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Transform the Supply Chain and Logistics into Demand Networks

How SAP Solutions Enable Next-Generation, Real-Time Demand Networks

by Martin Barkman and Patrick Crampton-Thomas and Markus Rosemann | SAPinsider, Volume 16, Issue 3

July 14, 2015

Today’s savvy and demanding consumers require businesses to turn their attention to demand-driven and responsive practices. Learn how SAP solutions can help transform previously linear supply chain into a customer-centric demand network.

 

The supply chain is undergoing tremendous change. Once a complicated, siloed bundle of functions ranging from manufacturing to production to delivery, the supply chain is now extended to reflect the importance of networks to the modern business. These networks connect businesses not only to each other, but they also connect businesses to their customers. And these customers are more demanding than ever before. With a greater number of choices for virtually any product, not to mention the ability to tailor or configure many products to their exact specifications, customers want the perfect product delivered to them with a sense of urgency.
 
Enterprises must adjust to this new way of thinking. Companies need to focus on being demand-driven and responsive, and thereby transform their previously linear supply chain into a customer-centric demand network. This network should leverage customer, company, and supplier data to optimally produce products, efficiently stock goods, and deliver those products to customers reliably and quickly.
 
In this article, we demonstrate how SAP’s extended supply chain solutions enable customers of all sizes and in all industries to transform their supply chain into a demand network by helping them to:

  • Maximize market potential and meet customer needs with demand-driven business planning
  • Enable agile and efficient demand networks with response and supply orchestration
  • Optimize freight, shipping, and warehouse operations with connected logistics networks and operations
  • Manage end-to-end operations with real-time analysis, signals, and network monitoring
Maximize Market Potential and Meet Customer Needs with Demand-Driven Business Planning 

It is essential for companies to harness and act on the vast amount of data available in their systems. In fact, the preponderance of data and its importance to today’s companies has led many to say that data is the oil of the 21st century. 
 
The supply chain is no exception. With rapidly changing global market dynamics, higher expectations from customers, and the proliferation of distribution channels, supply chain leaders are constantly seeking ways to develop profitable supply chain plans that meet the needs of the enterprise. This challenge is compounded by the amount of data produced along the supply chain and available throughout the enterprise, the cumbersome nature of traditional planning processes and systems, and the presence of organizational silos with different objectives.
 
With SAP solutions for demand-driven business planning,1 supply chain leaders and operators are able to align strategic, financial, commercial, and operational goals. Supply chain planners can develop short-, mid-, and long-term views of expected demand across channels. They can plan through cross-functional collaboration, analysis, and optimization of real-time demand signals, supply constraints, and inventory requirements.

Developing a Sales, Inventory, and Operations Plan

Companies need to anticipate change and make adjustments to manage risks and opportunities. With SAP solutions such as SAP Integrated Business Planning for sales and operations and SAP Integrated Business Planning for inventory, companies can more frequently, accurately, and collaboratively develop a sales, inventory, and operations plan that balances a comprehensive view of demand, supply plans, and inventory requirements while pursuing optimal product availability. SAP solutions provide visibility into demand and supply in a single location, incorporating sales, marketing, operations, and finance in a single plan.

Improving Decision Making with Internal and External Demand Data

Demand planning in today’s fast-paced, expanding, and rapidly changing economy is no easy task. Supply chain leaders are expected to quickly react to changes to improve efficiency, productivity, and customer satisfaction levels. After both internal and external demand streams are collected and analyzed, supply chain leaders use the resulting insight to create rational demand plans and update them as needed.
 
One major challenge with demand planning is the time horizon. To forecast weekly and monthly demand, collaborative demand planning together with statistical analysis of past demand continues to be the preferred approach. However, many supply chains fulfill orders every day, so users need a view of daily demand. SAP’s comprehensive demand management solutions, such as SAP Integrated Business Planning for demand (see Figure 1), use pattern recognition algorithms in combination with statistical forecasting algorithms to produce a more accurate picture of short-term demand, allowing companies to make better decisions about where to place inventory.

Figure 1 — Demand plan adjustment in SAP Integrated Business Planning for demand

 

Managing Demand Throughout the Network

Given the emergence and simultaneous convergence of buying channels, companies are seeking a comprehensive view into the full demand network. To attain this, companies must not only understand the demand from their customers, but also the demand from their customers’ customers. SAP’s demand network solutions harness and compile a vast amount of data from the extended demand network to facilitate decision making across the supply chain, sales, and marketing.2  
 
With SAP’s demand network solutions, supply chain leaders can operate with a single source of real-time, high-fidelity, granular demand signals so that they can anticipate and address potential out-of-stock situations. For example, an SAP customer in the food industry uses SAP Demand Signal Management to simplify reporting and analytics efforts, harmonizing customer point-of-sale, Nielsen, shipment, and other internal data to increase user adoption by dramatically reducing the number of tools used to report and analyze data.

