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Ready Your Supply Chain Network for Correction, Improvements, & Change: New Capabilities with mySAP SCM 2004

by Markus Rosemann and Stefan Theis | SAPinsider

July 1, 2004

by Markus Rosemann and Stefan Theis, SAP AG SAPinsider - 2004 (Volume 5), July (Issue 3)
 
With all the monitors, alerts, and key performance indicators currently tracking and forecasting production, sales, orders, and inventory, most companies have a constant stream of supply chain data — but perhaps not enough information. Not only must a company ensure that the data is collected, but also that it triggers the decision-making necessary for corrections, improvements, and changes in planning and at any point in your functional supply chain.

For many companies, this is a significant challenge. Once you have visibility into supply chain processes, you need a set of solutions and technology to quickly fine-tune the mechanisms already at work in planning and operations. Only with a high degree of responsiveness can you avoid stockouts, absorb delays on the supply side, or adjust your production planning for marketing campaigns. This drive for supply chain improvement and change has led companies to embrace an Adaptive Supply Chain Network approach.

How mySAP SCM Supports the Adaptive Supply Chain

Adaptive Supply Chain Networks are communities of customer-focused companies that thrive by sharing knowledge and making intelligent adjustments to changing market conditions. They are characterized by collaboration, a high degree of visibility into the supply chain, and the ability to react to change quickly (see Figure 1). With its 2004 release, mySAP Supply Chain Management (mySAP SCM) continues to be the only integrated end-to-end SCM solution that supports the Adaptive Enterprise and the key characteristics of supply chain planning, execution, and visibility in an Adaptive Supply Chain Network.

Figure 1
Adaptive Supply Chain Network, Characterized by Planning, Execution, and Visibility into Real-Time Operations and External Partners

mySAP SCM offers a complete suite of tools for each of the key aspects of Adaptive Supply Chain Networks: everything from strategic planning to operational planning; broad supply chain execution capabilities for order fulfillment, warehouse management, and transportation management; and a high degree of visibility into supply chain processes. This article outlines the latest developments in mySAP SCM 2004 — which includes SAP SCM 4.0, SAP NetWeaver, and integration with other SAP solutions — to further enhance the responsiveness and adaptivity of your supply chain, and at the same time making supply chain processes faster and easier for administrators and planners.

Planning: Enhanced Tools and Functions

With mySAP SCM 2004, all interactive planning screens are enhanced with new features to ease planners' work. Planners will appreciate the extended mass- maintenance capabilities and improved performance in a number of areas, along with larger application logs for easier understanding and interpretation of planning results. On a broader level, there are functional enhancements — from increased automation built into planning, to greater support for factoring in outsourcing in supply networks, to enhanced job-scheduling tools — now incorporated into mySAP SCM.

Let's start at the beginning of most supply chain planning processes: predicting product demand.

More Accurate and Adaptable Forecasting of Demand

Demand planning delivers critical estimates of customer demand for your finished product. But for each planning problem, the planner must choose the best method to optimize the accuracy of the forecast. To take some of the guesswork out of the planning process, SAP Demand Planning now supports a fully automated approach for adaptive forecasting that selects optimal methods and parameters based on the planning problem and automatically assigns methods to each planning object.1

SAP also developed improved outlier correction to identify and correct extraordinary data. Consider, for example, how something as seemingly straightforward as "sales history" can be heavily influenced by short-term events such as marketing and promotions. When Demand Planning's new outlier correction function is combined with mySAP SCM's improved Promotion Management, the solution can root out potentially misleading results and facilitate both easy analysis of historical data and fast identification of the basic selling structures to be used for future planning.

Optimizing Your Network of Suppliers

Outsourcing of production capabilities has caused companies across all industries to reevaluate their supplier networks. To address this, the Supply Network Planning (SNP) component now supports planning of subcontracting relationships whether you are using the SNP heuristic or the Optimizer.

Smoother Administration of Complex Job Chains

Batch processing of major planning algorithms can involve hundreds of jobs and multiple steps running in a set sequence. More complex job sequences run independently, one after another, and rely on conditional execution, especially in cases of unexpected results or errors. To reduce the time and effort devoted to managing job scheduling, mySAP SCM now offers a new scheduling tool for the creation, scheduling, and monitoring of job chains. Administrators will find a complete graphical view of processing, as well as the controls and outcomes of the different runs.

