SAP SCM-Stepping Out of Obscurity

In all the hoopla about SAP’s recent blockbuster acquisitions of SuccessFactors and Datango (and Crossgate, Right Hemisphere, and Sybase a bit earlier), and with all of the talk about cloud solutions, mobility, SAP HANA in-memory, etc., one might lose sight of the fact that SAP has also been doing a boatload of tacit innovation in-house. At the recent SAP Influencer Summit event in Boston in December 2011, we learned of major new SAP products (recently released or slated for near future releases) in the realms of supply chain management (SCM), manufacturing execution systems (MES), and product lifecycle management (PLM). It is hoped that those so-called line-of-business (LoB) product suites that cater to the “ideation, design, source, make, store, move, sell, and service” activities (and which SAP refers to as the idea-to-delivery [I2D] lifecycle) will reach parity with the leading best-of-breed (BoB) counterpart market offerings.

TEC’s mid-2011 article “Has SAP Become a PLM Factor to be Reckoned With?” analyzed the state of affairs of the SAP PLM 7.x suite. Soon after, SAP acquired Right Hemisphere for its 3D visualization capabilities and as the linchpin of SAP’s Visual Enterprise strategy to put the product development (engineering), manufacturing, sales and marketing, and aftermarket service departments on the same page. The idea is to create a core of product information, consistent with business data, combined with visual and business data analysis, and fully enabled for mobile delivery. In this context, visualization enables communication, data analysis facilitates better decision making, while mobility enables flexibility.

Meet the Visual Enterprise

SAP’s Visual Enterprise strategy is to enable better and faster decision making by combining 3D visual information with relevant data from the vast SAP Business Suite. The approach is all about optimizing processes and compressing time to improve productivity. The Visual Enterprise provides visual navigation and query of product information and graphical animation of procedures (see Figure 1), the idea being to reduce information and process complexity, increase comprehension, enable a faster learning curve, and ensure accurate quality operations execution with reduced ambiguity.

SAP is not the only game in town here, as Siemens is soon to release its Active Workspace offering, which is to be the entry point of its High Definition PLM (HD-PLM) approach. Along similar lines, Dassault Systèmes has the 3D Live offering. SAP Visual Enterprise , HD-PLM, and 3D Live can be grouped under the same concept. Basically, they are all providing mashups of enterprise data and content from different applications, such as PLM, computer aided design (CAD), enterprise resource planning (ERP), SCM, enterprise asset management (EAM), etc.


Figure 1

PTC and Infor are working on this concept as well. Infor, within the Infor10 strategy, is doing this in a few ways. First, through Infor Workspace, it is leveraging portal capabilities so that users can access the applications they need from a single home page. Other examples are via the Lifecycle Analyzer, ION Business Vault, and ION Pulse capabilities within the Infor10 framework. (Look for more on Infor’s PLM offering in a separate article.)

2011 vs. 2012

A few major themes emerged in 2011 in the realm of SCM. The year saw major enhancements to transportation management modules (i.e., management and optimization of global multimodal transportation and logistics network). In addition, outsourced manufacturing capabilities accommodate increased visibility into dependencies in distributed manufacturing, while third-party order planning provides improved customer service through planning and visibility of constraints. Also two so-called solution extensions (via third-party solutions that are SAP-branded products, sold on SAP price lists, with SAP providing Level 1 and 2 support) made waves:

  1. Enterprise Inventory Optimization (IO)—enables reduced network inventory levels and better inventory turns
  2. Supply Chain Response Management—enables companies to respond quickly to changes in supply and demand and to volatility in the market and supply chains (not only for impromptu customer requests, but also for any kind of real or hypothetical demand change)

Some promises for 2012 are as follows:

  • More SAP BusinessObjects Supply Chain Performance Management
  • Advanced production scheduling
  • Migration from old SAP Warehouse Management (SAP WM) to new SAP Extended Warehouse Management (SAP EWM)
  • Ocean carrier booking

Zooming in on SAP SCM

SAP has evolved considerably since the early SAP Advanced Planner & Optimizer (SAP APO) days in the late 1990s. SAP APO is still a critical piece of the SAP SCM suite, but SAP now has a much more comprehensive offering and capabilities for supply chain executives, spanning collaborative demand and supply planning; manufacturing network planning and execution; integrated logistics and fulfillment; and supply network traceability. For those companies where the after sales market is critical, SAP also offers service parts planning and execution capabilities. (All of these five high-level capabilities will be analyzed in more detail shortly.)

