How to Calculate the ROI When Optimizing Your SAP Master Data Management
The process of creating and maintaining master data itself requires considerable effort. In this blog post, we show you how to calculate the ROI when optimizing your Master Data Management in SAP.
Clean SAP master data is worth its weight in gold. Even seemingly minor errors in master data maintenance can have drastic consequences. Let’s take logistics as an example: If the error devil creeps in when a new production material is created, this can lead to incorrect orders that trigger a toxic chain reaction. The wrong goods are delivered, and the replenishment time for the right materials is several weeks. In the worst case, this can result in production downtime.
However, it’s not only errors and their consequential costs that pose one of the major challenges in SAP Master Data Management. The process of creating and maintaining master data itself requires considerable effort. Companies that create several thousand master data records per year will certainly be familiar with the complexity of SAP as well as the time and resources involved.
The good news: There are ways to optimize and automate the master data process. With the right levers and intelligent add-on solutions for SAP, companies can save money in the shortest time possible. But how do you calculate the return on investment (ROI)? What factors drive up the costs of SAP Master Data Management? And what minor adjustments are actually worth making?
With the right levers and intelligent add-on solutions for SAP, companies can save money in the shortest time possible.
In this blog post, we show you how to calculate the ROI when optimizing your Master Data Management in SAP. In our example, we examine the processing of creating material master records. The calculation works in a similar way for the creation of customer master data as well as other master data processes in SAP.
Optimizing SAP® Material Master Data
In this whitepaper we show you how to fill the digital gaps in your SAP system and benefit from more efficiency, transparency and, above all, a fast return on investment.
What Makes Creating Material Master Data so Complex?
Anyone who has ever been involved in the creation of material master data in SAP is well aware of how complex it is:
- A material master data record in SAP MM contains up to 1,000 individual fields.
- For occasional users, the system and maintenance of it is complicated and confusing.
- Numerous departments such as procurement, sales and material planning are all involved in the master data process.
- Ensuring effective coordination and communication between all process participants in SAP MM eats up a lot of time.
- For companies with multiple production sites, numerous plant views increase complexity levels.
In order to make Master Data Management an efficient process, it’s often worth investing in an additional software solution integrated into SAP. There are many advantages to this. For example, the departments within the company that are responsible for creating and maintaining master data will reap the benefits of a seamless process. The IT department remains true to its SAP strategy and the company management fulfills its commitment to transparent data governance.
Basis of ROI Calculation: Ongoing Process Costs
Whether an investment in a SAP add-on solution for Master Data Management is worthwhile and how quickly you can achieve a full return on investment depends on the following factors:
1. Number of processes per year
In a manufacturing company, new materials are requested on a daily basis and created in the SAP system once they’ve been released. The number of material master records created within a year is therefore a decisive influencing factor in determining the total effort required. We estimate that the majority of manufacturing companies create between 1,000 and 15,000 new material master records each year.
Benefit of an SAP add-on solution: No changes, as the number of processes remains the same.
2. Handling time per process
Creating a new material master data record in SAP usually takes between 30 and 45 minutes due to its complexity. Added to this are indirect processing times e.g. telephone queries, the processing of paper-based documents or searching for information in emails.
Benefit of an SAP add-on solution: By optimizing and automating process steps, the workload is reduced by at least 50 percent.
3. Follow-up costs due to errors
In addition to the workload, the follow-up costs resulting from processing errors and duplicates in the SAP material master data are the biggest ROI levers. According to our estimates, the average error costs in the process are around 30 euros per process. This estimate is based on the costs for incorrect material orders and production downtime within one year, divided by the number of processes per year.
Benefit of an SAP add-on solution: Better workflow support and data validation can reduce error costs by up to 80 percent.
4. Indirect process costs
Although the effort and time required is the biggest cost driver when creating and maintaining master data, indirect process costs can also increase expenses. Above all, analog, paper-based processing incurs costs for folders, files, paper, printers, scanners and storage space for documents. The majority of companies have largely digitalized their document management. According to Bitkom Digital Office Index, however, a quarter of companies still work with paper documents.
Benefit of an SAP add-on solution: By digitalizing the analog and paper-based work steps, indirect process costs can be reduced by up to 100 percent.
The Second Part of the ROI Calculation: Project Expenses
The first step of your ROI calculation is complete! You have quantified your current process costs for creating material master data in SAP MM and have compared these with the optimization potential that could be achieved by having a SAP add-on solution.
The second step is to quantify the project expenses. These are broken down into the one-off expenses associated with implementing an SAP add-on solution and the costs for the ongoing operation of the solution.
5. One-off project expenses
The implementation costs consist of the license fees for the SAP add-on solution and the amount of work required to implement it. To find out how much license fees are, we recommend that you contact a specialized software vendor. We are happy to help you calculate your return on investment – just send us a message!
In addition, there is the workload for implementation as well as internal project tasks within this framework. As a rule, the more familiar the software vendor is with the selected SAP add-on solution, the faster the implementation will be. Thus, EASY consultants usually need 30 days on site for the implementation, including the recording of the processes and implementation. A consultant first selects a sub-process and examines it using tried and tested checklists. This creates a decisive financial added value for the company. In addition, the SAP development effort is reduced to a minimum: 80 percent of the requirements can be implemented through configuration.
Depending on the complexity of the project, internal project work can take up to 200 days. In your ROI calculation, multiply the estimated project days by an imputed daily rate for external consultants and your own employees.
6. Ongoing project costs
In addition to the initial costs for software implementation, annual maintenance fees are incurred from the first year, which generally amounts to 20 percent of the license costs. In addition, there are labor costs for around 10 days per year – these are for adjustments and configurations, user training when introducing new functions and the implementation of updates.
Short Implementation Time – Fast Return on Investment
Based on these six factors, you can now calculate the return on investment when optimizing your SAP Master Data Management. Our experience gained from numerous ROI studies has shown that project costs pay for themselves in full within one to two years – in many cases it’s even faster.
The following factors in particular lead to an even faster ROI:
- Many master data creation processes and updates
- Lots of manufacturing sites with plant-specific material master views
- Long throughput times and high manual coordination effort
- High follow-up costs for incorrect data and duplicates
We will be happy to support you in creating an individual ROI calculation for your company. Please contact us!
Conclusions and outlook
You can see how quickly you can achieve your return on investment with a solution like EASY Material Management for SAP Solutions.
In addition, an additional solution is particularly interesting if you are thinking of migrating to SAP S/4 HANA. Many companies are on the verge of such a migration and clean material master data is essential if they want to migrate quickly and smoothly. We will report on this in a next blog in the series.
Are you also interested in material master data mass import, parts lists and the implementation of work plans? Stay tuned for our next articles on material management in SAP.