This new tool, originally developed for process chains in the SAP Business Information Warehouse, can handle most Demand and Supply Network Planning processes. It can automatically carry out quite complex processes — such as decomposition of planning objects in disjoint groups that can run in parallel — for several Demand and Supply Network Planning processes, where applicable. The administrator simply has to define the overall operation queue and the number of work processes that should be used; the scheduling mechanism is transparent to the planner.

Managing Inventory in Collaboration with Customers

Collaboration between producers and distributors is an especially promising area for more effective planning. Consider the benefits of customer-facing continuous replenishment programs, such as Vendor Managed Inventory (VMI): gaining greater visibility into demand signals, handling promotion management with retailers more efficiently, and realizing fully automated replenishment processes. Many companies are looking to implement or expand these programs across a greater portion of the business; however, VMI typically covers only a fraction of a company's products or distributors. When it comes to possibly millions of items and a broader range of partners — even smaller retailers — the costs and resources associated with VMI and EDI2 can be prohibitive.

To address this, SAP has introduced Responsive Replenishment as another approach to continuous replenishment. Responsive Replenishment addresses the business goals of replenishment, as well as typical IT requirements of such collaborative processes, including security, scalability, and automation. While at first glance it may seem similar to programs like VMI, this new approach relies on Web-based business standards using SAP NetWeaver technology rather than EDI, and as a result, delivers enhanced business value for companies in terms of business processes, integration technology, and end-user support.

In the Responsive Replenishment process, the vendor (or producer) makes the main inventory decisions for the customer (the retailer or distributor). mySAP SCM gathers data from the customer side and provides the SAP NetWeaver technology for processing the information. The vendor executes the replenishment and automatically triggers the creation of a purchase order in the customer's ERP system. Then with a fully automated process running on the SCM side, the vendor returns the result, which can be confirmed, if necessary, on the customer side (see box below).

6 Steps for Responsive Replenishment

The Responsive Replenishment collaboration process consists of the following steps:

  1. In the Data Import Controller, all incoming messages that are transferred from the customer to the vendor are validated and adjusted automatically (or manually when appropriate).

  2. In Responsive Forecasting, a number of statistical forecasting and extrapolation techniques can be applied automatically; user intervention is only required for exceptional situations.

  3. The purpose of Responsive Promotion Planning is twofold: to plan the promotional uplift as accurately as possible, and to monitor — and, if necessary, respond quickly to — changes in promotional demand during the replenishment period, with the goal of preventing stockouts.

  4. Replenishment Planning then determines the optimal short-term plan that is required to fulfill the estimated demand, including the possibility to differ between turn and promotion demand. The replenishment, which can be carried out on a daily or sub-daily basis, weighs up the order preferences of the customer against the lowest transportation and handling costs available and then performs a series of trade-offs to arrive at the most expedient replenishment plan.

  5. The purpose of the Transport Load Builder is to consolidate the replenishment orders and create feasible transport units on the basis of freely definable business rules. These rules represent both the capacity and the constraints of the applicable means of transport, thereby ensuring that the corresponding minimum and maximum capacity is respected.

  6. In Order Generation, the order proposal is published to the backend system of the vendor and transferred into a sales order for the subsequent sales order and delivery processing. Additionally, a vendor-generated order that represents the purchase order acknowledgement is generated in the planning system, and transferred to the customer backend system.

This completely and highly automated approach is streamlined to rely on the minimum, agreed-upon communication between the customer and the vendor in order to support the significant amount of data passed to the vendor on a frequent basis — perhaps even multiple times per day. Rather than use EDI, users on the vendor side can access planning numbers — historical information, forecasts, corrected history — via the Internet Collaboration Hub (ICH), SAP's Web-based application for collaboration scenarios (see Figure 2). From this screen, the planner on the producer side can make changes to the forecast.

Figure 2
Inventory Collaberation Hub (ICH)

Supply Chain Execution

mySAP SCM is a comprehensive solution for supply chain execution processes including order fulfillment, warehouse management, and transportation management.

Intelligent Response to Customer Orders

Order fulfillment processes are designed to help you respond to your customers' needs based on your current planning (production forecasts) data and other status information (e.g., inventory, product locations). Enhanced functions in this area include consideration of time zones and improved usability of Available-to-Promise (ATP) and BOP (backorder processing) results display.