Generally speaking, SAP strives to allow companies to better respond to demand and supply dynamics across their supply networks via integrated holistic planning processes, the ability to connect other business functions with the supply chain, and tightly integrated supply chain execution (SCE). The built-in performance measurement and analytics capabilities that have come from the Business Objects acquisition also help. Pervasive supply chain performance management capabilities help users to align supply chain strategy to operations, to gain full visibility into operations, to better understand supply chain dependencies and decision impacts, and to identify root causes for bottlenecks or supply chain breakdowns faster.

Most recently, SAP has delivered a plethora of Rapid Deployment Solutions (RDS), which are ready-to-run preconfigured software with fixed-scope implementation services at a predictable price, but with the flexibility for future extension. Some available bite-sized SCM RDS that are not terribly difficult to justify in terms of their return on investment (ROI) include warehouse management, global available-to-promise (ATP) check, service parts planning, customer collaboration, the aforementioned supply chain performance management, and demand management, and there are many more available or slated for near future release.

1. Collaborative Demand and Supply Planning

The first set of SCM processes aims to balance demand and supply plans and to respond to network events through integrated and holistic planning processes. To that end, the Collaborative Demand Management capabilities translate point-of-sales (POS) demand, trade promotions, internal and external forecasts, and actual retailer orders into product availability, customer service levels, and revenue. For its part, the Network Supply Planning capabilities calculate the replenishment needs and perform distribution requirements planning (DRP), so as to send replenishment signals (orders) back to manufacturers and suppliers across all time horizons. The intended result is a faster response and optimum inventories across the supply network, to reduce costs and release working capital.

Last but not least, the Sales and Operations Planning (S&OP) module consolidates all relevant input to balance supply and demand across the network, globally, to optimize total cost and ensure profitable growth. While the current SAP S&OP solution is mainly based on the SAP Budgeting, Planning and Consolidation solution (former OutlookSoft), the upcoming SAP HANA-based solution will draw from many more data sources.

Upcoming “Real Deal” S&OP Capabilities
While the upcoming S&OP product’s details are still sketchy (it is in a ramp-up stage for a select few early-adopter customers (first public release planned for Q2), SAP revealed to us the offering’s comprehensive supply network modeling via the following capabilities:

  • Dynamic aggregation and disaggregation (planning families to individual items)
  • Support for the full S&OP process, including demand and supply balancing
  • Multisite capacity planning
  • Bill of material (BOM) and critical component planning (the first release will have one-level BOMs, while multilevel BOMs will come in later releases)
  • Rapid simulation and scenario planning—creation and rapid iteration of what-if scenarios to help deal with volatile business conditions
  • Integrated alerting and performance management
  • Embedded role-based collaboration—smooth connection of users to drive processes using Web 2.0 social networking fabric
  • Integration with operational systems—high-fidelity connection to multiple source systems to enable synchronization across all planning levels (see Figure 2). The initial release of S&OP is in the cloud, and integration will be via file import/export with on-premise applications


Figure 2

Owing to the scalability and flexibility of SAP HANA (see “SAP HANA—One Technology to Watch in 2012 (and Beyond)”)—which powers S&OP—in-memory computing enables propagation of large data volumes across complex supply networks. As for flexibility, dynamically created multidimensional views of data should eliminate the need for fixed and predefined hierarchies.

