SAP Making Strides in Procurement and Supply Chain: Part One


Highlights from the SAP Insider conference on interesting and innovative new developments in their procurement and supply chain capabilities.


One thing about attending an SAP conference, you’re likely to meet a very wide variety of customers from a very wide variety of industries. This point was driven home for me at a dinner I was at while attending the “SAP Insider Supply Chain and Procurement conference” recently. Sitting next to me was a guy from a mining company that provides about 60% of the world’s uranium. He lives way up in Saskatchewan where it gets down to -50˚F And that’s before you factor in the wind chill. Intrigued, I casually asked, “So, do you enrich some of that into weapons grade?” Needless to say, he responded, “Sorry, we are not allowed to talk about our operations.” On the other side of me was a director of sourcing for NBC Universal Studios, located near LA in the “movie-making capital” of the world. He talked about the challenges of controlling spending in an environment where directors and producers have practically carte blanche privileges to buy whatever they need for production on the spot, the whacky things demanded by the movie stars, the wide variety of services that cable networks buy, and the amazing one-of-a-kind machinery and props built for their theme parks. Next to him was a senior executive from Daiichi Sankyo, a pharmaceutical development and manufacturing company. We talked about the intricacies of operating a super-highly regulated supply chain. And I haven’t even mentioned the six others at our table, all from equally varied backgrounds and industries.

So how is SAP able to meet the needs of so many different companies? And how are they able to continue to grow (Q4 2010 software revenues were up 34% over Q4 2009) and effectively compete against the plethora of innovative best-of-breed vendors, some of whom have pretty amazing capabilities? I started to answer those questions in my last article SAP’s Transformation: A Work-in-Progress. Here I’m going to focus in on some of the interesting things I learned at the Procurement and Supply Chain conference.

Supply Chain Management

I attended a talk by Richard Howells (SAP Head of Solution Marketing for Supply Chain Management) and Karen Peterson (SAP VP Solution Management for Supply Chain Execution) updating the latest on their supply chain solutions. They covered a lot of ground – I’ll touch on some highlights that struck me.

SAP Supply Chain Response Management (SCRM)

First announced in November 2010, SAP’s Supply Chain Response Management (SCRM) solution was developed by one of SAP’s partners, ICON-SCM, and is an SAP Solution Extension. These are third-party developed extensions that are tested, approved, branded, and supported by SAP. They provide a way for SAP to expand their customers’ portfolios into areas that SAP’s development organization, as big as it is, does not have the bandwidth to develop. This is one answer to my question about how SAP addresses such a broad range of customers.

SCRM (Supply Chain Response Management) reflects a trend we’ve seen in some supply chain planning solutions over the past couple years to provide the ability to rapidly re-plan and adapt as the situation on the ground changes. SAP refers to it as responsive planning — analyzing short term planning discrepancies using a “response engine” that enables timely, intelligent changes to plan. Steve Lykken, VP at ICON explained that when something changes in the supply chain — whether lead times, component shortages, an urgent customer request or cancellation, shipment delays, or something else — you need to decide what should change regarding what and when you will deliver to customers, what you will make, and what you will buy. All these decisions are interdependent. The planning response needs to integrate them and the many other things that need to be considered, like existing commitments to customers, existing inventory, constraints in capacity or supply, shipments en route, and so forth.

SCRM runs a plan in 2-5 minutes, all modeled in memory. This allows you to do “what if” analyses — changing plans, priorities, what you produce, supply availability, engineering changes, even new BOMS. It looks at demand and how you can best arrange and allocate supply and manufacturing capacity, taking into account various priorities, modeling different levels of capacity and constraints (e.g. DC kitting capacity, manufacturing, raw materials, etc.). HP has been running ICON-SCM since 1994. Other SCRM customers, mostly in high tech, include Tellabs, JDSU, Foxconn, Western Digital, Sanmina-SCI, and many others.

