Keeping demand aligned with supply in the modern extended supply chain is growing more and more challenging. Globalization, increasing freight rates, capacity constraints, regulatory pressure and partner collaboration are just a few challenges that need to be constantly addressed to maximize the effectiveness of the supply chain.

In this blog, we’ll describe the six P’s that make up the modern extended supply chain and highlight how we leverage SAP Event Management to help companies, using SAP to run their supply chains, gain control over their supply chains and provide visibility in to exceptions occurring in the Supply Chain.

What are the Six P’s of the Supply Chain?

6Ps of Supply Chain

  1. Procure: Procure-to-Pay for produced or stocked product
  2. Produce: Make-to-Order, Make-to-Stock
  3. Provide: Quote, Order-to-Cash. Third-party warehouse, warehouse or drop ship fulfillment
  4. Product Return: Return to vendor, warehouse, store
  5. Perform: Execute the supply chain process — people, process and technology
  6. Process: Cross process visibility and exception management

In this article, we’ll dive deep in to the Procure and Produce supply chain processes as they related to SAP EM but the remaining 3 are similar. I’ll also discuss where Process plays a role.

Procure

Procurement

It all starts with procurement: Sourcing product that will either be consumed in a production process or stocked in the warehouse for sale to a customer. As part of our oVo® Methodology, we follow best practices for the process in question. That is, we leverage the power of SAP to drive the system activities, and we focus our efforts on educating the applicable resources around the related master data and business rules that apply. In many cases, an extensive change management exercise is needed in order to effectively match the technology (SAP) with the process (execution within SAP) and with the people (get the organization aligned).

The key sub-process for the Procure process can be described as follows:

  • Establish a procurement plan, based on prioritized product requirements and resources.
  • Vendor evaluation, leading to the related vendor transaction (contract agreement) and master data setup
  • Procure to Pay (PTP) process, broken down as follows:
    • Purchase Order management, including PO confirmation. The PO confirmation is one of the most critical documents in the PTP process. It relates to the “signature” on the PO confirming the product, quantity and date to be delivered, and at what price. It typically occurs within 24 hours of transmitting the PO to the vendor. This gives enough time to deal with any discrepancies in the confirmation. Remember that a mismatched PO confirmation implies that supply will not meet our demand. Typically, if these kinds of discrepancies exist, and are not addressed, the business reacts to increase the “buffer” stock to ensure a continuous supply.
    • Schedule receipt of the goods at the receiving plant or warehouse.
    • Advanced Ship Notice (ASN) is sent by the vendor indicating the product is now on route to our location. Much like the PO confirmation, the ASN is a critical document in the PTP process. Although there is no time to address a shipping discrepancy, there is time to adjust receiving resources and address any issues with supply and demand, should they become known at this time. Key information that is needed in the ASN include:
      • Carrier name, indicated by a Standard Carrier Alpha Code (SCAC): Who is shipping the product?
      • Carrier tracking number: How do we identify this shipment?
      • Packing information: What is inside each container that has a unique tracking number?
      • Delivery date: When will it arrive at our location?
    • Shipment tracking: The further down the supply chain process we go, the more accurate the information. Because the carrier has the product, we should receive carrier status updates from them electronically, so that we may adjust the inbound delivery date if needed. (See our article on Inbound Logistics with Carrier Tracking.)
    • Product is received at our location, verified, assigned a disposition and put away. Capture overages and underages for use in vendor evaluation. Note: By tracking shipments with carrier status notifications, you are able to view product that has arrived at our location but has yet to be received. With this information, you can also evaluate receiving performance at each location.
    • The vendor issues an invoice for the PO, and it follows our accounts payable process in order to settle the invoice. Any discrepancies between the PO and the vendor invoice are researched and addressed accordingly before payment is authorized.
In accordance with our oVo® Methodology, and with reference to the Procure process diagram shown above, you can see that the process has three distinct major sub-processes:
  1. Plan: If you fail to plan, you plan to fail. Work according to the PO schedule: If the schedule on the PO is wrong or not trusted, then fix the root cause and embed the change in your ongoing process.
  2. Execute: According to the plan. Key master data elements here include vendor master (vendor and carrier), vendor info records, material master, lead times, confirmation control key. Let the system create the POs (via MRP) for you, and you monitor and manage the exceptions.
  3. Measure:  Monitor the process to get the current status. Trigger an exception management process if a process deviation or opportunity has been uncovered.
SAP Event Management plays a key role in delivering the needed functionality described in points 2 and 3:
  • During Execution: SAP EM captures the events as and when they occur -> Adjusts the status of the tracked object accordingly -> Allowing others to search for the tracked object based on it’s current status
  • During Measure: SAP EM matches the events that have or have not occurred, against the stated plan for that tracked object -> If there is a discrepancy then launch corrective active (workflow or alert) -> Adjusts the status of the tracked object accordingly -> Allowing others to search for the tracked object based on it’s current status

