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"Quick Hits" and Sustained Savings: mySAP SCM Helps You Achive Greater Supply Chain Efficiency

by Claus Heinrich | SAPinsider

October 1, 2002

by Claus Heinrich, Executive Board Member, SAP AG SAPinsider - 2002 (Volume 3), October (Issue 4)

Q. How is it that investments in technology-enabled supply chain management practices, and in particular, SAP's SCM solutions, appear to be strong, despite the current economic slowdown?

Investments in supply chain management technology yield real savings and operational efficiencies. We saw this very same phenomenon in the early nineties with our ERP systems. R/3 sales were strong even while overall IT spending was depressed. It was clear then, as it is today, the gains warrant the investment. Back then, the focus was on internal efficiencies and their associated savings. Today the focus is on the full expanse of the supply chain, where the introduction of efficiencies can produce even more pronounced dividends. What cost savings would be realized, for instance, if your company eliminated excess inventory, optimized transports, or expedited replenishment runs? There are large potential savings tied up in companies' supply chains that comprehensive SCM solutions can access.

The current economic situation is, in my opinion, another driving factor. It is putting heightened pressure on companies to be leaner and more focused. Supply chain networks are often wrought with inefficiencies, and in challenging economic times these can become dangerous for the survival of companies.

As for why mySAP SCM sales in particular are strong, the recent June 2002 Gartner report1 offers one perspective. It talks about companies wanting solutions that deliver supply chain visibility and planning functions and that deliver these things without high TCO. The report goes on to acknowledge SAP's leadership role in this arena; our mature, best-of-breed solutions; our ability to execute on what we promise; key integration between SCM and CRM, PLM, SRM, and all other related areas. So one answer is that we're delivering the kind of solutions that customers want.

Q. What is the #1 supply chain management "efficiency" customers are seeking?

There is no #1 "efficiency." Even within the same industry, each of our customers exhibit a unique set of priorities. Porsche, for instance, sought out our SCM technology to optimize delivery and availability of spare parts for customer repairs. BMW, on the other hand, chose to address an entirely different "efficiency." They elected to use mySAP SCM to optimize the mass customization of the 600,000 engines they produce annually. Consumer goods manufacturers like Kimberly-Clark, Proctor & Gamble, and Colgate-Palmolive don't all use mySAP SCM in the same way either. Nor do technology companies like Microsoft, Compaq, or Motorola. There is no shortage of opportunities for improving the performance of one's supply network.

If I had to come up with a common thread, it would be that all these companies initially sought "quick hits" - solutions that netted high and fast ROI. At the same time, they wanted supply chain management solutions that would provide sustained speed and agility.

Q. Can you give us a concrete example of a "quick hit"?

Colgate-Palmolive offers a very good example. They implemented mySAP SCM and immediately lowered inventory by 20%.

Things start to get even more interesting when you examine the shared goal of sustained speed and agility. This is something that can only be achieved with an adaptive supply chain network. All of our solutions are designed with the goal of moving customers' current networks in this direction. Adaptive supply chain networks detect, adapt to, and account for changing business conditions. In this way, you sustain one "quick hit" after another.

I would like to note that the term "quick hit," because of its association with immediate cost savings, is misleading in that it belies the scope of the benefits. These supply chain efficiencies are not simply about one-time cost savings. A company that has its forecasting practices ironed out will realize savings over and over again. Moreover, we find that each new efficiency serves as a catalyst for the next. Take Carlsberg Beer, for example. This is another customer that implemented mySAP SCM to lower inventory. Theirs was reduced by 30%. They also achieved a 20% increase in order compliance. Customer service and satisfaction increased dramatically.

Consider the implications for the financial side. Here, our mySAP SCM customers are realizing more free cash flow, reduced working capital, and accelerated cash-to-cash cycle times. Palm, for example, reduced their cash-to-cash cycle times from 23 to 14 days.

So one efficiency begets another, and it is within the context of an adaptive supply chain network that the greatest number and magnitude of efficiencies can be achieved.

Q. What technology enables a supply chain network to be "adaptive"?

There are a number of things that make the supply chain adaptive:

  • Tight integration between the demand chain (CRM), product life cycle (PLM), and sourcing (SRM) is key, whether they are all within a single company or divided among several partners. ATP, Build-to-Order, and faster delivery times cannot materialize without this kind of integration.

