Migrating from SAP ERP to S/4HANA Licensing
- New License Model: S/4HANA requires converting or purchasing licenses.
- Indirect Access Costs: Evaluate indirect usage scenarios.
- License Audit: Assess current SAP license compliance.
- Cloud vs. On-Premises: Determine hosting to plan license needs.
- Contract Negotiations: Review terms for flexibility.
Migrating from SAP ERP to S/4HANA Licensing: A Complete Guide
Migrating from SAP ERP to S/4HANA can seem daunting, especially regarding licensing.
Understanding the nuances is key to avoiding unexpected costs and making informed decisions.
In this guide, we’ll explore everything you need to know about SAP S/4HANA licensing, with simplified explanations, real-world examples, and tips for navigating this complex transition.
1. SAP S/4HANA: Why Migrate?
SAP S/4HANA is SAP’s next-generation ERP solution for in-memory computing, allowing faster processing, enhanced analytics, and a simplified user experience. Here’s why moving to S/4HANA makes sense:
- Real-time Insights: Gain immediate access to analytics and reporting.
- Simplified Landscape: Reduced database size and streamlined workflows.
- Support Deadline: SAP has announced it will end mainstream support for ECC by 2027.
These benefits come with new licensing structures that can be confusing without proper guidance.
2. SAP S/4HANA Licensing Models: Key Differences
Licensing for SAP S/4HANA differs significantly from traditional SAP ERP. Here are the two primary models you need to know:
- Traditional On-Premise Licensing: In this model, licenses are based on a perpetual user license. You pay an upfront cost plus annual maintenance fees. Users purchase licenses based on named users, including roles like Professional, Limited Professional, or Employee.
- Subscription-Based Cloud Licensing: The cloud version of S/4HANA follows a subscription-based model. Charges are typically based on metrics like the number of users or business outcomes, providing a more flexible approach than on-premise licensing.
Example: A small manufacturing firm opting for an on-premise version may pay for a set number of Professional User licenses upfront, while a larger retailer using the cloud version might be charged monthly based on transaction volume.
3. Conversion from SAP ERP Licenses to S/4HANA
Transitioning to S/4HANA isn’t just a technical upgrade; it’s also a licensing shift. Here’s how to approach the conversion:
- License Audit: Start by auditing your current licenses. Understand the number of licenses you hold and how they are categorized.
- SAP Conversion Policy: SAP typically offers credits for existing licenses to be applied toward S/4HANA licenses. This is known as the SAP License Conversion Program. However, not all licenses convert 1:1, and some new licenses may need to be purchased.
- Digital Access and Indirect Usage: S/4HANA licensing introduces new metrics, such as Digital Access. This includes licenses for indirect access where third-party systems or applications interact with SAP.
Tip: If you have a lot of indirect usage (e.g., an e-commerce platform accessing SAP), you should pay close attention to the Digital Access licensing model to avoid unexpected fees.
4. Types of S/4HANA Licenses
Licensing can be broken down into a few categories, each with different cost implications:
- User-Based Licenses:
- Professional User: Full access across the system.
- Functional User: Limited to specific modules (e.g., finance or HR).
- Employee User: Limited to self-service activities.
- Digital Core Licenses: Covers order management, production, and finance processes.
- Digital Access Licenses: Covers indirect usage, such as data accessed by non-SAP applications.
5. The Rise of Digital Access Licensing
Digital Access has been a significant change in the SAP licensing model. It refers to licensing for accessing SAP indirectly, such as through third-party applications.
Traditionally, SAP charged for every user directly accessing the system. With Digital Access, you now need to account for documents created by non-SAP users, which could include:
- Sales Orders
- Purchase Orders
- Invoices
Example: A company using Salesforce to create sales orders in SAP will need to account for this under Digital Access. You pay per document type rather than per user, which can lead to cost fluctuations.
Tip: Assess your integrations and third-party systems beforehand. If you use indirect resources extensively, consider SAP’s Digital Access Adoption Program (DAAP).
6. Cloud vs. On-Premise: Which Licensing Model is Right for You?
Deciding between Cloud and On-Premise for your S/4HANA migration affects both the implementation strategy and the licensing structure:
- Cloud Licensing:
- Pros: Predictable costs, managed services, reduced IT overhead.
- Cons: Limited customization options and ongoing subscription payments.
- On-Premise Licensing:
- Pros: More control over customization and one-time license purchase.
- Cons: Higher upfront costs, need for in-house infrastructure and support.
Example: If a company needs high levels of customization to adapt the software to its processes, on-premise might be the right choice. However, for a company looking for minimal IT intervention and a fixed monthly budget, cloud licensing is preferable.
7. Practical Steps for License Optimization
Migrating to S/4HANA is an opportunity to optimize your licenses. Here are some practical steps:
- Run System Measurement Tools: Use SAP’s LAW (License Administration Workbench) tool to determine user license usage.
