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Handle Critical Supply Chain Events Before They Affect Your Bottom Line: Increasing Supply Chain Visibility with SAP SCM 5.0

by Hans Thalbauer | SAPinsider

October 1, 2005

Gaining visibility into supply chains is becoming more and more difficult, due to fragmentation of operations and supply networks. SAP Supply Chain Management (SCM) 5.0, state-of-the-art analytics, and collaborative tools help you better see the problems coming down the road, protecting your business from the operational effects of events and exceptions that can impact your revenue.

No business ships products with the intention of losing money. If supply chains ran perfectly, business would be easy. But while supply chains can run very, very well, what determines a company's profit or loss is not when a supply chain goes right — it's what happens when it goes awry.

Successful management of supply chain economics is dependent upon how well you can see the next problem coming down the road — that is, upon visibility of events — across supply chain operations as well as within manufacturing operations. As your supply chain gets faster and faster, the need for high visibility (shortening the interval between an event and its detection) becomes more acute. And while an event can be a transaction, such as a customer order, it can also be an exception, something far less positive and less predictable, such as a machine breakdown within manufacturing operations. Each of these events has an impact — there's an operational impact, and a resultant financial impact — that affects both costs and revenue.

If you are not able to manage the exceptions, what happens? An exception can wipe out a company's margin for days, weeks, or even months. You find yourself carrying additional inventory because if something else goes wrong, you will need to have finished goods to fulfill a customer order. You're suddenly paying overtime rates because you're forced to run an additional production shift. You have to expedite material in and out to meet deadlines.

Companies that are better able to manage exceptions across the extended supply network will be much closer to the ideal of supply chain economics — being demand-driven.

The Basic Materials for a Sturdy, Demand-Driven Supply Chain

With more accurate visibility into actual events, you can shorten response time, get away from reliance on forecasts, and dampen the impact of change. You also must improve the way you measure the impact of an exception on your operations and finances, so that you can determine the best course of action to resolve thatexception. How you measure that impact, by way of the key performance indicators (KPIs) you have established, requires state-of-the-art analytics.

Synchronized supply chain and manufacturing solutions that offer better visibility and analytics will go a long way toward constructing an adaptive supply chain network. But visibility and analytics are only two "legs" of our three-legged supply chain stool.

Supply chains themselves are changing. Visibility of events, and the ability to understand the impact of those events, is getting more difficult because of fragmentation of supply chain and manufacturing functions. As companies focus more and more on core competencies, the trend is to outsource other parts of the business. Some outsource transportation; others outsource manufacturing; still others attempt to outsource everything and keep only the brand name in-house. The challenge with outsourcing is that events and exceptions now occur outside of your control, increasing the latency between an event and notification of the event. When a supply chain is all under one roof, latency is not an issue. Now that some links of the supply chain reside with partners, however, you can naturally assume that there will be more exceptions, and that latency will grow and visibility will diminish.

With these new pressures on supply network economics, collaboration is key to successfully managing these multiple levels of fragmentation. Having better collaboration gives you better visibility and thus better event detection to alert you when something goes wrong. Adding analytics allows you to isolate critical events based on their impact on margins and customer service levels.

The New Supply Chain Paradigm

Notwithstanding the importance of all the supply chain "legs," if we were to pick one, visibility is the most critical. But it's not just visibility into your own processes, but also into the processes of your partners and your customers. How do you get visibility into your company's supply chain? Much of it can derive from the analytics and tools built into SAP SCM 5.0 (see Figure 1).

Service Parts Planning
Offers comprehensive functionality for parts demand planning, inventory planning, supply planning, distribution planning, and monitoring.
Service Parts Execution Enables business process integration in complex and distributed environments, resulting in higher flexibility, adaptability to business changes, and visibility. SAP SCM 5.0 delivers new service parts management functions for all order fulfillment, warehousing, and transportation activities.
Forecasting and Replenishment for Retail Operations

Supports the fashion segments and other retail customers with enhanced capabilities for:

  • Replenishing products with long lead times (for example, imported goods from overseas)

  • Handling seasonal products that are active for a certain period of time in the year

  • Introducing new products with a short product life cycle that need reference information for forecasting from several similar products
  • Supply Chain Planning and Collaboration for the Apparel and Footwear Industry

    Supports supply chain planning for apparel and footwear with enhanced capabilities for:

  • Demand planning for apparel and footwear products on any level

  • Standard supply network planning with extended aggregation and disaggregation

  • Store replenishment by enabling the forecasting and generation of high-volume sales orders at the store, style, size, or color level
  • Supply Network Collaboration with Kanban and Outsourcing Enables supplier-managed inventory by communicating replenishment requirements with Kanban signals. Outsourcing manufacturing provides supply and demand visibility and proactive management of inventories that are held at contract manufacturer locations.
    Adaptive Manufacturing with Shop-Floor Integration Enhances usability in planning and scheduling transactions, maintenance of the planning environment, and support for integrated business planning. New multilevel scheduling heuristics and handling improvements reduce the manual effort of planners, improving productivity.
    Extended Transportation Management

    Includes ease-of-use enhancements for transportation capabilities, such as:

