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SAP S/4HANA for Aerospace & Defense: A Reality Check

SAP S/4HANA for Aerospace & Defense: A Reality Check
July 13, 2017

Aerospace and Defense (A&D) companies face a major challenge of increasing agility in terms of reducing time to market and responding to dynamic business conditions faster.

Today, the aerospace and defense industry is endeavoring to design and manufacture innovative products and services in a time-bound and cost-efficient manner. This comes amid growing supply chain complexity, sustainability concerns, data vulnerability, and production backlogs.

Significant talent management issues have plagued aircraft manufacturers and defense contractors, inhibiting their Aircraft manufacturers and defense contractors also face significant talent management issues, which constrain their ability to recruit, groom, and retain qualified people.

A&D companies, therefore, are seeking to revamp their IT applications and infrastructure, as well as core business processes for agile, data-driven decision-making, enhanced workforce productivity, and lower total cost of ownership (TCO).

Increasingly, organizations are adopting S/4HANA, SAP’s next-generation suite of enterprise resource planning (ERP) applications, for specific use cases.

For example, Airbus Defense & Space Optronics leverages the real-time business suite — built on HANA, SAP’s advanced in-memory computing platform — to make its financial and controlling processes more efficient. In particular, the Airbus unit has started using SAP S4/HANA to eliminate redundancy and reconciliation efforts, helping controllers focus more on core activities rather than on generating reports.

Concerns related to SAP S/4HANA

Several A&D executives are skeptical of embracing the fourth version of the SAP Business Suite. The reasons for this are many.

The first key concern relates to functionality — does SAP S/4HANA offer all the requisite A&D manufacturing software features that were incorporated into its predecessor? Or have some functionalities been changed or removed from the old ECC 6.0 version due to database redesign in order to make way for a set of new features?

As a case in point, S/4 HANA’s unique columnar in-memory database structure for finance and logistics necessitates data conversion from ECC tables to the new data store. Also, DIMP and other ECC enhancement packs no longer exist separately, and are embedded into S/4.

And, the on-premises version 1511 of S/4HANA does not include A&D-specific functionalities such as the manufacturing part number (MPN). Similarly, the ability to assign parameter effectively dates to parts in a Bill of Materials is not fully enabled until S/4HANA version 1610, though SAP is working to quickly correct this issue.

The second major concern relates to return on investment (ROI). Some A&D companies completed their SAP ERP business transformation programs two or three years ago, and are just starting to reap the benefits of the multiyear, multimillion dollar exercise.

Hence, these organizations are not too sure of another transformation initiative without being fully convinced about the ROI S/4HANA can deliver.

A few organizations, meanwhile, have only recently finished migrating their SAP ERP packages to the HANA database. Naturally, they are questioning the viability of converting to S/4HANA even as their staff continue to get familiar with the new setup. After all, the in-memory SAP ERP business suite, unlike the ECC pack, represents a radical shift from orchestrating a transactional backbone to embedding a new digital core that drives transformation of business processes.

Even for those enterprises that want to embrace S/4HANA, apprehensions regarding the potential need for large-scale reimplementation of multiple processes — on top of the complex technical platform change — hold them back.

Recommendations

To address these concerns related to business benefits, ROI, adoption strategy, and road map, A&D companies should first assess the relevance of S/4HANA in the context of their digital road map. The road map should be chalked out based on the competitive landscape, key industry dynamics and business goals, and not be centered on any specific IT solution.

Firms with existing SAP implementations should determine the business value of adopting S/4HANA in terms of how it can enable increased operational efficiency, faster decision-making, and higher staff productivity.

For instance, the firms could explore how S/4HANA could foster further IT simplification through significant reduction of database sizes, execution of multiple functions in a single environment, and elimination of secondary BI systems. Similarly, integration of stand-alone solutions such as EWM, BPC, and PPDS as well as removal of middleware software such as data replication, management and ETL, could pave the way for a streamlined IT architecture.

Once companies have scoped out the potential business value accruing from S/4HANA implementation, they should define a customized adoption strategy, and embark on the transformation program. A greenfield conversion approach may be needed for organizations having ERP systems that do not support conversion to S/4HANA. Alternatively, consolidation or migration of some applications could be considered, wherein individual instances are migrated from ECC to S/4.

Conclusion

S/4HANA is not a mere technical upgrade or new ERP package delivering incremental gains over its predecessor. SAP has positioned it as the digital core of the 21st century enterprise that can help organizations simplify workflows, data models, and their overall IT landscape for enhanced agility and lower TCO, among other benefits.

A&D companies should evaluate how this next-generation SAP ERP suite can enable them to accelerate their digital transformation initiatives without disrupting existing investments and business continuity. They will do well to adopt a calibrated approach, wherein they first assess the relevance of S/4HANA for their unique organizational environment, then correlate it to intended business outcomes, and undertake an optimal adoption program that includes HCL SAP solutions.