technologyinvestments helped management reduce costs. But today, companies can’t rely on back-office process automation toachieve top-line growth and bottom-line improvements.

This model is best described in the book Living on the Fault Lineby Geoffrey Moore. In it, Moore frames the challenges of con-tinuous business innovation between an organization’s core –that is, those business processes that differentiate businesses inthe eyes of their customers – and context, which is everythingelse. An enterprise’s core aims to drive business innovation andcompetitive differentiation to stimulate growth. Context’s pri-mary goal, according to Moore, is to operate as efficiently andproductively as possible. The catch is that core only remainscore as long as it differentiates the enterprise from the competi-tion. Once it has been copied, it becomes context and is nolonger an innovation. It must then refocus on improving itsefficiency and productivity.

Applying this concept to ERP, a company could differentiatethrough new techniques or next practices in the areas thatdrive their top line. Companies may also consider outsourcingstandard or commodity processes to free up resources forstrategic and differentiating endeavors.

Some examples to describe business practices to spur on differentiation or productivity include:

• Implementing mass customization with geographically dispersed contract manufacturers and suppliers to reducecycle times, rework, and inventory costs in the automotive or high-tech industry

• Extending an existing quotation management process toexternal suppliers to drive more efficiency and responsivenessinto the contract manufacturing process

• Improving the new hire, employee transfer, termination, and other workforce management events to automate theexchange of information to third parties according to localpolicies

• Centralizing common operations as a shared service toenforce global policies and leverage economics of scale

• Outsourcing payroll and HR to third-party agencies andmany more

TRENDS AND STRATEGIES IN ERP

Figure 1: Business Process Innovation: Core and Context

Innovation

Invention

Standardization

Commoditization

CoreFocus on Differentiation

Courtesy of Geoffrey Moore’s Living on the Fault Line

ContextFocus on Productivity

Mission-CriticalActivities

EnablingActivities Invent

Scale

Inso

urc

e

Out-Ta

sk

Retire

Consolidate

Compose

These operational strategies are difficult to implement given thenature of IT in many enterprises. Traditionally, organizationsdevelop custom applications from scratch using various platforms,but then find it inflexible and change resistant. Moving fromcore to context to consolidate common practices, for example,is difficult and expensive. For it to work, enterprises must ratio-nalize on varying platforms and applications, acquire new skills,and build new integrations. Similarly, innovating processes fromcontext to core is equally challenging and expensive because ITmust determine the best way to leverage existing investments.

To summarize, for most organizations, when developing a new approach to fundamental practices, the uncertainties faroutweigh the certainties – but this much we know:

• What is differentiating now may be copied by the competitionand become a standard or best practice, for which efficiencyand productivity then become its primary purpose.

• Organizations need to reduce costs continuously in supportingthese business activities.

• Consolidating common business and IT functions as shared services is a way to reduce costs and redundancy while enforcing global policies.

• Out-tasking of nonstrategic business processes or process steps is a viable alternative as they do not differentiate theenterprise; this enables staff to focus on strategic or core competencies.

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Core

Consolidationis extremely difficultand expensive• New platform• New skills• New integration . . .

Innovationcannot easilyleverage existinginvestments

Context Core Context

Figure 2: Business Process Innovation Hampered by IT

Companies that invent new business strategies or next practicesoften find it difficult to embrace innovation. Those that createdifferentiating strategies later realize that their plans are heldback by the current state of their IT. Rather than being an enablerof innovation and efficiency, IT has become an inhibitor to business changes given the growing complexity, inconsistency,and maintenance requirements.

Islands of Automation and Complexity

In many enterprises, applications are independently implementedto address specific needs at any given point in time. This approachhas created islands of automation with different technologiesand proprietary code – far too complex to integrate, too costlyto adapt, and difficult to share critical business information.With evolving business conditions – such as mergers and acqui-sitions, company spin-offs, and reorganizations – the IT landscapeis further complicated by fragmented information, limitedinsight into comprehensive analytics, inconsistent user inter-faces, and more pockets of automation. Heterogeneous IT environments are a reality, and companies need to find a betterway to reduce the costs and complexity, while leveraging existingtechnologies.

Multiple, Hardwired Integrations

Traditionally, companies used enterprise application integration(EAI) tools to integrate independent applications. This approachused proprietary interfaces for hardwiring different applications.While EAI tools have successfully linked different applications,they require staff with specialized skills to understand the inner

workings of systems on both sides to create tightly coupled integrations, which must be maintained over the useful life of the applications. The upfront development and ongoingmaintenance costs of these integrations can be avoided.