- Analyze User Behavior: Identify dormant users or those with excessive privileges. Not everyone needs a Professional User license.
- Evaluate Contract Negotiations: Talk to your SAP account executive about existing contracts. Under the new model, better terms may be possible to renegotiate.
Tip: Rightsize your licenses during migration—avoid transferring all existing licenses if not all are actively used.
8. SAP Licensing Challenges and How to Address Them
While the move to S/4HANA offers many benefits, licensing challenges remain. Some of the common issues include:
- Complexity in License Metrics: Different types of licenses and metrics, such as Full Use Equivalent (FUE), can be confusing.
- Indirect Access Costs: Unexpected costs due to indirect usage are common if not properly monitored.
- Underestimating Future Needs: As your business grows, licensing needs change. Planning for scalability can help avoid future shocks.
Example: A company that started with only on-premise Professional Users may later need to add cloud capabilities, resulting in mixed-model licensing that adds to complexity.
Solution:
- Engage with an SAP Licensing Specialist. They can help audit and provide clarity on licensing requirements.
- Use SAP’s Estimation Tools to model future growth and understand cost implications.
9. Cost Considerations and Budget Planning
Migrating to S/4HANA is not just a technical upgrade; it impacts your budget significantly. Consider the following costs:
- Conversion Credits: Understand the credit value of your existing licenses.
- Cloud Subscription Fees: For cloud solutions, understand the different subscription tiers and what they include.
- Integration Costs: If you’re maintaining any third-party integrations, additional licensing fees for Digital Access might apply.
Budgeting Tip: Prepare for a dual-run phase where both ECC and S/4HANA systems might run in parallel. This can double your licensing costs temporarily but allows for a smoother transition.
10. Practical Case Study: Migration Example
Let’s look at a real-world scenario:
Company X: A mid-sized manufacturing company used SAP ECC with 300 users.
- Initial Licensing: They had 150 Professional Users, 100 Employee Users, and 50 Limited Professional Users.
- Migration: They decided to move to S/4HANA Cloud. They used SAP’s Conversion Credits to offset costs for 150 Professional Users and switched the remaining users to Functional Users due to reduced needs.
- Outcome: With a thorough audit, they reduced total licenses by 20%, avoiding unnecessary costs. They also opted for Digital Access to cover third-party warehouse software integrations.
11. Key Tips for a Smooth Licensing Transition
To ensure a successful migration from SAP ERP to S/4HANA, consider these key tips:
- Audit First: Know exactly your licenses and how they’re being used.
- Understand Indirect Usage: Plan for indirect access from non-SAP systems.
- Rightsize Your Licenses: Avoid simply transferring all existing users. Look for areas to consolidate.
- Negotiate Early: Engage with SAP early in the migration to understand options and potential discounts.
- Get Expert Help: Working with a licensing consultant or partner can save costs in the long run by clarifying the complexity and suggesting optimization strategies.
FAQ: Migrating from SAP ERP to S/4HANA Licensing
What are the major licensing changes in S/4HANA?
Unlike SAP ERP’s legacy models, S/4HANA introduces a new license metric, typically based on user types and digital access (indirect use).
Can I reuse my current SAP ERP licenses for S/4HANA?
Existing licenses usually need to be converted to S/4HANA licenses under SAP’s conversion programs.
What is digital access in S/4HANA licensing?
Digital access refers to indirect usage by third-party systems accessing SAP data, requiring separate licensing.
Is indirect access automatically covered in the migration?
Indirect access often requires an additional license, which you should validate in your contract.
Do I need to purchase new licenses for cloud deployment?
Cloud deployments typically require a subscription-based licensing model instead of perpetual licenses.
How do I calculate the cost of migrating to S/4HANA?
Assess user counts, indirect access needs, deployment model (cloud or on-premises), and conversion discounts.
What is the difference between subscription and perpetual licenses?
Subscription licenses are pay-as-you-go, while perpetual licenses require upfront payment and annual maintenance.
Can existing maintenance agreements reduce migration costs?
Yes, SAP offers credit from unused maintenance towards S/4HANA licensing in some programs.
How can I ensure compliance during migration?
Conduct a thorough license audit, verify user roles, and account for indirect access requirements.
What happens to unused SAP ERP licenses?
They may be credited toward new S/4HANA licenses under SAP’s license conversion programs.
Is there a cost advantage to migrating early?
Early migration often provides better discounts, but evaluating readiness and actual benefits is critical.
Are third-party applications affected by S/4HANA licensing?
Yes, integrations with third-party systems may require additional licensing under digital access rules.
What tools can help manage S/4HANA licensing?
SAP provides tools like SAP License Administration Workbench (LAW) and third-party SAM solutions.
Does cloud migration offer better licensing flexibility?
Cloud deployments can offer flexible scaling but often come with ongoing subscription costs.
What should I ask during SAP licensing negotiations?
Focus on indirect access coverage, user licensing flexibility, and contract renewal terms.
