In previous Supply Chain Matters commentaries addressing supply chain teams utilizing SAP as their technology backbone, we have observed that utilization of SAP’s supply chain focused applications can serve as both a blessing and a curse. The blessing comes from the structural rigor for integrating enterprise-wide transactional, operational execution and master data with supply and demand planning. This rigor is sometimes cited as a curse; since today’s highly dynamic business processes are expected to respond to ever increasing levels of network-wide complexity and changing business models.
In June 2014, we called reader attention to SAP’s strategic intent to transition its supply chain technology, specifically the need for businesses to transform their supply chains to demand networks – which implies deeper, more agile support capabilities for integrated business planning (IBP). With this shift, SAP is acknowledging that many industries must transform to be more product demand-centric and that demand drives supply chain response. In essence, SAP’s intends to enhance and deploy a broader next-generation supply chain platform, described as a “many to many” supply chain control tower platform, underpinned by IBP and response orchestration. The implication of this strategy change is perhaps the obvious admission that SAP APO, as it was originally designed and modified these past 15 years, will need to be significantly augmented by other technologies.
The conundrum implied with this strategy shift is that the sheer scope of this transition will take many more years, a journey involving incremental phase-ins. The reality is that while SAP transforms its supply chain support, business requirements are constantly changing and require a more immediate timetable.
That is why there are increasing signs that the SAP community has begun to evaluate other alternatives for surrounding SAP APO with augmented, cloud-based and other planning and decision-making capabilities that can enable business needs in a much shorter timetable. Two of these needs are augmenting demand sensing capabilities and enhancing supply chain planner productivity. In this commentary, we briefly explore each of these needs.
There is little question that the new era of online, omni-channel or multi-channel customer fulfillment has driven far more product options, shorter product lifecycles, added SKU’s and demand streams. With the clock speed of business far more volatile, traditional methods of historical based forecasting lack the ability to sense continual changes in product demand. Quarterly or monthly planning cycles can no longer keep-up. SAP APO was originally developed to support a top-down approach to planning and forecasting, often implemented at high-level, aggregated product family level planning. When such high level SAP APO forecasts are subsequently split to item-location levels for inventory resource requirements, crucial item-level product demand information can often be masked. This problem takes on even more significance for supply chains with complex channels, large-scale distribution, or more frequent new product introduction cycles. Today’s business needs further require supply chain segmentation strategies where supply chains key-in on customer product demand and service needs, allowing the supply chain to respond to individual SKU or point-of-sale demand shifts.
All of this implies a more predictive, stochastic based product demand modeling approach that senses individual item-level demand changes at the item, location or channel level. Also, continued pressure on cost control and overall inventory increasingly requires seamless integration with multi-echelon inventory optimization methods to optimize inventory in various demand trends and/or scenarios.
These advanced demand sensing and modeling techniques are now offered by certain best-of-breed supply chain planning providers. The good news for the SAP APO community is that many providers, as well as specialized systems integrator firms, recognize the need for a co-existence strategy, where planning applications with more advanced demand sensing and predictive capabilities augment existing planning processes. Rather than rip and replace, these providers support a surround and augment strategy. For added perspectives on the above, The Innovator’s Solution blog features two commentaries, Supply Chain Innovation: Living with SAP APO and Improving Demand Forecasting and Planning with Machine Learning. Both provide added perspectives and specific examples.
The second challenge is increasing supply chain planner productivity. With the product complexities and rapid clock speed of business noted above, planners need to allocate more time to managing true demand and supply exceptions vs. constantly chasing planning errors and false positives. This problem has added significance for the SAP APO community, since experienced planners remain in high demand because of their system and business knowledge, and attract higher compensation. Planners need augmented tools and capabilities to not only provide more responsive planning and predictability, but to provide greater levels of supply chain business intelligence to sales and operations and overall business planning processes. Thus, augmented planning technology that can provide capabilities such as machine learning, rules-based business modeling, and advanced monitoring and exceptions dashboards predicated on a singular data model.
Supply chain management teams with SAP as their backbone have added options in their journey toward more demand-driven, integrated business planning. These options include both SAP as well as best-of-breed augmentation, depending on line-of-business and supply chain business outcome needs.
Disclosure: ToolsGroup is a current client of Supply Chain Matters parent, the Ferrari Consulting and Research Group LLC.
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