Redundant Systems and Nonreusable Functionality

In many organizations, the IT portfolio grows arbitrarily eitherthrough divisional purchases or mergers and consolidations.This generally results in redundant or customized systems thatare not easily used by other organizations.

Consider the example of an enterprise that has grown throughacquisitions and now consists of a few independently operatedhuman resources, procurement, and IT organizations – eachwith its own system to support local needs. Any policy changesrequired at the global level – such as IT security policies, privacylaws, or contractual pricing – need to be enforced separately atthe local level.

The question is: “How can companies do this effectively to comply with global and local regulations?” The answer is: “Notwell.” Many companies seek better ways to centralize commonfunctions as shared services, to rid themselves of redundancy,increase their operating efficiency, and allow for the reuse of theirexisting investments. Unfortunately, these laudable goals areoften hampered by the growing complexity in their IT landscapes.

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THE ISSUES

Poor User Experience

In a heterogeneous IT environment, employees often act ashuman integrators to bridge manually the flow of informationbetween independent systems, each having a separate look andfeel. Consider the scenario of bringing a new hire on board in the United States. The new hire provides data for the respectivesystems:

• Medical and dental benefits (HCM and third-party systems)

• W4 and payroll (HCM)

• Beneficiary names and information (HCM and third-party systems)

• Credit card applications (credit agency)

• Travel profile (travel agency)

• 401(k) (retirement financial services provider)

• Payroll deposits (bank)

• Business cards (third-party printing system)

• Office supplies (procurement)

and so on.

Not only does the new hire need to learn how to navigate throughvarious internal and external systems with different user inter-faces, but employees are also burdened by not knowing whichtasks to complete when, and what the status of those activitiesare. The inconsistency and lack of process transparency compli-cates the mission at hand and compromises the overall userexperience.

Fragmented Structured and Unstructured Data

In many organizations, the need to reference structured or onlinedata and unstructured or offline data is not only desired forincreased efficiency, but also mandatory to comply with regula-tory needs. This is especially true in the public sector. Yet traditional systems do not fully address the end-to-end process,so organizations create a wealth of offline data from administra-tive paperwork, e-mail, faxes, mail, and other methods of offlinecommunication. Employees must then spend non-value-addedtime sorting the offline information, and tying it back or reen-tering the data into the appropriate systems for compliancepurposes.

Consider a federal project to build a new bridge or to repave ahighway. To identify the best contractors, the agency will needto assemble an RFP using structured data, including materialdescriptions, quality, and delivery dates from ERP, as well asunstructured information, such as statement of work, evalua-tion criteria, standard provisions, and contractual clauses fromMicrosoft Word documents and third-party content providers.

Prospective contractors can submit their proposals by fax, mail, or e-mail. The final contract award will contain pricingand schedule information from the awarded proposal, and contractual terms and conditions from the original RFP.

The blend of structured and unstructured data generated fromthis end-to-end process is a lot to manage, yet it must be doneeffectively to comply with federal regulations. As a result, theagency will need to invest in IT staff to develop the custom integrations, a team of contract administrators to govern theend-to-end process, or both.

To summarize, when organizations look to growth, improve-ment, and new opportunities, many find that that their IT systems are holding them back. These might be the reasonswhy:

• A complex, inflexible IT environment impedes an organization’sability to respond to the evolving business dynamics in a competitive marketplace.

• Islands of automation and pockets of technology require additional investments to bring together the informationscattered or hidden in various systems.

• IT organizations need to do more with fewer resources and a complex IT environment increases the costs to build andmaintain integrations.

• Closed, proprietary systems often require custom integrationsto be done by people with highly specialized and expensiveskills.

• Business processes that span across existing boundaries oftenrequire users to work with multiple systems, each having aseparate look and feel; the user experience is not consistentand integrations are not transparent.

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The need to respond faster to business demands, embrace newbusiness strategies, leverage existing IT investments, provide better service levels, and improve user experience is driving IT organizations to search for a better way to run the business,while reducing operating costs.

SAP believes that IT organizations can overcome these challengesby adopting a services-oriented architecture (SOA). EnterpriseService Architecture (ESA), coined by SAP, is a business-drivenapproach to SOA for delivering adaptive solutions in thecustomer’s IT landscape.