  • Advanced planning (demand and supply) and scheduling (distribution and production) techniques then generate optimized, executable plans. Historical data is factored into these plans. Information about prevailing and anticipated business conditions and relationships is also accounted for. The next step is collaborative planning between different partners along the supply chain. Just one example of such a scenario that is already in place for one of our customers are the Collaborative Planning Forecasting and Replenishment (CPFR) scenarios.

  • Supply Chain Event Management provides capabilities to track both planned and unplanned events. Then you have the opportunity to automatically trigger follow-up actions.

  • Another enabling technology is intelligent rules (often called "agents"). These agents monitor supply chain objects and processes continuously and in real-time. If inventory drops below a certain threshold or a truck fails to make a delivery on time, for instance, the event is made known to a system or person. Agents can also detect changes in demand or supply. Agents operate across enterprises and across a broad spectrum of components to offer visibility over the full span of your supply chain, from remote suppliers down to retailers' shelves and everything in between.

  • The right infrastructure, with exchange infrastructure and portals, completes the equation. An adaptive supply chain network requires a technology base that can foster information flow across lots of different systems and companies, and seamlessly connect all the partners.

Q. Which of these adaptive supply chain network (ASCN) technologies does SAP offer?

All of them! SAP is the only vendor that delivers complete end-to-end supply chain management solutions (see Figure 1).

All these solutions are highly integrated so that they all work seamlessly together. They are also open, able to easily integrate with non-SAP and SAP solutions alike. Customer networks are heterogeneous. We factor that into our product designs from their inception.

Some Examples of the Functionality in mySAP SCM
Demand Planning
Supply Network Planning
Production Planning and Detailed Scheduling
Collaborative Planning
Event Management
Warehouse Management
Global Available to Promise (GATP)
Transportation Planning and Management
Figure 1 Only SAP Offers Complete End-to-End Solutions for Building Supply Chain Networks

Q. Is it accurate to say you recommend an evolutionary, not revolutionary, approach to building an adaptive supply chain network?

Absolutely! SAP and our customers are of one mind on this point. No one wants to continually uproot and replace systems. It makes much more sense to capitalize on existing assets and evolve one's landscape in a controlled, cost-effective way that brings new benefits.

Q. At the risk of abusing the term, how would you advise customers to assess their best "quick hit"?

I recommend three things:

  • Look at the pre-configured business processes we're offering. There are quite a number of ready-made solutions, such as a Vendor Managed Inventory (VMI) scenario. One may be ideal for your situation. If it is, you'll find there is minimal implementation effort and fast ROI.

  • Take advantage of the new mySAP SCM Value Calculator. This tool will help you gauge the ROI of various mySAP SCM solutions within the context of your specific operating environment. Of course this tool is provided on our web site and you can use it free of any charge.

  • You can participate in value assessments and benchmarking surveys to establish the potential value generated through a supply chain implementation, and benchmark yourself against industry leaders.

Q. Any predictions about the state of things to come?

Adaptive supply chain networks will become the norm sooner than we think. The leading contenders in various markets have already set the wheels in motion. Supply chain networks have to support the challenges of volatile demand, customer loyalty, mass customization, accelerated product life cycles, and tougher global competition. I view adaptive supply chain management technology as a major tool for winning and maintaining market share, since the only thing constant in this arena is that business conditions are constantly changing.

Smart Shampoo?!

Just how far can a supply chain planner see down the length of a supply chain? All the way down to the point where products line retailers' shelves.

SAP is the first to integrate "Smart Tag" and SCM agent technologies. The result? You can attach a Radio Frequency Identification Device (RFID), or Smart Tag, to pallets or to consumer goods, even a bottle of shampoo.

Smart Tags store information about location and condition of the object and send the information to central computer systems. Using the data, you can, for instance, improve your replenishment process or trigger direct follow-up actions to avoid bottleneck situations.

1"2Q02 SCP Magic Quadrant: Out of the Trough" by Karen Peterson, Maria Jimenez, and Andrew White (25 June 2002).

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