Supply Network Collaboration (SNC)

This is SAP’s platform for connecting trading partners including suppliers, outsourced manufacturers, customers, and third parties. SAP says this platform makes it easier to onboard suppliers and trading partners who have varying levels of sophistication. On the customer-facing side, it can be used to share and collaborate on a forecast and come up with consensus plan, as well as manage VMI (Vendor Managed Inventory) based on min/max and/or a more sophisticated daily or sub-daily “responsive replenishment” approach. It has quality collaboration functions integrated into both suppliers and contract manufacturers, to report on quality issues and take remediation actions.

With contract manufacturers, SNC helps companies share, collaborate, and manage changes to the BOM, and provides visibility into work orders (production and routing) to see where things are in the process. It enables companies to get better estimates of completion dates, quality, yields, etc. And it includes “Supply Network Inventory” capabilities, with which you can look at your partners’ on-hand and future inventory in time buckets.

SAP described several compelling SNC case studies. Phillips is using it for supplier collaboration. They deployed it at 600 suppliers across 11 of their sites, with a goal to roll out to all 1200 main suppliers. For Phillips, SNC provides bi-directional visibility and reduced VMI inventory levels by 10%-15%. Conair is using SNC with over 500 contract manufacturers in Asia to get visibility into the status of work orders (for example, whether an item is in progress, built, in inspection, passed inspection, at the port, in quarantine) which has helped them reduce safety stock and improve the accuracy of ship dates. Colgate uses it for customer collaboration to do responsive replenishment and has moved from a forecast-driven to a demand-driven model. They rolled out SNC in Brazil and Italy, and are now going global. Sauer-Danfoss, a manufacturer of motors, pumps, and other components for off-highway vehicles, uses SNC to send requirements to suppliers, receive PO confirmation and ASNs. They got SNC up and running in 90 days and have been able to move to Evaluated Receipts Settlement, manage with fewer people, and reduce inventory.

TMS (Transportation Management System)

SAP has had transportation management functionality since the early nineties, though it has rarely been viewed as a TMS leader. With the rising cost of fuel, pressure to reduce green house gases, a shortage of drivers, and a potential global transportation crunch looming, SAP has recognized the importance of making a multi-year investment in this area. They are building TMS for use not only by shippers, but also by carriers and 3PLs. They are creating an execution suite (WMS + TMS + SC Event Mgmt) fully integrated into their entire ERP suite.

Innovative Development Process

For this TMS development effort, SAP re-examined their development process and re-architected the entire solution, starting with version 8.0 released in December 2010. The focus of that release was usability, configurability, performance, process simplification, and reduction of TCO (Total Cost of Ownership). For this release, they did “customer co-innovation,” with early involvement of a group of hands-on customers from large corporations trying out each interim/internal release. They used a lean development approach, getting feedback from customers and then iterating many times before the actual public release. In this process, they included implementation partners, conducting three week “boot camps” of intensive testing and feedback from them.

SAP said this release has “deep process integration” with the ERP suite, such as being able to link between order-to-cash, procure-to-pay, customers and compliance management, dangerous goods management, and other functions.SAP is using the platform to provide cross-functional process integration for transportation and other functions. In particular, they mentioned order management — the ability to bring in an order and use it drive planning and tendering, freight execution monitoring to get alerts, and settlement. They also have a “planning cockpit” for TMS in which you can assign freight units and orders to specific vehicles. It has built in dashboards and analytics to see carrier performance over time, for example, event management to get notified if trucks are late or don’t arrive, integrated global tariffs, dangerous goods reporting, and more.

With TMS, SAP developed five best practice scenarios around inbound and outbound, supporting both domestic and international shipping. They are creating prepackaged Rapid Deployment Solutions in areas like ocean carrier booking, linking existing carriers and communities.

In Part Two of this article, we will explore new developments in SAP’s Procurement Portfolio, including a really innovative service called Supplier InfoNet and their very capable Services Procurement Optimization.

To view other articles from this issue of the brief, click here.

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