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Achieving Operational Excellence
How SAP positions itself to support your improvement initiatives

A recent survey prepared by the Economist Intelligence Unit proves that high-performing corporations are seeking out new ways of operating. Of the 585 worldwide senior corporate executives that were interviewed, 58% said they want to improve their companies’ profitability significantly — or even radically — over the next two years. And to reach their performance goals, 56% of surveyed executives want to significantly change their operational strategy. For a company to achieve these objectives, and to sustain and increase its competitive superiority in the market, it must first strive for operational excellence. I define operational excellence as the quest to reliably meet and exceed customer expectations with cost-effective and efficient operations. It’s the pursuit of conducting business in a manner that continuously improves the quality of goods and services, reduces costs, increases speed, and enhances flexibility to achieve competitive superiority.  All told, operational excellence boils down to a fundamental business concept: It’s a company’s commitment to consistently deliver adn source quality products or services to customers at the right cost, in the correct quantities, on the right dates, and at the right locations. 

But it’s not easy, I admit. 

Overcoming the Barriers to Operational Excellence

There are severe obstacles to gaining cost savings and operational efficiencies, many of which stem from non-standardized processes and non-harmonized IT landscapes, which in turn lead to a lack of visibility into your current operations. In a networked economy, the question quickly becomes: How can you support your company’s drive for operational excellence from an IT standpoint? It’s not enough to simply plug in a standard solution and hope for the best. That’s why SAP’s has taken the approach to focus on end-to-end business processes, not software components. 

Should Your Company Pursue Operational Excellence?

My firm belief is that operational excellence is a goal for every industry and for every company. True, there’s an important quality aspect to operational excellence, but in the end, it’s about saving money. And every dollar saved improves a company’s bottom line.  So in order to remain competitive — or become more competitive — it’s in the interest of every company to improve operational performance. This can be achieved in many ways. But at a base level, it involves planning, production, procurement, and customer care — a dedicated initiative across all the operational tasks in which a typical company is structured.  

A common question I hear, then, is how do you measure success at operational excellence? I’ve prepared a quick list of important KPIs:

  • Increased profitability and margin
  • Reduced operating costs and cycle times
  • Maximized cost savings
  • High quality of products or services
  • Improved customer service ratings
  • Accelerated business decisions
  • Ensured business viability 

These are fairly standard business KPIs — they’re not revolutionary, and they’re not going to change. Rather, the way to improve those KPIs is changing.   

SAP’s End-to-End Process Approach to Operational Excellence

At SAP, we want to ensure that we can integrate related businesses across company boundaries — and use our understanding of the relationships in a network to help customers achieve their goals. Today, our offerings allow organizations to establish business process platforms, and these platforms provide the foundation and flexibility they need to transform a business network.

SAP: Now Delivering Business Processes Out of the Box

Rather than thinking of applications strictly in terms of silos, SAP is piecing together parts of different applications into a seamless process that mirrors how our customers work. To be honest, I’m not a huge admirer of the word seamless — but there’s no better way to describe these deliverables: We’re tying together different applications into an end-to-end process that our customers expect us to support. What does this mean on a tangible level? Each business process that SAP is delivering can be split into a series of implementable steps — small segments of a process that a customer can implement as one piece and, from there, add on other implementable steps if the customer so chooses. My advice? Companies need to evaluate which business processes are most core to their needs, implement one step of that process at a time, and then move on to another important process.  To help customers achieve operational excellence, SAP is delivering a first set of four business processes, described below. These end-to-end processes are the first in a series of processes that are planned for delivery with the SAP Business Suite 2008 release:

Integrated Sourcing and Procurement

There is increasing risk on procurement nowadays:

Business turbulence and complexity, compliance imperatives, supplier risk mitigation, and generally the pressure to lower costs.

Business priorities have shifted to ensuring lean, compliant procurement operations, enabling collaborative spend and supplier management leadership. KPI’s (in short) are set on freeing up time and resources, and in consequence to improve strategic and operational execution. A recent studay of Hackett Group shows that leaders in procurement can save twice as much on supplier costs than their peers.

 

I strongly believe that companies can achieve sustainable savings only by closing the loop between the strategic sourcing cycle and the procurement order cycle. This end-to-end scenario, offered by SAP as part of the operational excellence initiative includes strategic sourcing, contract management, operational procurement, and spend analytics functionality.  

Efficient Manufacturing Operations

Companies are challenged to run their manufacturing operations and assets at the highest level of efficiency, to improve quality and profitability while complying with safety and environmental regulations, and to eliminate waste in production and across the value chain to control variation in products, operations, suppliers, and customer relations. This end-to-end process includes enterprise planning and control, plant and cell level planning, and control and manufacturing execution capabilities.  

Efficient After-Sales Service

After-sales service is an important competitive differentiator and source of revenue for an organization. This end-to-end process includes service sales and marketing, customer care, service planning and execution, service parts planning, service parts warehousing, service parts sales, and service parts claims and returns functionality. 

Continuous Performance Improvement

Complete visibility into operations with fact-based information is fundamental to manage the operational performance and ensure continuous improvement. This process includes operations performance visibility and operations processes analysis capabilities. 

Why Is SAP the Right Partner to Deliver These Operational Processes?

In order for this process approach to work, you need integrated applications that you’re confident will all talk to each other — any disconnects would undermine your business processes. SAP is uniquely positioned to provide this integration on top of SAP NetWeaver. And in addition to that, we are also leveraging enterprise-service oriented architecture (enterprise SOA) to make all the necessary integrations happen. Armed with SAP’s business processes for operational excellence, we believe that customers can adapt quickly as demands and processes change over time, involving the entire network in this business transformation. 

Summary and a Look Ahead

To help companies achieve operational excellence, SAP is offering natively integrated industry processes on one open platform, planned for delivery in late 2008. Built on the next-generation enterprise service-oriented architecture, these modular industry processes allow companies to specialize in their chosen strategic role with increased flexibility and efficiency while also collaborating with their business partners. But this is only the first series of processes for achieving operational excellence — SAP’s offerings will only expand over the course of 2009 and 2010. 

Having that said, I would like to encourage you to discuss this new SAP approach with me. It would also be great to learn from current operational excellence initiatives from within your organization. Keep me posted!

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  1. Ramesh Ramaswamy
    A good article.
    I want to share my experience.
    We implemented JIT [ just in time]with tight controls and kpis;but missed out the assessment of the maturity level of a critical Raw material supplier.Due to their poor maturity level,the  supplies didn’t pass the QC,as a result all our production schedules went berserk.Though the failure was not a regular and consistant thing,still it was enough to throw us out of the gear.
    This is an example of external risk impinging on our quality and the production schedule.
    In my opinion the risk assessment and risk simulation should become an integrated organ of SAP as this is a material thing in the context of excellence.
    Regards.
    Ramesh
    (0) 

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