However, SOA and SAP’s ESA are not one and the same. Gener-ally speaking, SOA is a technical framework for building softwareapplications that use services available from a network, such as the Web. Applications in SOA are built as services, to meet awell-defined business need, and made available to clients for usein an array of applications and business processes. ESA is SAP’srendition of an SOA that expands the concept of Web servicesinto an architecture that supports enterprise-wide, service-enabledbusiness architecture.

The difference between an SOA and ESA comes from serviceenabling the most common business processes, such as procureto pay, order to cash, and hire to retire. While SOA can be seenas a more technical concept, ESA can be thought of as the blue-print that enables flexibility, openness, and speed, which arecritical elements for success in an adaptive enterprise. Simplyput, ESA is SAP’s blueprint for a business-oriented approach to SOA.

Unlocking the Potential of an ESA

SAP NetWeaver®, the open platform that powers the mySAP™ERP solution, the mySAP Business Suite family of business solu-tions, and many partner solutions, enables customers, partners,and SAP to unlock the potential of an ESA. SAP NetWeaver,which is based on open standards, such as Web services, Java,and XML, brings together information and functionality fromSAP’s applications and offers them as enterprise services forcommunication with SAP® software, third-party, and legacy systems.

It is important to understand the relationship between SAPNetWeaver and ESA, particularly because SAP NetWeaver is currently transforming from an integration platform and acomposition platform into a business process platform to enableESA. First of all, SAP NetWeaver is a tangible product suite;Enterprise Services Architecture is a concept. Meaning that theprimary difference between them is that you can buy and sellSAP NetWeaver.

Second, the platform has undergone various iterations in thelife of SAP NetWeaver since its launch in 2003. Early on, it was an integration and application platform on which various appli-cations could run and integrate. The next version will makeSAP NetWeaver a composition platform, where partners andcustomers could efficiently compose applications on top of theexisting platform and have all pieces work well together. NowSAP is embarking on the next generation as SAP NetWeaverevolves to a business process platform, where fundamental andreusable, end-to-end service-enabled processes become part ofSAP NetWeaver.

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THE JOURNEY TO BECOMING AN ADAPTIVE ENTERPRISE

Traditionally, there were two options: build or buy. Now, Enterprise Services Architecture adds a third: compose. Thiswill allow IT and business professionals to leverage enterpriseservices to develop applications faster and with less effort fornext or evolving business practices.

SAP NetWeaver Visual Composer, a model-driven tool, allows IT and business professionals to compose applications with SOA,rather than conflating proprietary programming to work togetheras if they were made to. Traditionally, teams of business analystsand application developers must translate business requirementsinto detailed, procedural logic. With a service-oriented architec-ture the language of business becomes the language of IT. Enter-prise services within mySAP ERP are defined with simplicity at a granularity that they can be easily understood by businessanalysts. Thus, business analysts can leverage the appropriateenterprise services for composite applications supporting newbusiness scenarios.

SAP NetWeaver also enables the delivery of role-based userinterfaces through an enterprise portal that enables organizationsto structure business processes and deliver relevant financials,operations, human capital management (HCM), and otherbusiness information tailored to a specific role. This IT practiceimproves user productivity and provides a more consistent userexperience. SAP NetWeaver also allows users to access diversetypes of enterprise information, including SAP applications,third-party applications, databases, data warehouses, desktopdocuments, Web content, and so on. It is also possible to accessboth structured and unstructured information scatteredthroughout an enterprise.

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Figure 3: Evolution of SAP NetWeaver® to Adopt Enterprise ServicesArchitecture

SAP NetWeaver® Evolves into a Business Process Platform• enriches the SAP NetWeaver composition platform with ready-to-run

business processes• accessible through Enterprise Services

Business Innovation

Generation 1ApplicationPlatform

Generation 2IntegrationPlatform

Generation 3CompositionPlatform

Generation 4BusinessProcessPlatform

Pro

duct

ivity

SAP NetWeaver will evolve into a business process platform or“applistructure” that merges enterprise applications with infra-structure technology. Rather than developing, managing, andmaintaining a myriad of IT systems, organizations can cut costsand reduce IT complexity by consolidating their infrastructure.SAP NetWeaver will allow business analysts to compose applica-tions by assembling enterprise services from the enterprise services repository, a central repository for modeling enterpriseservices and storing their metadata as defined by customers,SAP, and partners. This repository will be an integral part ofSAP NetWeaver and mySAP ERP as they embrace Enterprise Services Architecture.

