SAP_ROI

Calculation• Identify Current working capital Investment in receivables • Determine average days outstanding• Estimate reduction in days outstanding • Determine associated reduction in working capital• Benefit (annual) in the cost of Capital for the reduction in working

CapitalSAP Enablers • On-line and integrated system provided faster invoicing cycle time • Better analysis tools receivable analysis

Calculation• Identify rupee volume of Purchase with discounts• Identify % discounts taken• Estimate % increase in discounts taken • Estimate average discount (usually 1 to 2% ) and associated payable age reduction • Multiply % increase in discounts taken times rupee volume of purchases with discounts• Multiply increased purchase volume subject to discount just calculated by the average

discount • Subtract off cost of capital for required increase in working capital (estimating increase in

working capital in this case is somewhat complex. Find someone who knows how to estimate the increase in working capital

SAP Enablers • Integration with purchasing provides on-line verification and reduced entry• Improved availability of information to pay invoice resulting in quicker payment

Calculation• Identify annual credit write-off• Estimate present reduction

SAP Enablers • Credit Management integrated with sales and distribution

functionality

Calculation• Identify budget accounts and amount for the organization • Review budget accounts and determine which accounts are

controllable • Calculate total dollars in controllable accounts• Estimate percent reduction in controllable costs SAP Enablers • On-Line, Real-time Cost management information• On-Line analysis tools• Earlier visibility of costs and commitments

Calculation• Identify total sales by product line in dollars• Estimate % improvement in pricing • Since improved pricing does not materially impact fixed or variable cost,

benefit is sales multiplied by improvement percentage

SAP Enablers• On-line real-time capabilities increase responsiveness and customer

service • Pricing procedures capability helps reduce "bad' deals• On-line visibility of product cost and profitability analysis enables better

decisions 

Calculation• Identify sales volume by product line • Estimate total sales capacity/production capacity (this should 

include allowances for preventative and unplanned downtime for maintenance reasons)

• Estimate sales value of lost available production • Estimate margin of lost production • Estimate portion of capacity that can be converted to sales 

SAP Enablers• On-line real-time capability increase responsiveness and customer 

service • Improved customer forecasting

Calculation• Identify inventory value by category (if LIFO valuation , values is actually higher than reported)• Estimate inventory reduction goals by category • One approach would be to treat reduction as a one-time benefit, but

another approach would be recognize the annual benefit of reduction in carrying cost (I believe this better reflects reality )

• Multiply inventory reduction by incremental carrying costs ( Carrying cost includes cost of capital, taxes, insurance, and damage allowance - should not include cost of assets, labor, or building unless major reductions in inventory are anticipated)

SAP Enablers• Improved visibility of inventory• Improved forecasting • Improved data accuracy • Reduced process cycle times

Landed Costs includes all costs associated with getting a product or service available for use. Landed cost will therefore include purchase, freight , receiving, quality, return, and vendor management costs.

Calculation• Since purchasing cost is far and away the largest component of landed costs, identifying current annual

purchasing dollars is a good conservative estimate landed costs.• Estimate percent reduction in landed costs with SAP. Factors to consider include • How much EDI is currently used• Is purchasing transaction oriented or vendor management oriented?• How good of history does current systems provide?• How much vendor, requisition consolidation opportunity exists?• Do current systems provide vendor evaluation tools? • Determine savings by multiplying purchase volume by estimated % reduction SAP Enablers• On-line, integrated systems reduce transaction effort to enable more focus on vendor relationship management • On-line history provides information to negotiate better agreements• On-line availability of information helps drive consolidation of purchases with partnership vendors • Vendor evaluation tools help manage vendor quality and shipment problems

Calculation• Identify current inventory obsolescence and damage costs• Estimate improvement

SAP Enablers• SAP provides on-line visibility of stock usage

Calculation• Determine total sales • Determine margin on sales• Determine capacity utilization • Estimate increase in capacity utilization• Benefit is the margin on additional production SAP Enablers• Integration with MM provides earlier visibility of material/asset availability issues • Production planning helps identify unused capacity• Better forecasting and planning tools helps identify correct product mix to produce• Better planning tools help manage product conversion (tear down, setup, off-spec)

costs

Calculation• Identify value of WIP inventory • Estimate percent reduction in WIP• Multiply inventory reductions by incremental carrying costs ( Carrying cost

includes cost of capital, taxes, insurance, and damage allowance - should not include cost of assets, labor, or building unless major reductions in inventory are anticipated)

 SAP Enablers• Better forecasting and planning tools minimize need to maintain WIP as a

buffer against unknown demand • Improved visibility of inventory with on-line system• Improved accuracy of inventory information

Calculation• Identify Sales by product line• Determine margin by product line• Estimate improvement percentage • Apply improvement to total sales volume  

SAP Enablers• Profitability analysis helps target product mixes for greater profitability • Product costing helps target changes in production and pricing

strategy

Calculation• Identify daily sales volume• Determine margin on daily sales• Determine fixed cost per day • Determine production downtime for planned and unplanned maintenance• Estimate portion of downtime to be eliminated• Benefit is margin and fixed costs previously lost during downtime SAP Enablers• Integration with other modules reduces cycle time for maintenance orders• On-line system with analysis tools helps drive down unplanned maintenance • Better problem tracking and preventative maintenance forecasting

Calculation• Estimate total cost of plant maintenance - usually captured in a cost

center • Estimate reduction in maintenance due to improved preventative

maintenance

SAP Enablers• Preventative maintenance capability • Maintenance history reporting and analysis

Eliminate Mainframe and Other Equipment (100%)• Identify hardware to be eliminated • Estimate salvage value (or lease cost) of hardwareEliminate Maintenance Contract For current Hardware and Software to be Eliminated (100%)• Identify hardware and software to be eliminated• Identify maintenance contracts on hardware/software to be eliminatedReduce IT Staff required to Support current hardware and software (0-100%, 75%)• Identify total FTE's supporting existing hardware and software• Allocate FTE's to current hardware maintenance, software and overhead processes • Determine FTE's allocated to maintenance of hardware and software to be eliminatedYear 2000 Cost Avoidance• By now, this is probably no longer a viable savings area. However, the IT department has

probably estimated the cost of year 2000 problem. 

Project Avoidance (100%)• Identify planned projects to develop point solutions (i.e. Plant Maintenance package) that will

no longer be required when SAP is installed • Determine planned budget for all planned projects

Manpower Reductions (0-20%, 10%)• Identify processes performed in all departments impacted by SAP implementation • Identify characteristics of each process identified above (i.e. frequent rework, excessive

downtime, missing information)• Identify key ways that SAP will change each of the processes identified • Estimated the percent change in manpower effort required for each process• Determine net change in manpower by department and by position • Determine where opportunities exist to reduce manpower• Multiply reductions by manpower cost loaded with benefits only.