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Your Supply Chain Is Optimized, but Is It Profitable? How mySAP SCM and Analytics Impact Your Supply Chain's Bottom Line

by Markus Rosemann | SAPinsider

July 1, 2006

The supply chain is more than a ritualistic, point-A-to-point-B process – it can impact both business operations and the bottom line. By applying supply chain economics through the analytic capabilities of mySAP SCM and SAP xApp Analytics, your company can realize not only enhanced efficiency, but also greater profitability and business growth.
 

Traditional approaches to supply chain management have focused on gaining a high degree of visibility into fulfillment processes and making supply and demand planning as efficient as possible. But to make the supply chain a full contributor to business growth, companies also need a lesson in supply chain economics.

Supply chain economics is supply chain management combined with a clear view of the impact it has on both business operations and the bottom line. It is knowing that successfully fulfilling an order is not enough; supply chain economics involves taking a step back, looking analytically at how the supply chain runs, and determining whether certain actions and responses are efficient, but also profitable. For example:

  1. When deciding how to move a shipment of your products from your US-based warehouse to your retail site in London, you can connect your freight management and transportation planning with actual freight costs.

  2. You discover that a carrier that is contracted to do 35% of your business is actually only accepting 25% of the loads you tender, while another carrier has increased tendered loads by four times their contracted plan. You can reassign routes and renegotiate rates accordingly.

  3. Should a natural disaster strike an area in which you do business, you can quickly address any safety concerns, identify which products are affected, and simultaneously be alerted to any customers waiting for products that are delayed. You can also proactively evaluate alternate sourcing options and decide how to cost-effectively and efficiently fill customer orders.

The good news is that SAP customers can achieve this deep understanding of their supply chain operations' bottom-line impact using current SAP technologies. Any SAP customer running mySAP Supply Chain Management (mySAP SCM), for example, can use the application's analytic capabilities to plan, run, and execute supply chain activities with an eye toward growth. What's more, a subset of the new SAP xApp Analytics applications, generally available in Q3 2006, is specifically SCM-focused, enabling customers to use analytics to extend additional visibility and growth-enabling functionality to their business users.

Before we delve into the details of the new SCM-specific SAP xApp Analytics, we will explore the high level of visibility already available with mySAP SCM. After introducing the first wave of SCM-specific SAP xApp Analytics applications — which sit on top of mySAP SCM and are pushed to end users in an intuitive, visually appealing format — we will also preview some of the actionable, SCM-specific xApps that will be rolled out in future releases.

How Efficient Supply Chains Can Still Impede Growth

The traditional view of the supply chain is an end-to-end flow of orders, deliveries, purchases, and transactions between customers, manufacturers, suppliers, and retailers. But this linear approach focuses on operations and products and no longer reflects the complexities of the supply chain network. Companies require the ability to quickly read and react to the products, processes, and business performance of their supply chain network (see sidebar).

Does Your View of the Supply Chain Include Business Performance?

By taking full advantage of the analytical capabilities within mySAP SCM and SAP xApp Analytics, you can achieve richer visibility than with more traditional, operations-focused approaches to supply chain management.

Process Visibility
Process visibility is not about glancing at a chart or a graph, but rather looking at the status of a process as a whole. Innovative companies are looking to gain greater visibility into supply chain processes to allow them to manage information over heterogeneous systems, across multiple tiers, and at every stage of the extended supply chain; to detect, evaluate, and solve problems in real time; and to create a community of business partners that can reach out across geographic and organizational divides to collaborate in a responsive and adaptive supply chain network.1 In short, greater process visibility is a key to increasing customer satisfaction, collaborating with business partners more effectively, and reducing costs.

This means that management's focus must evolve from managing the expected outcomes of business processes to managing by exception. Companies must continue to move toward real-time event alerting, away from such stodgy methods as managers reading through piles of disparate, disconnected, and incompatible reports, looking for red flags and numbers blatantly out of whack.

Product Visibility
Visibility into the outcomes of the processes — stock items, physical assets, and inventory, for example — is also crucial. Visibility must be achieved not only at the aggregate level, with data such as cross-warehouse inventory and global demand information, but at the granular level as well — at an individual stock-item level, for example.

Tracking and tracing items through the supply chain — across multiple inventory locations, partners, and business units — enables companies to be made aware of exceptions in time to effectively act on unexpected supply chain events. The use of metrics such as KPIs is also essential to ensure that items throughout the supply chain are moving according to expectations and within established parameters.

Performance Visibility
The major visibility challenge faced today, though, is not simply the availability of process and product data. True, most companies do have huge amounts of data to plumb, even to the extent that their systems and capabilities can be overwhelmed by an excess of information — everything from stock situations at different warehouses to movement across locations and cycle time across the supply chain, as well as a variety of quality management reports.

But what is essential to competitive differentiation is the ability to provide relevant data access to different parties across the extended supply chain in a secure, role-based format. This way, business users know more than where their products and assets are or what happened to them — they know about the performance of their processes so they can not only manage the supply chain, but improve it.