Figure 4 illustrates the different components enabling themigration of mySAP ERP and mySAP Business Suite to a services-oriented architecture.

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Figure 4: mySAP™ ERP on Enterprise Services Architecture

Third PartyLegacy

SAP NetWeaver®Business Process Platform

Partner

customer partner employee

mySAP™ ERP

EnterpriseServices

Repository

Analytics

Composite Applications

SAP’s enterprise resource planning solution, mySAP ERP,embraces the philosophy surrounding Enterprise Services Architecture and is well ahead of the game by providing a largerepository of enterprise services for ERP, HCM, financial man-agement, and operations management. Because mySAP ERPwill be services oriented, companies can achieve differentiationby implementing the following practices:

• Business process extension to integrate multiple internal and external business processes to provide flexibility and drivefurther efficiency beyond existing enterprise boundaries

• Business and IT consolidation or shared services to reduceredundancy, increase cost savings, and enforce global policies

• Business process out-tasking of context activities, enablingstaff to focus on the next differentiating practice

• Composite applications that leverage existing systems toincrease operating efficiency in highly fragmented or uniquebusiness processes

• Improved productivity and user experience by deliveringa consistent look and feel, as well as simplifying task manage-ment by delivering relevant content, exceptions, and useralerts

• Comprehensive analytics to gain better insight intocomprehensive operational information, enabling staff toidentify future opportunities for increased profitability, costsavings, responsiveness, and efficiency

The following section contains several scenarios describingvalue of mySAP ERP with enterprise services architecture.

Scenario 1: Contract Manufacturing

(Business Process Extension)

A contract manufacturer needs to extend the quotation man-agement process to external suppliers to improve efficiency andresponsiveness. Today, the process spans the line of organizationalsilos – from the end customer to the internal team to externalsuppliers. Several internal and external systems are in place, likeERP, CRM, SRM, HR, SCM, financials, home-grown, legacy,third-party solutions, and so on.

The process starts with the receipt of a request for quotation(RFQ) from the end customer. The account manager enters the information into the CRM system and then assesses theopportunity. The internal team is notified of the opportunityand assembles pricing and material information from multipleinternal and external sources. Depending on the sourcingneeds, the internal team may produce an RFQ to source morecompetitive quotations from suppliers; this can happen wheninsufficient manufacturing capacity exists or where more competitive prices can be obtained.

Before Enterprise Services Architecture (ESA), the contractmanufacturer relied on its internal team as human integratorsto bridge manually the flow of information between multiplesystems and parties. Before ESA, the extended quotation man-agement process required extensive offline communication,paperwork processing, data reentry, and other administrativetasks. These can result in poor process governance and frag-mented data. This practice is clearly ineffective, reactive, unreli-able, time consuming, and difficult to manage for all partiesinvolved. Any changes to the original RFQ will require a wave ofupdates to the existing applications, thus compromising thedata accuracy and competitive responsiveness. The contract

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mySAP ERP AND ESA: EMBRACING INNOVATION ANDACHIEVING OPERATIONAL EXCELLENCE

manufacturer can automate through hardwired integrationsbetween its internal ERP systems and the supplier’s systems, butthis is complex and difficult – especially considering the vastnumber of suppliers and proprietary systems out there. Andworse, it increases the total cost of ownership by making the ITlandscape more and more complex. There is a better way.

Using enterprise services, mySAP ERP can exchange business-critical information between very different systems: ERP, SRM,and third-party CRM systems. Some examples of mySAP ERPenterprise services include purchase order and contract statustracking, costing updates, sourcing, vendor quotes status tracking, and PO creation.

This new approach enables different systems to communicateusing a common language and reduces the need for data reentryand offline communication. For example, the document con-troller receives supplier quotation information through enter-prise service vendors developed for a third-party CRM solution.

Scenario 2: Consolidating HCM as Shared Services

Consider the scenario of centralizing HR functions by rollingout a self-service portal for employees. In a distributed HRscenario, local HR teams are on-site to address specific issuesand administrative tasks. These tasks may be as simple as anaddress change, enrolling in a 401(k), or direct payroll deposits toa task as complex as benefits planning with different providersusing different systems on different continents.