Enterprise Inventory Optimization
The aforementioned solution extension, SAP Enterprise Inventory Optimization (EIO) by SmartOps, aims to deliver ongoing benefits through a sustainable process of dynamically capturing, quantifying, and responding to supply chain variability and suggesting time-phased inventory targets across all items and multi-echelon locations (supply chain nodes). Supply chain variability can come from multiple sources, starting with demand intelligence (i.e., forecast error, forecast bias, and intermittency). On the side of supply chain intelligence, there are the mean lead-time, in-transit inventory, order processing/goods receipt, and lead-time variability factors. Finally, production variability comes from the mean schedule attainment and schedule attainment variability factors.

Based on scalable Oracle’s Java Enterprise Edition (J2EE) architecture, SAP’s EIO offering is synchronized with either SAP ERP or SAP APO transactional information and planning processes, while integrated analytics provide visibility into the aforementioned supply chain variability factors. The system is able to measure, visualize, and act on these sources of variability, while what-if simulation capabilities help with regard to continuous improvement of customer service levels, i.e., increased order fill rates and on-time delivery and reduced out-of-stocks and order lead-time variability.

Other typical performance improvements include reduced inventory and working capital as well as inventory carrying and obsolescence costs. Improved planner productivity comes from reductions in time used in expediting and time spent on manual inventory planning processes. Finally, reduced production and distribution costs should come from the reduction in property, plant, and equipment (PP&E) and depreciation due to excess storage facilities. Celestica and Arla Foods are two notable customers of SAP’s Collaborative Demand and Supply Planning solutions.

2. Logistics and Fulfillment Management

The second set of SCM processes aims to enable effective logistics and fulfillment processes across the entire supply network. To that end, the Customer Commitment module provides order management based on available and projected inventory and an end-to-end “order-to-cash” process support. The goal is greater accuracy in customer orders and deliveries, to help exceed target service levels, drive volume, and reduce the cost-to-serve.

The transportation management system (TMS) and warehouse management system (WMS) modules have had major enhancements of late. The Inbound Transport management capabilities provide improved visibility and planning to choose the optimum cost and manage supply risk, whereby upstream visibility drives carrier performance and reduces inbound transport costs. The Outbound Transport management capabilities manage customer deliveries within customer constraints while utilizing assets, whereby better planning and optimized transports help reduce transport mileage and costs.

The Storage and Fulfillment capabilities streamline warehouse processes and material flow from yard to shelf, maximize asset utilization, and reduce warehousing costs. Finally, SAP’s Global Trade Management (GTM) capabilities ensure cost-effective compliance when importing and exporting goods. SAP touts the following high-level capabilities of SAP EWM 7.0:

  • Best-in-class warehouse management: flexible modeling and automated support for warehouse processes
  • Optimization in storage planning and process execution
  • Integrated labor management
  • Advanced slotting
  • Built-in warehouse control system (WCS) to orchestrate automation
  • Seamless integration to radio frequency (RF), radio frequency identification (RFID), and pick-by-voice
  • Integration to the overall SAP Logistics and Fulfillment platform

SAP TM 8.0 features the following key capabilities:

  • Integrated order processing and management
  • Interactive transportation planning and tendering
  • Freight execution and monitoring
  • Freight cost management and settlement
  • Embedded event management, analytics, and reporting
  • Integrated to import/export, dangerous goods and compliance

For a long time, SAP TM functionality was limited by being tied to deliveries, and there was no ability to make changes at the order and order line level. That it no longer the case, and the SAP TM functionality has been pervasively bolstered by analytics and reporting, event management, document and output management, and integration and connectivity capabilities. The offering supports the following transportation processes for the following personnel:

  • Order management for transportation planners
  • Freight planning and tendering for tendering specialists
  • Freight execution and monitoring for transportation dispatchers
  • Freight settlement for transportation charge clerks

Nestle and Artoni are two notable customers of SAP’s Logistics and Fulfillment Management solutions.

