SAP Sales & Operations Planning Helps Industrial Machinery & Components Companies Increase Customer Service Levels while Reducing Inventory and Increasing Profitability
Industrial Machinery & Components (IM&C) companies face many challenges to stay on top of the ever increasing competition and changing business models in the context of the digitization of internal and external business processes. The new reality has severe impacts on the value drivers of supply chain management, especially in the supply chain planning domain, to develop an optimal plan including the business objectives from various business areas like R&D/Engineering, Finance, Manufacturing, and Logistics.
The Business Context
Based on our insights into IM&C companies, there are essentially three sources of issues: external drivers, industry challenges, and existing processes, all three of which can impact supply chain management activities in many different ways. (See Figure 1).
IM&C companies are faced with multiple external drivers. Based on the rising middle-class, IM&C companies need to address a global customer base that has changed their buying patterns from a traditional approach to a more digitized one. Being better informed about the product portfolios offered by original equipment manufacturers (OEMs), customers are more discerning and more demanding than ever before. Furthermore, smart factories are emerging with the industrial internet, which helps optimize the vertical processes of supply chain management and creates intra as well as inter-company networks of smart factories.
Additionally, IM&C companies face increased competition. Selling only high-quality products will not sustain competition as industrial OEMs position themselves as total lifecycle providers, with more individualized products combined with shorter product lifecycles. In the classical economy, IM&C manufacturers focused on only one valuediscipline such as operational excellence, product leadership, or customer intimacy to stay on top of the competition. In the digitized economy however, IM&C solution providers must strive to be number 1 in all three of these value disciplines.
Ultimately, existing practices like organizational set-up, business processes, technology tools, master data management, and global governance have not been exploited to the full extent of the potential economic opportunity that is possible for industrial OEMs.
All these issues at IM&C companies have implications on value levers such as business processes, inventory, service levels, and lead-times in supply chain management, which finally lead to missed revenue opportunities and lower profitability. A common situation IM&C companies face is not having enough capacity in regard to bottleneck as well as readily-available resources. Long inbound and outbound lead-times diminish on-time delivery performance, while asset utilization and inventory management are often sub-optimal.
From an overall inventory perspective, materials are often available, but sit in different places or are reserved for potential, not yet confirmed, customer orders. Manual planning processes are common, supported by a broad set of tools and systems leading to sub-optimal planning results like no consolidated real-time view of actual customer demand, existing capacity, and available materials. For many industrial OEMs, it requires a lot of manual work to align the supply chain planning with the overall financial planning of an enterprise in order to evaluate the impacts and perform scenario planning to derive the optimal plan. For some IM&C companies it is nearly impossible to balance operational supply chain planning and corporate financial planning.
Solution Approach: SAP Sales & Operations Planning
Now, the key question is which type of standard solutions will support the global planning process that includes the busi
ness objectives from various business areas like R&D/Engineering, Sales, Manufacturing, Logistics, and Finance?
Based on SAP’s 40+ years of experience in the IM&C industry, we propose to leverage one of our latest innovations supporting long-term demand planning process. This solution is SAP Sales & Operations Planning (S&OP). The SAP S&OP solution can help industrial OEMs enable the following:
• Balanced demand and supply
• Integrated financial & operational planning
• Linked high-level strategic plans and day-to-day operational plans
The SAP S&OP solution is part of the new Supply Chain Planning solution portfolio called SAP Integrated Business Planning (IBP). The SAP Sales & Operations Planning solution is offered as a cloud solution in order to simplify the implementation and achieve faster time-to-value. The SAP S&OP solution can be easily embedded into the existing SAP solution portfolio (See Figure 2).
Key Innovations in SAP Sales Operations Planning
The SAP Sales & Operations Planning solution was developed along four innovation dimensions with the objective to develop a consensus forecast in a collaborative approach combined with an innovative user experience.
• Unified Planning Environment
• Real-time Planning & Simulation Tools
• Contextual Process Orchestration
• Advanced Analytics
Unified Planning Environment
In order to derive a common plan including the business objectives from various business
areas, the solution foundation acts on a unified data model across the Sales, Finance, and Supply Chain organizations.
The SAP S&OP solution supports tactical and operational planning at every level of granularity and easily supports planning hierarchies and values.
Planning processes can be very unique for Industrial OEMs, so the SAP S&OP solution provides an extremely flexible process-modelling approach to accommodate the different ways business processes can be set up.