In a centralized HR scenario, a self-service portal for employeesis introduced globally to allow employees to perform simple HRtasks, use an online employee handbook and other knowledgetools. This is an automated first line of support. The HR depart-ment is readily accessible if the task at hand exceeds the user’sneed or the portal’s capabilities. In this new approach the localHR representative is liberated from a significant number ofwell-worn administrative tasks and freed to focus on morestrategic initiatives to further improve employee satisfaction and reduce operating costs.

Before Enterprise Services Architecture, deployment of theemployee self-service portal would require extensive proprietaryintegration with back-end systems. For example, to update anemployee home address, this change will need to be reflectedacross multiple systems:

• Employee master information (mySAP ERP HCM)

• Travel profile (third-party travels)

• 401(k) bank (third-party financial services system)

• Employee stock purchase plan (third-party investment system)

• American Express credit card bank (third-party credit andbanking system)

• Payroll (SAP ERP HCM and third-party payroll processing)

• Tax services (third-party tax services)

To integrate mySAP ERP HCM without Enterprise ServicesArchitecture, a total of 30 or more custom proprietary interfacesneed to be designed, tested, deployed, and documented. Anychanges to a given interface would result in another wave ofdevelopment, testing, and documentation. In time, this taskbecomes insupportable – overly complex, cost prohibitive, andhighly inefficient.

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The solution is mySAP ERP HCM, which can use enterpriseservices to exchange employee data securely and reliably withmultiple systems. For example, when an employee submits achange to update the home address through the self-serviceemployee portal, the appropriate change home address serviceis invoked to communicate real-time information to the third-party systems. Since enterprise services are developed on openstandards-based interfaces, they can be used by several systems.This flexibility reduces the time, effort, and cost to build andmaintain tightly coupled integrations.

Scenario 3: Outsourcing Logistics Operations

(Business Process Outsourcing)

Consider the outsourcing of logistics management for a globalhigh-tech OEM manufacturer. This company has manufacturingplants, logistics centers, and third-party warehouses locatedacross EMEA, Asia Pacific, and North America. Each locationhas varying inventory levels of finished goods, from 0 to over120 days of supply, to meet service levels agreements (SLA) withits OEM customers.

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Flexible Packaged Business Application

ERP CRM PLM SRM SCM Custom

SAP NetWeaver®

Procure to Pay

Enterprise Services

EnterpriseServices

Repository

Figure 5: IT Landscape Before Logistics Outsourcing

Order to Cash

Manufacture to Inventory

A key objective for the company is to reduce the finished goodsinventory across its distribution centers and warehouses. However,the staff is consumed by the day-to-day, tactical activities inglobal shipments, working with logistics carriers, custom agents,third-party warehouse providers, and other tasks in logistics and warehouse management.

As a result, the company decides to outsource its logistics andwarehouse operation to a third-party provider with specializedexpertise in multimodal transportation and planning, contractnegotiation, competitive pricing, insurance management, importand export, taxation, warehouse management, and so on. Theseactivities are clearly mission critical for the business, but thecompany recognizes that it does not have the core competencyin-house to specialize the activities for differentiation.

The company uses an ERP system for sales and distribution andmaterials management, legacy systems for HR and CRM, andthird-party solutions for warehouse management. The IT envi-ronment is complicated by a myriad of customization of uniquebusiness processes and proprietary, tightly coupled integrations.

The outsourcing initiative requires that the company’s internalERP and legacy systems be interoperable with the home-grown,sophisticated transportation and warehouse management toolsof the third party. Without a proper SOA, the company will beforced to build and maintain custom, proprietary interfaces

between ERP and all third parties in order to exchange product,bill of material, order, inventory availability, pricing, and customerinformation. Such interfaces ensure that the third-party providercan share real-time information on shipments, including those in transit and held up at customs, expected delivery dates, damaged shipments, inventory at distribution centers, and more,at any time.

Now, suppose the company decides to establish a new process to monitor and enforce service-level agreements with the third-party logistics provider. Because of the existing IT complexityand the inflexibility of the tightly coupled systems (like ERP,HR, CRM, and so on), the companies will face difficulty indecomposing existing functionality and composing a new application that can span across business and IT boundaries.