There is a wealth of information across the supply chain network that can and should be gathered to sufficiently respond to, or even predict, exceptional events and deviations, such as transportation difficulties or rush or cancelled orders. Without network-wide visibility across the supply chain, you are seriously hindered in your ability to profitably respond to unexpected events.

In addition, as more and more companies outsource key supply chain functions and expand their partner networks, a high degree of visibility into supply chain performance is required to monitor service levels and ensure these partners are within acceptable parameters.

SAP Applications Embed Intelligence into Your Supply Chain

Fully realized supply chain analytics and visibility capabilities cannot be add-on features. Businesses need to move away from analytic processes that are mostly hit-or-miss propositions, with managers buried in avalanches of incompatible spreadsheets and error-ridden reports, hoping that revelations will somehow leap off the page.

Instead, analytics must be integrated, built-in enterprise functions that are interconnected with planning, execution, and collaboration tools and processes. Only in this way can business users coordinate and optimize supply chain processes. When analytics are fully synchronized with actions, they can provide constant real-time information, guidance, and feedback on decision-making processes (see the section "On the Horizon: Embedded, Actionable Analytics").

SCM-specific solutions from SAP enable this transformation and embed analytic insight directly into the supply chain process.

Analytics Capabilities in mySAP SCM You Can Use Today

The mySAP SCM solution keeps you apprised of the health and profitability of your supply chain by:

  • Enabling a common information framework across an extended supply network — With SAP NetWeaver as the common business process platform (BPP) of mySAP SCM, the need to synchronize data is eliminated, as all information is contained within the BPP framework. The days of late or missing data are gone. mySAP SCM seamlessly integrates planning and execution by design and not after the fact, providing a "single version of the truth."

  • Extending supply network response processes to key customers and suppliers — Communication with key customers and suppliers is often limited to mail, voice, fax, email, and nonintegrated event tools. mySAP SCM integrates systems and processes to allow for the real-time exchange of prioritized issues and information required to run a profitable supply chain. The SAP Inventory Collaboration Hub (SAP ICH) component of mySAP SCM makes these processes available to all collaboration partners. SAP ICH has been designed to enable real-time collaboration among suppliers and customers, regardless of the inventory model or systems in place.

  • Building in business intelligence and analytics to better adapt to customer demand — Re-aligning processes to account for changes in consumption and adapt to customer demand will move your company in the right direction. Balancing the supply chain's push and pull components mandates a greater degree of application intelligence, such as sensing consumption increases and creating alerts with potential resolutions. SAP Advanced Planning and Optimization (SAP APO), a component of mySAP SCM, includes advanced planning capabilities like Demand Planning and Supply Network Planning that leverage business intelligence.

  • Providing more network visibility with supply chain event management — The optimal execution of a business plan is of course ideal, but reality intrudes in the form of transportation difficulties, rush or cancelled orders, and other unexpected yet inevitable events. The network-wide visibility, collaboration, and analytics capabilities of mySAP SCM enable customers not only to sense and respond to unexpected events and deviations, but also to learn from them in order to continuously improve overall performance.

With the release of SAP SCM 5.0, analytic dashboards are available that continuously monitor your supply chain's health and notify you when exceptions occur. These dashboards also track key performance indicators, both financial and operational, which provide the information you need to create a real-time performance management environment that helps you make the right decisions at the right time.2

The Next Step: SAP xApp Analytics

Eleven different SCM-focused analytic applications will be delivered as part of the Q3 2006 release of SAP xApp Analytics (see Figure 1).3 These SAP xApp Analytics composite applications give companies comprehensive supply chain management capabilities, delivering actionable, contextualized information out of the box and enabling the integration of transactional, collaborative, and analytic processes.

Analytic Application Description
Global Capacity Utilization

Gain insights on current capacity utilization status:

  • Analyze global capacity status for a product group within the supply chain
  • Drill into global capacity utilization details by time, location, and production line
  • Compare the capacity utilization for different plants and lines
Global Inventory View

Get an immediate overview of the inventory within your supply chain:

  • Analyze global inventory by total quantities, total monetary value, and terms of coverage range (i.e., days of supply)
  • View detailed inventory levels by location and product group
Order Analytics

Analyze the current order situation:

  • Overview the invoiced sales quantity, sales targets, and current orders
  • Navigate by key account, product, and country
  • Compare sales targets against existing orders by country or key account to identify areas where you may not be hitting your company-wide goals
Warehouse Stock Analysis

Overview real-time goods movements within a warehouse:

  • Analyze the top 10 slow-moving or fast-moving materials for a given warehouse
  • View the top 10 obsolete parts by value in both a graphical and a more detailed report format
Warehouse Workload
Historical View

Gain insights on the warehouse workload:

  • Analyze the history of incoming sales orders versus outbound delivery quantities (sales versus shipments) and line items
  • View detailed analysis by shipping point and warehouse
  • Analyze the goods receipts versus goods issues and receipt/issue variance by month for space utilization review
Forwarding Agent Efficiency and Forwarding Agent Requirements

Get an overview of the forwarding agent business share:

  • Review forwarding agents business interaction with a manufacturing company
  • Compare planned versus actual freight costs
  • Analyze tender acceptance rates and times
Delivery Performance

Conduct root cause analysis on customer service levels:

  • Analyze the historic delivery performance for individual customers
  • See which products have been delivered to those customers
  • View the performance of production facilities serving those customers
  • Analyze the carrier performance serving those customers
Demand/Supply Match

Overview the demand situation and corresponding fulfillment options:

  • Analyze sales quantities by product groups
  • Match demand with inventory and production
Material Availability Analytics

View the material availability for customers and products:

  • Determine your top and bottom five customers by revenue
  • Learn which customers have the longest-running back orders
  • Analyze your top and bottom five products by revenue
Supplier Rating Monitor

Rate the performance of your top 10 suppliers:

  • Base the rating on SAP ICH alerts — e.g., "PO confirmation of less quantity than ordered," or "Out of stock situation 10 days from now"
  • View ratings by product
  • Analyze types of alerts by product, and the number of occurrences of this alert type; for example, analyze the number of late deliveries for a certain product number
Figure 1
A Preview of the SCM-Specific SAP xApp Analytics Applications

SAP xApp Analytics applications integrate seamlessly into existing business processes and across functional and even organizational divides. Empowered by the increased visibility these applications provide, companies are able to align business strategies with execution so managers can continuously plan and monitor strategic, operational, and tactical goals. With more than 1,000 predefined KPIs — many of them based on the supply chain operations reference (SCOR) model — that can be embedded into SAP xApp Analytics, companies can create insights across all functions, including planning, procurement, manufacturing, order fulfillment (see Figure 2), and inventory management (see Figure 3). And with function- and industry-specific analytic applications, companies can take advantage of actionable business insights in the context of their business processes, delivering value for users throughout the corporate hierarchy.

Figure 2
The Order Analytics Application Provides a Real-Time View of Your Current Order Situation

Figure 3
The Global Inventory View Provides an Immediate Overview of All Inventory Within the Supply Chain

On the Horizon: Embedded, Actionable Analytics

SAP xApp Analytics embeds analytics in composite applications — applications that gather different services from existing applications and bundle them into new and flexible solutions. These applications cross the boundaries of traditional functional areas like distributed order management, product tracking and tracing, and sales and operations planning.

On the horizon are real-time, actionable analytics that are based on real-world events, as well as integrated systems where transactional and analytic processes converge, facilitating the ability to learn, anticipate changes, and act upon information at the moment a decision needs to be made. This wave of analytics applications will close the loop between event management and analytics, allowing business users not only to focus but also to act on strategically growing their business with every decision they make.

Also look for major technology advances to foster a shift in supply chain analytics. In part due to pressure from large companies and government and regulatory agencies, more and more event management data will enhance bar code technology and extend the use of RFID, global positioning, and cellular technology. These advances will move extended supply chain visibility closer and closer to actual real time. And beyond tracking, RFID technology tags can store vast amounts of data about a particular item, and can even be used for security and climate control methods.

Conclusion

Admittedly, increased supply chain visibility alone isn't a hard-dollar benefit you can see or track. But improved visibility enabled by analytics allows business users to make strategic, informed decisions that can reduce losses and even enhance profits and business growth.

To understand the supply chain economics at work in your company, my recommendation is to take advantage of the analytic capabilities that are already available to you through mySAP SCM, and look for the release of SAP xApp Analytics applications you can layer on top of SCM. Embedding insight and visibility into this mission-critical operation is vital for all decision makers who are not content with just running the business, but who want to improve it.

For more information on SAP's analytic offerings for supply chain management, please visit www.sap.com/scm and www.sap.com/analytics.


1 For more on the adaptive supply chain network concept, see my article "Ready Your Supply Chain Network for Correction, Improvements, and Change" in the July-September 2004 issue of SAP Insider (www.SAPinsider.com).

2 To learn more about the latest mySAP SCM release, see "Handle Critical Supply Chain Events Before They Affect Your Bottom Line: Increasing Supply Chain Visibility with SAP SCM 5.0" by Hans Thalbauer and Sudipta Bhattacharya in the October-December 2005 issue of SAP Insider (www.SAPinsider.com).

3 All eleven SCM-specific analytic applications come with SAP xApp Analytics.


Markus Rosemann is the manager of ESA, Analytics, and Deployment in Supply Chain Management at SAP AG. In this role, he is responsible for product strategy and product definition, as well as rolling out composite and analytical applications in SCM. Markus has held several additional positions at SAP AG, including Product Manager for Supply Chain Fulfillment and Visibility. He studied economics at the University of Heidelberg. You can reach him at markus.rosemann@sap.com.

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