Enable Agile and Efficient Demand Networks with Response and Supply Orchestration

Due to the power of the consumer and increasing demand volatility, demand networks need to be responsive to meet real customer and market needs. For example, Amazon has announced a one-hour delivery offering in the New York City area,3 while component lead times are typically two to three months or more. How does a networked, global company keep up with such high customer demands — and how does it properly forecast in an environment where variability and customization are such integral parts of the buying process? As part of this move to a demand network, companies need to enable agile, responsive supply orchestration. Response agility — the ability to ensure a highly differentiated customer service — is essential for allowing businesses to compete and grow through customer loyalty, as well as capture new demand. 
 
Agility is important because, despite many companies’ best efforts, forecast accuracy can be 70% or even less, and various market pressures are driving higher volatility than in the past. Companies have benefited from globalization, but new markets and sources of supply have resulted in more complex supply chains. One example of the volatility inherent in these more complex, networked supply chains is the effect that the flooding in Asia in 2011 had on manufacturing or distribution in entire regions, and even worldwide, for months. Such events are no longer only a concern of companies based in a given area; they now affect companies and industries around the globe.
 
The benefits of mastering volatility can be significant. Recent surveys have shown that companies achieve a 5.6% higher delivery service level and 20% less work in process (WIP) inventory by integrating multi-level material and capacity constraints during the order-promising process in real time.4 More important, companies can react to short-term market conditions to capture new demand and grow revenue through differentiated customer service.
 
SAP solutions for response and supply orchestration provide business capabilities that can help companies navigate volatility by tightly integrating customer demand with real-time supply chain capabilities. The key is to address some of the planning concerns we have already discussed and then integrate capabilities into your demand and supply networks. Consider these capabilities:

  • Response and supply management: Align planning data, processes, and execution across short- and mid-term orchestration time horizons, with customer demand tightly integrated into the supply network in real time and intelligent allocation of resources to prioritize demand, customer, and channel needs.
  • Production planning and scheduling: Integrate production planning with scheduling to maximize efficiency and enable agility. This allows companies to meet variable demand despite smaller lot sizes, and re-plan based on schedule changes to optimize complex shop-floor operations for throughput and overall equipment effectiveness.
  • Response networks: Enable collaborative networks to orchestrate fulfillment with customers and outsource manufacturing operations and suppliers, removing the latency and problems that can often occur at organizational boundaries in the supply chain.
Optimize Freight, Shipping, and Warehouse Operations with Connected Logistics Networks and Operations

After planning on and supplying product to meet customer demand, it is time to deliver on, and even exceed, customer expectations. When doing this, it is critical to make informed decisions and consider delivery costs. To provide higher customer service and increased profitability, SAP has introduced a supply chain execution platform for efficient logistics and order fulfillment.
 
The platform covers the planning, orchestration, and execution of the physical movement of goods, connecting the different participants of the logistics value chain: manufacturing companies that ship goods, freight forwarders and carriers that provide logistics services, and the receivers of the goods. The supply chain execution platform consists of software that covers three main components: transportation management, warehouse management, and track and trace. Let’s look at each of these components.

Reduce Costs and Improve Service with Streamlined Transportation Management

SAP Transportation Management is a holistic solution for shippers, freight forwarders, and carrier industries of all sizes. With this solution, the different participants of the value chain can operate on the same platform, seamlessly integrated with SAP Business Suite. To better collaborate with business partners, the SAP Transportation Management collaboration portal enables orchestration of the activities with carriers.
 
SAP continues to add new innovations to the software. Transportation managers can use content from SAP HANA Live and SAP Smart Business — a cockpit in which users can view analytics and gain insights on key performance indicators (KPIs) across a variety of data — to identify and correct issues in the system before they become too significant. There are also improvements around planning and integration, including container unit planning, the use of Gantt charts, and dispute management. By centralizing their transportation planning and freight cost management, companies have seen improved consolidation opportunities via order-based planning, and highly efficient operations across customer service, logistics, and financials.

Improving Planning and Optimization of Warehouse Operations

Warehouse management — from inbound and outbound processes to inventory management and distribution — is crucial to a successful supply chain. Too often, these processes have been manual, or when automated, they have been siloed. To fully automate traditional warehouse management and distribution processes, many companies turn to SAP solutions. SAP’s warehouse and logistics software integrates with SAP Extended Warehouse Management (SAP EWM) to run both simple and complex high-volume operations at locations from distribution centers to production warehouses.
 
SAP EWM has seen recent improvements, including the use of predictive analytics to aid in advanced workload calculations, leading companies to better plan their labor demand. As a single point of entry for planning activities, the solution works all the way through shipment execution and monitoring, all while delivering contextual analytics such as KPIs on transportation cost or delayed deliveries.
 
Additional scenarios cover enhanced support for production warehousing, including staging, consumption, and receipts, through a new, easy-to-use user interface. With native technology capabilities, SAP EWM enables machine-to-machine (M2M) communication, connecting devices to support efficiency for warehouse workers through radio-frequency identification (RFID), augmented reality, or pick-by-voice technology, and can serve as a material flow system. By automating processes for full control of warehouse operations, companies can improve asset utilization, increase throughput, and ensure on-time and accurate order fulfillment. 