With Enterprise Services Architecture

In Enterprise Services Architecture, mySAP ERP, HCM,financials, and operations software can use enterprise services tocommunicate and exchange information with the external systems of the third-party logistics provider. Both parties will beable to leverage their existing IT systems and publish enterpriseservices that can be discovered and invoked over a network. Someservices may include product details, pricing, inventory avail-ability checks, delivery status checks, purchase order details,purchase order changes, partial shipments, and bill of ladingdetails.

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What’s more, mySAP ERP enterprise services enable companiesto compose and fine-tune business processes more easily. In thecase of building a process that governs SLA across companyboundaries, enterprise services can be used to ensure that business-critical information is exchanged in real time betweenthe third-party provider and the manufacturer. For example,

the manufacturer will be able to monitor the actual service levels of deliveries from order receipt (in mySAP ERP) toshipment in transit (in third-party system) to shipmentdelivered (in third-party system), even though this processspans across different systems.

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Figure 6: IT Landscape Enabling Logistics Outsourcing

Compose Differentiating Processes. . . by Leveraging Packaged Solutions

Third-Party Transportation Tracking

Third-PartyWarehouse

ManagementERP CRM PLM SRM SCM Custom

SAP NetWeaver®

Order to Cash (with Logistics Outsourcing)

EnterpriseServices

EnterpriseServices

Repository

ProcureSource

Procure to Pay

Order Ship

Order to Cash

Plan Manufacture Inventory

Manufacture to Inventory

Order Source Manufac-ture Inventory Ship

Scenario 4: Employee Onboarding Process

(Composite Applications)

Consider again the employee onboarding process spanning acrossseveral internal and external organizations: hiring manager,human resources, facilities, IT, and more. With Enterprise Ser-vices Architecture, SAP customers can compose new businessprocesses using SAP NetWeaver and SAP NetWeaver Visual Com-poser. The tool enables business analysts to pull together andrearrange existing enterprise services of mySAP ERP HCM into acomposite application automating a new hire process as follows: 1. Initiate new hire request (hiring manager)2. Approve request (approver)3. Generate offer letter and employee contract (automated)4. Approve or reject offer letter (candidate)5. Raise service request to provision users on IT systems

(automated)

6. Raise purchase request to acquire new laptop and other supplies (automated)

7. Initiate facilities request to get office, phone, furniture,TCP/IP wiring (automated)

8. Provisions services, which include facilities, IT procurement,office space, and so on (automated)

9. Schedule new hire orientation (hiring manager)10. Enroll in benefits, W4, and so on (employee through

third party)

With SAP NetWeaver and enterprise services from mySAP ERPHCM, activities can be automated and information can beexchanged in real time. Furthermore, the composite applicationwill provide a consistent look and feel as it is built with SAPNetWeaver calling the different enterprise services of SAP andother systems.

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Figure 7: Employee Onboarding with Enterprise Services Architecture

Modularization Employee Onboarding Specialization

Composition and Collaboration

Rigid Value Chains Evolve into Adaptive Business Networks

For example, SAP and Microsoft are leveraging EnterpriseServices Architecture in their integration of mySAP ERP andMicrosoft Office systems to close the gap between desktop productivity tools and enterprise business applications. Figure 9illustrates how employees can gain productivity while ensuringcorporate compliance by exchanging real-time informationbetween Microsoft Outlook and mySAP ERP Financials in thecontext of managing appointments with Microsoft Outlook.

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Scenario 5: Portfolio Planning with Services-

Oriented mySAP ERP Financials

IT portfolios that support multiple divisions and departmentsoften rely upon business analysts to retrieve financial, asset,employee, and project data from across disparate systems. Withthis raw data in hand, they then must import, reformat, consoli-date, and analyze it all on comprehensible spreadsheets. As youmight imagine, the process is resource intensive and error prone.

With Enterprise Services Architecture, companies can createenterprise services that pass planning information from mySAPERP HCM, financials, and projects using a third-party tool, suchas Microsoft Excel. After Excel processes the third-party data,the results are fully communicated back to SAP systems, usingenterprise services.

Scenario 6: Time and Attendance with Service-

Oriented mySAP ERP HCM

Time and attendance management is a great example of theneed for a services-oriented approach. It requires employees to record their activities in mySAP ERP HCM and mySAP ERPFinancials, as well as maintain the same information on desktoptools such as Microsoft Outlook and Microsoft Project. Theprocess is complicated by an abundance of information that, forcompliance and control purposes, is scattered throughout theuniverse of available systems, and unnecessarily difficult to track.See Figure 8.

