Leveraging Business benefits from effective Supply Chain Management through SAP MDM- Part 1
This blog has been composed taking references of
Enterprise Data Management with SAP Netweaver MDM by Andrew LeBlanc
It’s a common say “If you fail to plan you plan to fail “. Nike – “Just Do it “ few years back simply failed to” Do it “ only because they failed to plan one of the critical area of their business – Supply Chain. The way you manage the supply chain can make or break your company. Some of the stupendous business success over the past two decades has been attributed to be able to identify more effective ways to deliver products to consumers, at the same time there has been major wrecks along this same road. Basically Strategy is the direction and Scope of an Organization over the long term which achieves advantage for the organization through proper configuration of resources within a challenging and competetitive environment to address the market need and also satisfy stakeholder expectations.
The Prime concern of corporate are always concerned with increasing revenues and decreasing costs (both direct and indirect) which attributes in more profit. Broadly there are two main types of financial benefits.
Cost Avoidance (CA): Spending money to reduce costs (current or future)
Return on Investment (ROI) : Spending money to cash in more money.
Some excerpts from major industry analysts elicits the current situation and complications involved in business landscape
” Many Organizations cannot leverage their global purchasing power because, although each division is dealing with the same supplier , the divisions dont know at a corporate level that this is going on. Centralizing information about the suppliers for the purpose of developing volume discounts based on global purchasing power is just not accomplished in many organizations.”
………… David Newman,Research VP,Gartner Group.
Pain Areas for Direct Materials Spend:
Duplicate material and vendors are being created: Manufacturers typically have 50+ remote manufacturing plants ,each with its own disparate manufacturing system and item masters resulting in inconsistent part number data.
Inability to leverage Price Advantage : Difficult for Global Procurement to rationalize part numbers and suppliers to analyze spend resulting in no visibility into direct spend analysis or negotiating leverage with suppliers. For eg Buyers cannot determine the Best Buy Price Supplier for a particular part number.Global Procurement cannot control remote procurement to ensure buying of standardized parts from preferred suppliers at negotiated price with volume commitments.
Extra effort for order handling, ware housing, spend roll up in purchase department
Poor inventory control and higher inventory carrying cost.
Incorrect reporting on spend analysis.
Different Terms and conditions in different ERP systems.
Arduous manual effort to verify and approbate contract compliance.
Lack of transparency leading to lost procurement opportunities.
Estimated saving of 1-3 % , up to $1B can be achieved ( $5 -30 M) annually.
Cost Benefit analysis proposes the Value Tree with figures of benefit and how it ameliorates operation efficiencies on account of Reduced Shipment Returns, Reduced Expediting Cost, Reduced Logistics Cost, Reduced Warehouse Receiving and Handling and Reduced Inventory.
5,000,000 master data items distributed across the globe
10 % of them are duplicate
10,000 new master data items per year
Multiple System Landscape
SAP MDM champions the business process, bolsters competitive edge and reduces TCO( Total Cost Of Ownership) through
Reduced Maintenance : $5,000,000 × 10 % = $ 500, 000
Controlled Distribution : 10 × $200,000 = $ 2,000,000
Avoiding Duplicates : 10,000 × 10% ×$1000 = $1,000,000
Better Decision Making : $1,000,000
Total saving: $ 4.5 million per year
In brevity Data Management of Purchasing Aspects pivots around 3 quintessential relevant Data Objects:
- Materials (What?)
- Suppliers (From Whom? )
- Terms and Conditions (How Much?)
Necessity is the Mother of Invention . Every Problem is infact a new opportunity- a scope for innovation, improvisation and implementation. If Supply Chain is in crisis then MDM is the harbinger of hope.
Together with BI it champions the cause of Direct spend analysis to rationalize part numbers and suppliers. SAP MDM has the ability to consolidate and harmonize part number data from remote manufacturing systems to implement a global standardized part number cross reference system.
The Proposed solution Landscape can be like as shown below:
Material and Vendor Data is extracted from different ERP systems and pushed to MDM with the help of SAP NetWeaver Business Intelligence (BI) .MDM identifies duplicate Materials and Vendors aided by a Matching Strategy based on Attributes, rectifies the inconsistencies – a process called Deduplication and transfers back the Materials and Vendors that have been identified as “ Single version of Truth “ with Global Ids , back to BI. Report is now generated on these new “Single version of Truth” records . This is a short term solution- a quick win using SAP MDM.
The Long Term Solution will envisage SAP MDM as the central hub of Master Data (Materials and Vendor ) creation and also as a Central System for maintaining contracts.
The SIPOC diagram below explains the roadmap:
Technical Solution will be covered in the Part -2 edition of the blog which will be a comprehensive guide to implement the technical solution innovated for this technical problem which in fact fomented from the bigger canvas of Business Problem.