Connect and Collaborate with Carriers to Optimize Transportation Fulfillment Needs

SAP provides track-and-trace capabilities within the supply chain execution platform for companies to track goods and assets across the entire supply chain.5 This capability not only increases the visibility of logistics operations within the network, but also holistically connects all participants of the logistics network, tracks shipment status, and helps ensure higher customer service levels, increased goods throughput, and better utilization of transportation assets. Strategic freight management allows companies to forecast and assess future transportation requirements. With track-and-trace functionality, the software helps ensure the best possible transportation services from carriers by comprehensively investigating rates and negotiating the best freight contracts.

Manage End-to-End Operations with Real-Time Analysis, Signals, and Network Monitoring

Supply chains have been unable to harness and leverage the massive number of data points generated throughout the demand network — from customer demand information, to order delays, to stock status in a warehouse, to logistics and everything in between. Companies that can establish data-driven supply chains can better integrate all operations to service what customers need, putting the customer at the center of the demand network, and breaking down linear silos.
 
A central monitoring capability is critical to enabling real-time network insights that can help you manage the demand network and respond to real-world needs. SAP Supply Chain Control Tower can combine data feeds from many systems, including SAP ERP, planning, and third-party systems, in a unified control tower framework, and use it in conjunction with signals from Internet of Things (IoT) devices in manufacturing, logistics, and related information networks. With rules-based event management and decision support tools such as analytics, performance management, and simulation features, SAP Supply Chain Control Tower becomes a supply chain collaboration hub where all stakeholders can see the information they need in collaborative workflows to resolve issues and risks, and improve performance (see Figure 2).
 
One example of real-time monitoring is how to address variability. Variability in supply chain conditions can have a significant impact on operations, whether it’s a shortage in supply or a disruption in transportation. Using SAP Supply Chain Control Tower monitoring capabilities to get alerts, KPIs, reports, and other real-time insights provides an early warning about possible disruptions. To resolve these disruptions and mitigate the associated risk, cause-and-effect analysis and what-if simulations help ensure effective corrective actions and quick responses throughout your extended supply chain.
 
The issue of real-time analytics also applies to supply chain integrity. As the supply chain becomes broader and more networked, does a company have the proper visibility not only to monitor the effectiveness of its processes, but also to comply with all procedures, guidelines, and laws? Supply chain integrity measures are essential to identifying any potential issues in the system, from process problems to recall management. With SAP Event Management, customers can gain valuable insights from a variety of data sources, such as business documents from processes run with SAP ERP or data from sensors in IoT-connected machines, as well as the ability to manage by exception in their system.

Figure 2 — A dashboard view of SAP Supply Chain Control Tower

 

The Journey to Demand Networks

Customers are more demanding than ever before. They expect shorter lead times and higher service levels, as well as a number of personalized and innovative products and services. Businesses are more connected than ever, creating more boundaries across which supply chains need to work seamlessly.
 
Companies need to move to a network approach, evolving linear supply chains into demand networks, where the customer is at the center. Further, data-driven supply chains can be agile, responding to variability and exploiting new market opportunities.
 
SAP solutions can help companies establish new or more mature business processes to manage these faster, real-time demand networks. Companies can focus on those processes that best support their strategies to create a value-driven roadmap, including demand-driven business planning, response and supply orchestration, logistics and fulfillment, and monitoring for end-to-end visibility across the demand network in real time.
 
For more information about demand networks, visit www.sap.com/scm.

 

1 For more on specific solutions, visit http://bit.ly/1BJpZlF. [back]
 
2 For more on these solutions, visit
http://bit.ly/1N4Vkzm. [back]

3 Wired, “Amazon Launches One-Hour Delivery in NYC” (December 2014; www.wired.com/2014/12/prime-now). [back]

4 SAP Performance Benchmarking Study, 2014. Learn more at https://valuemanagement.sap.com/vlm/#/. [back]

5 For more on these solutions, visit http://bit.ly/1CqD1PG. [back]

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Martin Barkman
Martin Barkman

Martin Barkman (martin.barkman@sap.com) is Vice President and Head of Demand-Driven Business Planning in SAP’s Supply Chain Management group. He has global responsibility for strategy, alliances, go-to-market, and sales enablement for solution areas such as sales and operational planning, inventory planning, demand planning, demand sensing, and demand signal management.


Thomas Crampton
Patrick Crampton-Thomas

Patrick Crampton-Thomas (patrick.crampton-thomas@sap.com) is Vice President and Head of Response and Supply Orchestration in SAP’s Supply Chain Management group. Patrick has held a number of regional and global roles through his 10-year SAP career focused on supply chain line-of-business solutions, go-to-market, sales, and business development.


Markus Rosemann
Markus Rosemann

Markus Rosemann (markus.rosemann@sap.com) is SAP Global Head of Logistics and Order Fulfillment at SAP SE. In this role, he has global responsibility for the SAP solution portfolio of Supply Chain Execution, covering SAP Transportation Management, SAP Extended Warehouse Management, and track and trace.



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