Integrated Solutions for Controlling and Monitoring the Physical Supply Chain

The SAP Warehouse Management (SAP WM) component controls the physical flow of goods in a warehouse or distribution center. By using integration with RFID technology, multiple processes along the entire supply chain are supported, providing enhanced visibility and data quality while reducing manual operations. The processes supported cover automated hands-free goods issue/loading confirmation and verification of the physical goods issued. In conjunction with SAP Event Management (SAP EM), RFID-enabled outbound processing allows visibility at the delivery and handling unit level inside the company as well as between business partners (see Figure 3).

Figure 3
Order Fulfillment Visibility with RFID: SAP Event Management and SAP Auto-ID Infrastructure

The physical flow of materials appears at the bottom of Figure 3 — from order entry onward. SAP Event Management allows you to keep track of critical milestones through the production process that make up the work order schedule (e.g., order release, loading of goods to truck, arrival and departure of carrier). All of these events are captured within SAP Event Management, which is included as part of SCM 4.0.

Once the product leaves the shop floor, RFID and the SAP Auto-ID Infrastructure solution3 extend this visibility into the packaging, warehousing, and shipping phases. By adding an RFID tag to an item, you can track its movement through the whole supply chain automatically, without manual scanning. This gives you the opportunity to track and trace items at each milestone.

Information is then retrieved through SAP Auto-ID Infrastructure, which ties this information directly to your SAP systems. The result is a much more detailed and real-time process view on an operational level, which can be delivered online in a role-based context via the portal interface.

Lowering Transportation Costs While Maximizing Service

Transportation Management allows you to create a low-cost transportation plan while still guaranteeing customer service, and includes the tendering and actual execution of shipments covering freight costing. With mySAP SCM, the following enhancements are available:

  • Better control of the optimization process

  • Extended definition of time windows and material availability date

  • A new "ship with" indicator allowing for several items combined in one shipment

  • Waiting times in hubs and multiple hub assignments

  • New capabilities for map display

Increasing usability of transportation planning and reducing transportation costs ease the operation of transportation and lower the overall operating costs in the supply chain network.

Supply Chain Visibility

Supply chain visibility is a key capability of mySAP SCM for enhancing the transparency of supply chain processes, including procurement, manufacturing, fulfillment, and transportation, along with supply chain analytics. Bringing visibility to the process level allows you to track and trace operations and provides a historical record of those processes. SAP offers preconfigured key performance indicators (KPIs) in Supply Chain Performance Management using granular data from SAP Event Management (SAP EM). To further enhance visibility of even complex supply chains, with SCM 4.0 there is new opportunity for integration with RFID, SAP BW, and SAP EM.

The definition of very granular milestones in SAP EM optimizes the source data quality and forms a perfect basis for effective analytics, especially when SAP EM processes are integrated into SAP Business Intelligence.

In addition to the standard KPIs, supply chain visibility allows you to monitor the interaction of all partners in a supply chain. With complex supply chains involving many participants (such as carriers and production facilities), the company requires visibility, no matter what partners are involved. Collaboration performance indicators (CPIs) measure the activities of your various partners.

Conclusion

With pressure for change from a variety of sources — outsourcing, more complex supply chains with a wider scope of partners, the need to reduce the costs and complexity of collaboration — RFID mandates are driving companies toward a more adaptive approach to managing supply chain networks.

With these pressures in mind, we encourage companies to explore the full set of options for greater visibility and enhanced usability at the planning and execution levels. With Supply Chain Event Management, SAP NetWeaver functionality, and Responsive Replenishment features, among others, you can expand collaboration with partners across your supply chain, and at the same time enhance your enterprise's ability to respond and adapt to change — from sales order capture to final delivery.

For More Information

For further details on mySAP SCM 2004, please visit www.sap.com/scm or http://service.sap.com/scm.


1 Of course, administrators still also have the option to override these assignments.

2 Electronic Data Interchange.

3 For more on RFID and SAP Auto-ID Infrastructure, see "The Path to the RFID-Enabled Supply Chain for Immediate Compliance and Rapid ROI" by Celestine Vettical and Tim Motter in this issue of SAP Insider (www.SAPinsider.com).


Markus Rosemann is Product Manager Supply Chain Fulfillment and Visibility at SAP AG. Markus Rosemann studied Economics at the University of Heidelberg.

Dr. Stefan Theis is Product Manager for Supply Chain Planning and Collaboration at SAP AG. Stefan Theis studied Statistics and received his Ph.D. from the University of Dortmund in 1995.

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