This unified planning environment is the foundation for executing the sales and operations planning processes (Figure 3).
As planning processes often vary from company to company, the user front-end needs to be very flexible and very easy to maintain. The SAP S&OP solution provides a Microsoft-like user front end.
A key requirement is that the tool can help enable a consensus forecast process for demand-planning and rough-cut capacity planning, in order to validate the impact of supply chain planning vs. actual operational results.
In order to come up with the optimal plan, multiple scenarios can be created. The SAP Sales & Operations Planning solution provides what-if scenarios to create the optimal plan by taking multiple key performance indicators and a myriad of operational data into consideration (Figure 4).
Contextual Process Orchestration
To create a consenus-based sales and operations plan, different business areas like R&D/Engineering, Sales, Manufacturing, Procurement, and Supply Chain need to be included. Therefore, it is very important that the overall planning process is supported by tools that provide an open and collobrative platform.
The SAP Sales & Operations Planning solution provides exactly that. The organization of the process, the people involved, the documents necesary, the correct data, stakeholder action items, required decisions, and requested alerts are all structured around the sales and operations process.
Each participant in the creation of the sales and operations planning process is pro-actively informed about changes in the plan and assigned action items. The actual sales and operations plan data can be accessed directly in the collaboration environment the solution provides (Figure 5).
In supply chain planning, analytics are very important. For creating a plan, many numbers need to be taken into consideration, analyzed, and compared to create the best overall plan.
The SAP S&OP solution is built on a common data structure which is the basis for providing advanced data analysis capabilities to faster evaluate multiple dimensions to ensure those involved are making the fastest and most profitable decisions during the planning process.
SAP S&OP provides the capability to compare multiple scenarios, track KPI’s, and monitor trends. The analyses performed can easily be shared with other sales and operations planning stakeholders (Figure 6).
A leading Industrial Machinery & Components OEM for the mining industry uses SAP Sales and Operations Planning to better support the decision making processes by balancing demand and supply; integrating financial planning with operational planning to increase profitability.
• The Sales & Operations Planning (S&OP) process was not harmonized across all business units and regions
• The S&OP process was highly manually and limited to rough-cut capacity planning processes
• Multiple systems and tools where used to consolidate demand and derive supply chain requirements
• Long customer lead-times were common even though sufficient supply chain capacity was available
• Improve the ability to react to changing customer and market demands in real time
• Drive planning processes by actual customer demand instead of only optimizing operations
• Harmonize the S&OP process across all businesses and regions
• SAP Sales & Operations Planning
• Improve customer service levels like on-time delivery and lead-time
• Improve operational efficiency like asset utilization and inventory optimization
• Higher forecast accuracy
• Real-time visibility to actual customer demand and inbound supply
• Input into strategic capacity investment and purchasing decisions
The SAP Sales & Operations Planning solution is an innovative cloud platform built on SAP’s latest in-memory database called SAP HANA. The SAP S&OP solution is built on a common data model that allows building a consolidated plan by including data from multiple organizations like finance, manufacturing, sales, procurement, and supply chain. Additionally, the planning levels can be freely defined to the lowest level of detail required.
Collaboration and user experiences are important elements to increase user acceptance of the solution. With the Microsoft Excel user front-end for creating the sales and operations plan, as well as the embedded collaboration capabilities, the SAP S&OP solution is the perfect match for industrial OEMs.
The SAP S&OP solution can be natively embedded in an existing SAP system landscape, but can also integrate to 3rd-party landscapes.
The SAP Sales & Operations Planning solution is the tool to create a consensus demand and supply plan that reflects financial targets to support business objectives like increasing revenue and fostering profitability for the Industrial Machinery and Components market.
Patrick Lamm is a Director of Industrial Machinery & Components in the Industrial Machinery & Components Industry Business Unit at SAP. Before Joining SAP, Patrick held various positions at Hewlett-Packard as business analyst in strategic supply chain planning and as business process and SAP engineer in multiple divisions going back to 1998. Starting at SAP in 2004, Patrick held the position of Senior Business Consultant within SAP’s Business Consulting organization focusing on strategic project in supply chain management and IT strategy projects. Patrick holds a master in industrial engineering from the University of Applied Science in Offenburg, Germany and a master of science in business administration in management information systems from the University of Cardiff, Wales.