  • Splitting capabilities based on resource and equipment availability

  • Enhanced carrier optimization capabilities

  • Continuous move capabilities

  • Routing guide

  • Mode-specific fast order entry capabilities
  • RFID-Enabled Supply Chain Execution Processes Provides a solid and scalable foundation for meeting tomorrow's supply network challenges. You can grow your RFID implementation using a phased, step-by-step approach — from a standalone, slap-and-ship deployment (as a direct response to the retail industry mandates) to complete RFID-enabled business processes that scale to an enterprise-wide RFID rollout.
    Demand-Driven Supply Networks for the Consumer Products and Chemicals Industries Enables consumer products companies to build demand-driven supply networks to stay competitive and facilitate growth. They can do this by transforming supply chains into hybrid networks to deliver innovation and responsiveness for premium brands, as well as high supply chain efficiency for mass-market products.
    Project Manufacturing for the Industrial Machinery and Components and Aerospace and Defense Industries Supports multilevel planning and adaptiveness in bottleneck situations. By determining the critical path and tools for reducing buffer times and rescheduling a multilevel production order network, production planners can identify critical orders or projects and find a solution for bottleneck situations. Visualization of earliest and latest dates, usability improvements in the planning boards, and improved reporting on capacity utilization help simulate the different options to solve disturbances in planning before they cause problems.
    Supply Chain Design and Analytics

    Includes enhancements to analytics, enabling:

  • Efficient monitoring of planned and actual lead times on different levels of aggregation

  • Reduced operational costs through exception-based work

  • Extensive automated evaluations of supplier relationship

  • Enhanced responsiveness through up-to-date views of fulfillment performance

  • Reduced stockout situations by efficiently determining and classifying service losses
  • Figure 1
    New Features of SAP SCM 5.0

    Visibility begins with the tracking, tracing, and monitoring of transactions and business processes, such as the order entry and fulfillment process (see Figure 2). For example, if a specific customer order requires a quality event during the production process, there is an impact on the fulfillment capability, requiring a response from the logistics service provider. The faster the propagation of this event across the supply network, and the better the quantification (using analytics) of the impact, the greater the ability to create an "economically justifiable" reaction to this exception.

    Figure 2
    Network Visibility Example: Order Fulfillment Process

    SAP SCM 5.0 contains analytic dashboards (see Figure 3) that keep you apprised to the health of your supply chain and notify you when exceptions occur. These also track key performance indicators, both financial and operational, which provide the information you need to create a real-time performance management environment to enable you to make the right decisions at the right time.

    Figure 3
    Sample Analytic Dashboard Providing Visibility Into Production Processes


    Supply chains are getting faster and faster. The faster they get, the greater the need for visibility. SAP SCM 5.0 gives you this visibility, along with the analytics and collaboration tools, to:

  • Enable a common information framework across an extended supply network to enable more seamless information sharing

  • Extend supply network response processes to key customers and suppliers to enable shorter cash-to-cash cycle times through network-wide information transparency

  • Synchronize your supply network to increase business intelligence and analytics to better adapt to customer demand

  • Link the service supply chain with the product supply chain
  • As the degree of fragmentation across supply chains continues to accelerate, the need for visibility continuously increases. This need will have to be met by providing superior collaboration and best-in-class functional capabilities. SAP is committed to drive this vision by working with its customers and helping them build first-rate supply chains.

    For more information on SAP SCM 5.0, please visit

    Three Steps to Extended Visibility

    SAP SCM 5.0 enhances your supply chain visibility beyond the borders of your company by including tools that enable collaboration with your supply chain partners. Here are three steps to improve your visibility and make your supply chain more demand-driven:

    1. Synchronize your supply chain network. SAP SCM 5.0 comes with tools that enable you to create frontend demand and backend supply gateways, so that you can share information with the partners in your supply network.

    2. Synchronize supply and demand. SAP SCM 5.0's demand gateways support Vendor Managed Inventory (VMI) for responsive replenishment; the supply gateways support Supplier Managed Inventory (SMI) and Kanban processes.

    3. Synchronize your KPIs. Not all KPIs are created equal. In a fragmented supply chain environment, analytics are useless if your KPIs are not synchronized with your supply chain partners. Obvious differences, such as diverse measurement systems (feet as compared to meters, for example), can be handled programmatically, but others are not so obvious. For example, what exactly constitutes an"on-time shipment"? SAP, for its part, configures its analytics to conform to the standards established by the Supply Chain Council.1

    1 For more information on the Supply Chain Council, visit

    Hans Thalbauer is Vice President of SAP's Application Solution Management for Supply Chain Management (SCM). He is responsible for the roll-in of requirements, the rollout of the solution, and product definition. Prior to joining SAP, Hans was an employee at Wacker Siltronic, where he was responsible as a project manager for the definition and implementation of supply chain processes using SAP APO and SAP R/3. Hans holds a degree in Business Administration and Information Systems.

    Sudipta Bhattacharya joined SAP in 2002 and is currently Senior Vice President of PLM and Manufacturing (Application Solution Management). Sudipta came to SAP after a year at i2 technologies, where he managed the post-implementation value engineering practice. He spent eight years with several companies of the Tata Group in India, managing the manufacturing operations and international business operations of Tata-Rallis Limited. Sudipta holds a bachelors degree in Chemical Engineering. He also holds masters degrees in Manufacturing, Chemical Engineering, and Operations Research, and an MBA in Finance and Operations Management.

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