3. Manufacturing Network Planning & Execution

The third set of SCM processes, Manufacturing Network Planning & Execution (MNP&E), is the major extension of SAP APO with the goal of responding to rapid changes in demand across a network of plants, outsourced manufacturers, and suppliers. To that end, the Manufacturing Network Planning capabilities determine and source production requirements across a network of internal and external sites as to satisfy demand with the minimum lead times and inventory across the manufacturing network. Production Planning and Execution capabilities seamlessly schedule, dispatch, and execute processes on the plant floor so as to improve manufacturing flexibility through increased visibility and speed in responding to events.

Outsourced Manufacturing is about orchestrating responsive execution of subcontractors and shortening lead times without increased procurement cost. Finally, the goal of Material Supply and Replenishment is also to shorten lead times (without increasing procurement cost), increase materials availability, and enhance manufacturing flexibility while reducing cost. LSI Industries, Conair, and Flextronics are some notable customers of SAP’s MNP&E solution.

Supply Chain Response Management
The other aforementioned solution extension, SAP Supply Chain Response Management (SAP SCRM) by ICON-SCM, has the purpose of responsive planning and what-if analysis to ensure efficient demand-supply matching and to respond to changes and disruptions due to uncertainty, be it an economic, political, meteorological, or other uncertainty. The solution can perform fast order-based operational re-planning to adjust for changes to demand and supply as well as what-if simulation and analysis to resolve real and hypothetical challenges. To that end, finite materials and capacity in a multitier network are taken into consideration.

Generally speaking, the key capabilities that are required for so-called response management offerings are multi-user input and collaboration, multi-scenario creation and comparison, and high-speed analytics. SAP APO support for these capabilities is not as fast or flexible as the market is seeking, so SAP had to look for a partner to satisfy these key business needs. SAP has responded to its customers, who have requested faster and more flexible simulation and re-planning. A number of these customers are seriously looking at adopting response management capabilities.

To be fair, in many cases and in many industries, customers are fully satisfied with SAP APO for their needs. The fact is that due to its responsiveness and flexibility, response management is better suited to some industries than APO.

Essentially, SAP is recommending the Strategic Network Planning (SNP) Optimization module (within SAP APO) in industries where true cost optimization is important, and is recommending SCRM in industries where faster dynamic re-planning is more important. The optimization that occurs within SAP APO is a mathematical optimum; it tends to be slow, and not suitable for what-if scenarios in highly volatile environments. SAP SNP is well suited for process and semi-process manufacturing, such as consumer products. It is also suited for situations where cost minimization is critical, i.e., where transportation costs take a large piece of the margin, and therefore the sourcing is based predominantly on distance travelled.

There is some overlap between SCRM and the SAP Capable-to-Match (SAP CTM) capability within SAP APO, but CTM is a more robust solution for complex characteristic-based down-binning (rules-based product substitution) situations in the semiconductor space. SAP continues to recommend CTM in those industries, but is seeing greater demand for SCRM where those exacting requirements are not present.

SAP APO, meanwhile, is a planning platform, with many different computational techniques, including heuristics, rules-based algorithms, and optimizations. For example, SAP’s supply planning heuristics, which is only one of many techniques supported by SAP APO, attempts to provide a problem solution and often involves criteria other than cost or profit, such as rules and priorities. These algorithms search all of the available resources (machines, labor, suppliers, available time, etc.) and match them with the demand, in order to generate replenishment orders. This is in contrast to the so-called fast material resource planning (MRP) function (or response management, if you will), which has to do some post-processing to try to smooth out the “mountains” (capacity or material peaks) into the “valleys” to respect constraints, so it is not a quality executable solution. But it is indeed fast, and often run in-memory, and thus useful for evaluating what-if situations.