Using enterprise services, time and attendance information is automatically exchanged from third-party desktop tools and into mySAP ERP HCM and mySAP ERP Financials, savingemployees time and effort, and greatly improving the accuracyof the reporting.

Figure 8: Time Management Before Enterprise Services Architecture

Time Management(Isolated Project Management Process)

How Do You Govern Time Management if It SpansAcross Isolated Systems?

ERP (HR, Accounting)

Desktop Tools(Calendar, Projects,

and so on)

Time Recording Plan Execute Control

Data Reentry

Fragmented Information

Isolated and Complex

Accurate Data?ProjectManager

Scenario 7: Procure to Pay in Public Sector

(Interactive Forms)

Consider the example of an agency acquiring goods and serviceswith the United States public sector. Today, the agencies aremandated to use standard forms as regulated by federal acquisi-tions regulations. Depending on certain criteria like acquisitionvalue and type, specific contractual and provisional clausesmust be presented on any forms that get published to suppliersand contractors for bidding. (Agencies still use standard paperforms to accommodate suppliers and contractors withoutonline access with which to submit bids.)

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Figure 9: Time Management with Enterprise Services Architecture

TimeRecording Execute ControlPlan

ScheduleAppointment

AssignProject

Enterprise Services Architecture Integration• Real-Time Access and Updates

from Desktop Tools to ERP• Data Integrity• Corporate Governance

Submit/Charge Time

Figure 10: Sample RFQ in PDF for Agency and Prospective Suppliers to Complete

With Enterprise Services Architecture, agencies can submitstandard forms as PDFs to suppliers and contractors. Suppliersand contractors can print the form and fill it out offline, orenter the information directly onto the PDF and submit it.

Using enterprise services, the unstructured data on the PDF areeasily transported to mySAP ERP systems and stored as struc-tured data. The benefit of this approach is that agencies canreuse existing online and offline forms to comply with federalrequirements. At the same time, the competitive biddingprocess is simplified for contractors and suppliers.

Scenario 8: Improved Business Insight

Consider the logistics outsourcing scenario again. It is imperativefor the manufacturer to evaluate the overall performance of a third-party logistics provider and govern the service levels,pricing, and other terms and conditions as agreed on the servicelevel agreement.

Since the new order-to-cash process spans beyond existingboundaries and relies on both internal and external enterpriseapplications, it creates a significant challenge for both companiesto gather, consolidate, and analyze operational data. Separationsof duties, security policies, and fragmented or hidden informationwill complicate the ability to measure and control provider performance.

Operating with Enterprise Services Architecture, the manufac-turer can develop services that gather key operational data fromvarious systems (such as ERP, CRM, warehouse managementsystems, third-party logistics carrier systems, and so on). UsingSAP NetWeaver, the results are easily presented in an intuitive,user-friendly way, and delivered to the desktop of the designatedparty (role) or department (work group).

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mySAP ERP AND ESA: ALIGNING IT AND BUSINESS TO ACHIEVE OPERATIONAL EXCELLENCE

Business Strategy ERP Examples Traditional Enterprise Services Architecture

Consolidate common ERP and legacy toprovide shared services and reduce TCO

Accounting

• Time and expense management

• Credit and debt analysis

• Collections

• Invoicing

• Accounts payable

• Billing dispute resolution

Self-service

• Employee interaction center for centralized management of IT and HR

Difficult and complex as different applications may have different technologyplatforms and proprietary interfaces

Enterprise services can be used by multipleapplications so consolidation will be moreefficient and effective

Compose applications to support uniquebusiness needs

HCM

• Employee onboardingCustom-built applications with proprietarycode that are not designed for reuse byother systems

Enterprise services are modular and can be easily rearranged to support compositeapplications

Extend existing applications to drive further operating efficiency beyond existing boundaries

Supply management and procurement

• Procurement

• Logistics management

• Warehouse management

Higher costs and effort to integrate multiple systems as this would require special skills and proprietary interfaces. Also changes would drive TCO higher as of result of additional coding, testing, documentation, training

Enterprise services are modular and can beorchestrated in such a way to enable otherbusiness processes by other systems

Outsourcing core business processes andtheir IT systems

Human resources

• Payroll

• Benefits enrollment

• Benefits management

• Training

Supply management and procurement

• Procurement

• Logistics management

• Warehouse management

Demand management

• Call center operations

• Analytics

Difficult to outsource core business processes because the underlying IT systems are tightly integrated

