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MSC Industrial Supply transforms to SAP S/4HANA private cloud

MSC Industrial Supply needed to cut costs and modernize its ERP system, so it first moved to S/4HANA on a hybrid cloud and has recently completed a transformation to a SaaS model.

Looking to modernize its ERP system and save on costs, MSC Industrial Supply Co. migrated from an archaic, on-premises system to SAP S/4HANA private cloud.

Digital transformation is nothing new to MSC, distributor of industrial equipment for manufacturers that specialize in metalworking, based in Melville, N.Y. MSC relied on a voluminous printed catalog as its main sales channel until the 1990s when it moved online as the internet became ubiquitous. The migration to SAP S/4HANA private cloud is another step in the company's technology evolution, said Charles Bonomo, MSC Industrial Supply's senior vice president and CIO.

Founded in 1941, MSC is a $2.9 billion company today with 6,000 employees and more than one million product offerings, according to the company.

"We went through one transformation from the catalogs to the internet," he said. "Now we're going through a major transformation, not just around SAP, but around the cloud and innovation."

For many years after it digitized its catalogs, MSC relied on an IBM AS/400-based homegrown ERP system that subsequently included JD Edwards for finance and PeopleSoft for HR, according to Bonomo.

But by 2016, MSC knew it was time to modernize, and, after considering its options, decided to build on an SAP core.

Charles Bonomo, senior vice president and CIO, MSC Industrial Supply Co.Charles Bonomo

Hosted environment is first step

MSC's first step in migrating to S/4HANA Cloud was to replace the JD Edwards finance application with SAP S/4HANA Simple Finance. Bonomo knew that MSC's days using an on-premises data center were numbered, but a full cloud implementation was not yet feasible, so the company decided to host the finance system on IBM SoftLayer for the system infrastructure, while MSC owned and managed the software. Now called IBM Cloud, IBM SoftLayer is a managed cloud infrastructure platform.

"At the time, not a lot of people were running their SAP footprint in the cloud," Bonomo explained. "We looked at various solutions and found IBM SoftLayer, so we came up with an environment where we would own the software and the hardware would be somewhat shared."

The project was successful, and Simple Finance improved MSC's financial reporting capabilities. But it also exposed a significant problem. Although the 15-month project was completed under budget and on time, by the time the new system was up and running, it already needed an upgrade, which would take more time and expense to complete.

"Even though it was effectively up and running in the [IBM SoftLayer] cloud, we were responsible for the care and feeding of the system -- it wasn't really SaaS at all," Bonomo said. "That first upgrade took us about a year, which was successful, even if there was a fair amount of change management for the users, but it was pretty painful and time-consuming."

Around this time, the consulting firm McKinsey & Co. produced a report that set cost containment goals for MSC, which spurred the idea to move off the hosted system on IBM SoftLayer and embrace a full cloud environment.

Pandemic underscores need for cloud transformation

When the COVID-19 pandemic hit, the need to save on costs and have a more nimble, resilient system was accelerated.

"We were already starting to embrace the cloud wholeheartedly, but this really pushed us to take a deep look," Bonomo said.

At the same time, the contract with IBM SoftLayer was coming up for renewal. Although MSC was satisfied with IBM as the infrastructure provider, the service was expensive and Bonomo recognized that there was an opportunity to further control costs and reduce the responsibility of the IT team to manage the system.

After consulting with SAP, MSC decided that a SaaS model was best and chose to go with a private cloud version of S/4HANA on Google Cloud Platform (GCP), he said. But making the transition to S/4HANA private cloud was no easy feat.

"First, we did a lift and shift, where we took what he had on IBM SoftLayer and moved it over to GCP," Bonomo said. "After that, we were able to consolidate some of the SAP software components and get the antiquated parts off the platform. So, we got closer to a shared environment; we don't own the software anymore, it's a subscription service and we're not responsible for the care and feeding anymore."

The cloud transformation project went well, he said, particularly when the project was at its most complex and involving four large companies -- MSC, SAP, Google and IBM.

Migrating to S/4HANA private cloud has enabled MSC to integrate more applications into its ERP system, including SAP Analytics Cloud and SAP Ariba, through the SAP Business Technology Platform, a cloud development and application integration environment.

But the full cloud transformation is not complete yet, Bonomo said. They will move from SAP Process Integration to SAP Cloud Process Integration, which will allow more seamless data integration.

"Once that's done, we'll move over to the more SaaS solution that will make us more nimble and we're completely hands-off," he said. "It will be almost a Salesforce model where we're going to be upgrading in a much more frictionless way. Our IT resources will be 100% focused on value-add as opposed to the plumbing."

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