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Utilizing third-party providers to reduce SAP maintenance costs

Use of third-party maintenance providers is going mainstream. We must be mindful of the risks.

The Big Picture

Grasping Potential Savings
Enlisting a third-party maintenance (TPM) provider to curb software and hardware costs is, increasingly, seen as an appealing route for IT procurement departments.

It’s hardly a new practice. But as supply markets mature and business leaders grasp the potential cost savings, TPM providers are becoming part of the mainstream.

Still, there are risks involved. And even though TPM programs for SAP, for example, have delivered savings of at least 50 percent, this approach may not be appropriate for every organization.

Read on as we detail the risks and benefits of a TPM program through the lens of maintenance fees associated with enterprise SAP®.


"There are risks involved… Even though TPM programs for SAP have delivered savings of at least 50 percent, this approach isn’t for everyone."


 

CRITICAL CONSIDERATIONS

A Risk-Based Approach
We advocate a careful, risk-based approach for evaluating the feasibility of a TPM program.

This risk-based approach involves a more thorough than usual RFP (request for proposal) process, given the criticality of ERP (enterprise resource planning) systems to an organization’s business.

At the same time, given the essential nature of these systems and the corresponding maintenance costs involved, the savings potential can be very high.

A growing number of providers offer Third-Party Maintenance options for SAP, including Spinnaker Support, LLC and Rimini Street, Inc.

Two critical considerations emerged from our research:

  • Alignment - As part of a thorough and comprehensive sourcing process, it is important to involve all key stakeholders early on, and work to secure executive alignment, given that ERP systems are mission-critical.

    As part of the sourcing process, the evaluation team should plan on in-depth, on-site discussions with potential suppliers in order to conduct a complete risk versus reward analysis.

  • Resistance - Given the high margins (80-90 percent, in many cases) that ERP software providers generate from maintenance and support revenue, teams should be prepared for aggressive tactics to discredit the reputation of TPM programs. Additionally, major software providers have threatened or initiated lawsuits against some TPM providers.

DELIVERING RESULTS

Utilizing In-House Intelligence
In one of our case studies, an IT Business Process Outsourcing client was in the final months of an existing support agreement and anticipating a 5 percent year-over-year software maintenance support increase from SAP.

The client wanted to reduce costs and improve support quality through a TPM provider, and it had a tight window to determine if that would be a feasible option.

We utilized in-house market intelligence to identify potential TPM provider options for SAP applications, including global support capabilities and skills that matched the client’s environment.

We also helped conduct an RFP process with three suppliers, resulting in competitive quotes and a formal down-selection to two suppliers.

Results we delivered included:

  • Negotiated bids from the two finalist suppliers.

  • Negotiated an agreement resulting in cost savings of 60 percent, or $2 million, in annual savings.

  • Led the final contract and SOW negotiations, provided a notice to terminate maintenance and support with the incumbent on behalf of the client and successfully drove the new supplier to meet the client’s goals for reaching operational steady-state.



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