Rather than being a black-box rigid MRP system with infinite capacity, APO acts as an open MRP of sorts, where users can modify the MRP business logic via rules. To the best of our knowledge, the following are the core APO modules, all of which share the same data model, and in many cases the same or similar user interface (UI):

  • DP—Demand Planning
  • SNP—Supply Network Planning
  • PP/DS—Production Planning and Detailed Scheduling
  • SNC—Supply Network Collaboration
  • GATP—Global ATP
  • CIF—Common Interface Function, to provide integration between APO and ERP

One could create a similar list of modules and capabilities for the advanced planning and scheduling (APS) offerings by JDA Software (including former i2 and Manugistics), Logility, Infor, Adexa, Oracle, AspenTech, Preactor, etc. The traditional problem for users has been to understand the business logic of each rule (algorithm), and how it affects the other functions in the enterprise, not to mention the correlation between all of these modules and their rules when they are implemented concurrently. Thus, the system is unable to alert users in other functions that there is an issue that is important to them or to solicit their input. A separate article analyzes the different optimization approaches of APS and response management solutions in more detail.

4. Supply Network Traceability

The fourth set of SCM processes establishes efficient processes for product safety and traceability across the network. The Product Genealogy capabilities trace products from raw material to end product, and ensure a regulatory-driven pedigree and compliance tracking—from the point of manufacture to the point of consumption. The Tracking and Integrity Assurance capabilities secure the supply chain through authentication, visibility, and condition monitoring. They ensure compliant manufacturing, distribution, and monitoring of conditions for finished goods during transport and storage to avoid spoilage.

Underlying these capabilities is the SAP RFID framework, which is no longer part of the SAP NetWeaver platform per se. Rather, within the SAP SCM suite, the SAP Auto ID Infrastructure (SAP AII) and SAP Object Event Repository (SAP OER) features are being used in a broad range of industries in item traceability scenarios. SAP touts a broad interest in industries such as life sciences, food and beverage, aerospace, automotive, chemicals and retail. Customers of SAP’s Supply Network Traceability solutions include the aforementioned Nestle and Artoni.

5. Service Parts Planning and Logistics

The final set of SCM end-to-end processes focuses on aftermarket service and ensures real-time visibility of service parts inventory through integrated parts planning, warehousing, and fulfillment processes.

The Service Parts Planning and Procurement set of capabilities enable a balanced and profitable demand and supply of service parts. For its part, the Service Parts Warehousing capabilities support all warehousing processes, including inbound and outbound processing, distribution, and storage. Service Parts Fulfillment helps to efficiently market and sell highly profitable service parts, maximize operational efficiency, and reduce transactional costs for high-volume parts orders.

The offering also helps manage reverse logistics, including returns, repairs, refurbishments, resale/remarketing, and disposal of parts to decrease returns and extract value from returned parts. Customers of SAP’s Service Parts Planning and Logistics solutions include Ford and Bombardier.


The solutions that SAP is offering for supply chain executives expand beyond the traditional TLA (three-letter acronym) boundaries of SCM, PLM, customer relationship management (CRM), ERP (manufacturing), etc.  For example, when we talk about Collaborative Demand and Supply Planning, it is critical to include Trade Promotions (traditionally part of a CRM solution) in the end-to-end processes. Similarly, in Logistics and Fulfillment, GTM is a key component when sourcing from and servicing a global network.

Figure 3 illustrates how the aforementioned modules and capabilities form the SCM system of record of sorts.

Figure 3

SAP seems well positioned to shore up its vast SAP ERP install base and offer it additional SCM capabilities. But we will not likely see SAP offering its standalone SCM modules to non-SAP ERP customers looking for BoB SCM solutions.

Recommended Further Reading
How Much Supply Chain Optimization Do We Really Need? – Part 1. February 21, 2012.
SAP as a Retail Market Force: More Fact Than Fiction. January 5, 2012.
RedPrairie: Enabling End-to-End Supply Chains (from Manufacturer to Retail Shelf). December 29, 2011.
How to Plan and Manage in Uncertainty and Volatility? Based on Reality and Facts, Duh! – Part 2. November 29, 2011.
SAP Moving into the Right Hemisphere of the CAD and PLM World. September 23, 2011.
Has SAP Become a PLM Factor to Be Reckoned With? June 23, 2011.
What’s New at MCA Solutions? March 30, 2011.
S&OP Newcomer Asserts Notable Domain Expertise. March 2, 2011.
SAP APO: Will It Fill the Gap? September 2, 1999.

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