SAP customers already appeared more receptive to cloud-based software at the start of 2020, but the COVID-19 pandemic may spur momentum for SAP S/4HANA Cloud 2005, the latest release of the SaaS version of the ERP platform.
SAP reported increases in cloud-based revenue for the first quarter of 2020, and, although this was not broken out into specific product groups, SAP is seeing a shift in demand for the cloud, said Jan Gilg, president of SAP S/4HANA.
"Customers are coming in to ask how quickly they can be up and running, or maybe how quickly they can set up a subsidiary or specific business units," Gilg said. "So we're seeing a lot of uptake and a lot of customers looking into the cloud model now than before."
The cloud momentum is expected to continue even after the pandemic has passed, he said, as companies hit hard by the disruption will evaluate their IT capabilities and the status of ERP modernization and digital transformation projects.
One of the advantages of cloud-based software is that new functions can be introduced in each new version, Gilg said. SAP S/4HANA 2005 includes updates that could be valuable for companies dealing with the rapidly changing business environment brought on by COVID-19.
Supply chain, finance and integration with SAP SuccessFactors, an HCM platform, are the most prominent updates, he said.
Enabling a more flexible supply chain
Supply chain Situation Handling functionality now allows companies to monitor inventory more accurately. In the last few years, supply chains have been stretched around the globe and have focused on just-in-time delivery, keeping only as much stock in inventory as needed. The strategy has been exposed as a weakness by the pandemic, as companies have grappled with an abrupt disruption to production schedules.
This is leading companies to reassess supply chains by moving to more local suppliers and keeping more inventory in stock, Gilg said.
"S/4HANA Cloud 2005 puts more emphasis on inventory management and stock levels and gives companies the support to help them with intelligence that proactively alerts companies when inventory levels go down, go too low or run out," he said. "In the current situation, it's really critical to make sure that there's enough flow of goods to the respective consumers; it's about being flexible."
Flexibility is also the key to new financial functions, which allow companies to monitor and approve payments from SAP and non-SAP systems. This will help companies keep a closer eye on cash flow, which will be important as business interruption makes cash flow an issue, Gilg said.
The other significant S/4HANA Cloud update is a more seamless integration between S/4HANA and SAP SuccessFactors Employee Central, which standardizes the data model and cost centers for ERP and HCM systems.
"The ambition here is that this should really look and feel like one solution, and ideally customers should not even notice that there's two solutions behind the scenes," Gilg said. "The transition is seamless from a UI perspective, from process data integration, and also from some of the technical attributes like the provisioning."
Giving the customers what they want
Although there's no hard evidence of an increase in demand for SAP S/4HANA Cloud, it wouldn't be a surprise given the overall increase in demand for cloud applications, said analyst Jon Reed, co-founder of Diginomica.com, an enterprise applications news and analysis site.
However, the most appropriate market for S/4HANA Cloud may not be able to invest, given the current environment.
"Keep in mind that S/4HANA Cloud's best vertical adoption, if we are talking the full cloud solution, not hosted S/4HANA, is in professional services, which, for the most part, is not a vertical that is thriving at the moment," Reed said. "Modern ERP cloud is going to have be very vertical in its appeal, a topic SAP has understood for some time but has not moved nearly fast enough on."
S/4HANA Cloud 2005's updates should be welcomed by customers, Reed said.
"These are the types of features customers have been asking for," he said. "In particular, the SuccessFactors integration should help S/4HANA Cloud have some response to Workday's complete finance and HR integrations, although SAP has a long way to go there."
S/4HANA Cloud 2005 looks impressive, with the SuccessFactors Employee Central integration and more end-to-end industry focus, said Predrag "PJ" Jakovljevic, principal industry analyst at Technology Evaluation Centers, an enterprise computing analysis firm in Montreal.
The current COVID-19 environment may spur more cloud demand, Jakovljevic said.
"Both S/4HANA Cloud 2005 and cloud ERP, SCM [supply chain management] and CRM, in general, should benefit from COVID-19, since many customer success stories nowadays talk about using cloud and mobile digital collaborative tools," he said. "On-premises will still not necessarily fully die, however, because some places still have regulatory requirements and poor internet connectivity, and on-premises solutions can now come with remote access."