Business process outsourcing simplifiedbecause enterprise services are modular and loosely coupled and can be more easily out-tasked without impacting the rest of the IT landscape

To demonstrate its continued leadership in helping customersmove toward services-oriented architectures and building on its commitment to provide the partner community with thedevelopment platform, SAP’s road map for Enterprise ServicesArchitecture includes the following:

This year SAP will publish an inventory of its enterprise servicesand make it available for planning purposes for customers andpartners. This list of enterprise services can be leveraged in customers’ and partners’ composite applications and for longer-term planning. Additional service-enabled scenarios will be madeavailable, focusing on business process flexibility and anticipatingthe needs of new composite applications. In 2005, SAP will alsobegin customer ramp-up with mySAP ERP 2005, leveraging the SOA blueprint to provide significant new enhancements in business analytics, user productivity, and reductions in totalcost of ownership.

In 2006 an enterprise services repository will be available, basedon the next release of SAP NetWeaver. All relevant enterpriseservices will be actively available from the repository for use byselected partners and customers.

WHAT’S NEXT?

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In April 2005, SAP announced its Enterprise Services Architecture(ESA) preview system with more than 500 live enterprise serviceson the latest version of mySAP ERP. This announcement offeredpartners, developers, and customers the opportunity to test theenterprise services, and more importantly, to influence the definition and development of service-enabled solutions to enableenterprises to run business-critical processes more efficiently.

Below are just a few examples:

• A third-party provider of tendering software uses enterpriseservices to extend the purchasing functionality in mySAP ERPto address the public sector’s unique regulatory requirements.It uses enterprise services from mySAP ERP to verify budgetavailability before the release and publication of RFQs. Once the award is determined and the tendering process betweenthe customer and supplier complete, enterprise services areused to generate purchase order information and passed tomySAP ERP for invoicing and payment processing.

• Using enterprise services, another third-party software andservices company in the United Kingdom integrated its timeand attendance tracking application with mySAP ERP HCM90% faster than it could have using traditional methods.Enterprise service enablement of mySAP ERP allowed thevendor to provide its customers with comprehensive and real-time insight into time and attendance status in a fractionof the time it would have taken without an ESA.

• A large infrastructure management software company is working with SAP to extend its asset management andinfrastructure monitoring systems into an SAP purchasing system. Traditionally these systems are independently imple-mented with no integrations to SAP. An ESA will enable thecompany to use enterprise services from SAP to exchangeasset details, pricing and contract T&C from the SAP pur-chasing system to their asset management systems. They also plan to build an event from their infrastructure manage-ment tool to trigger the procurement process in the SAP purchasing system.

WHAT’S AVAILABLE TODAY?

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Today, enterprises are burdened by complex IT landscapes, driving up the cost of innovation and slowing down the pace of change. With rapidly shifting business conditions – such asmergers and acquisitions, business consolidations, new businessventures, new partnerships, and changing market dynamics –enterprises must find a better way to effect change and employinnovation.

There is a better way. The industry is recognizing the value andpotential of a services-oriented architecture, a new approach tohelp organizations make their IT operations leaner, more respon-sive, and more easily adaptive to enterprise solutions. SAP isamong the first to recognize this vision and is leading the marketwith an Enterprise Services Architecture road map to create thenext generation of mySAP ERP innovation.

mySAP ERP, powered by SAP NetWeaver, is migrating to an SOAwith a new repository of enterprise services developed on openstandards for exchanging information with a variety of systems,such as ERP, HCM, SRM, CRM, SCM, and so on. This journeywill enable customers and its trading partners to seek greaterefficiency and differentiation as they are empowered by IT toenable new business strategies with less IT complexity, lowerTCO, and increased agility to change.

With an ESA, mySAP ERP enables organizations to increase efficiency and growth by:

• Extending existing processes into new boundaries

• Consolidating business and IT to leverage economies of scaleand eliminate redundancy

• Developing composite applications for next practices moreefficiently and cost-effectively

• Replacing custom programming with model-driven application composition

• Delivering flexible and highly productive user interfaces

• Simplifying integration effort and reducing integration costswith external applications

Organizations of all sizes around the world now have the choice,flexibility, and freedom to evolve into adaptive enterprises usingan enterprise services approach that keeps them open to innovation and responsive to change.

CONCLUSION

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