Produce

Produce

Continuing on down the supply chain, we get to production. We can either make product against an order that we already have or we can make product that will be consumed in a subsequent process, either by being sold or reused in another production process. Engineer to Order is another variant applicable in this space if a level of engineering/design is needed prior to commencement of production activities.
As part of our oVo® Methodology, we again follow best practices for the supply chain process in question. Once again, we focus our efforts on matching the technology (SAP) with the process (execution within SAP) with the people (get the organization aligned) in order to achieve the desired business goals.
The key sub-process for the Produce process can be described as follows:
  • Establish production plan based on prioritized product requirements and resources: Match people, process and technology.
  • Production or Process Order Management: Ensure the order matches demand (time and quantity). Note: Contract manufacturing is also considered at this stage — for example, certain components of your production process are produced by a third-party manufacturer.
  • Schedule production activities: Align equipment, resources, people and product with process timing.
  • Issue the needed product from stock to the production process.
  • Produce the product.
  • Inspect and Test the product: Does it meet the needed standards? Capture the final disposition of the product.
  • Package the product as needed: Note: Regulatory requirements, serialization, batch numbers and expiration dates play an important part here if applicable to the product and packaging. A distinct set of challenges are applicable when serialized items or packaging are required.
  • Stage and Release the product into the warehouse making it available to sell.
  • Clean up and dispose of any waste materials created during the production process.
In accordance with our oVo® Methodology, and with reference to the Produce process diagram shown above, you can see that the process, once again, has three distinct major sub-processes:
  1. Plan: If you fail to plan, you plan to fail. Work according to the Production or Process Order schedule. If the schedule is wrong or not trusted, then fix the root cause and embed the change in your ongoing process.
  2. Execute: According to the production plan.
  3. Measure: Monitor the process to get the current status. Trigger an exception management process if a process deviation or opportunity has been uncovered.
Once again, SAP Event Management plays a key role in delivering the needed functionality described in points 2 and 3:
  • During Execution: SAP EM captures the events as and when they occur -> Adjusts the status of the tracked object accordingly -> Allowing others to search for the tracked object based on it’s current status
  • During Measure: SAP EM matches the events that have or have not occurred, against the stated plan for that tracked object -> If there is a discrepancy then launch corrective active (workflow or alert) -> Adjusts the status of the tracked object accordingly -> Allowing others to search for the tracked object based on it’s current status

Summary

To sum up, in order to effectively execute your SAP-based supply chain, you will need the following to work together:
  1. People: The workforce need to be educated / empowered to execute the needed supply chain process. Their focus needs to be on maintaining master data, business rules and ensuring that transactional “clutter” is not affecting the process.
  2. Process: The process needs to be streamlined, yet ensuring that all the needed transactions and partner collaboration is in play. If the process has a “black hole,” then the supply chain is susceptible to increased disruption. Zone in on tightening up that process.
  3. Technology: Let your SAP system do the heavy lifting. People feed in the master data and set the rules, and SAP generates the needed orders at the right time, for the right quantity at the right location. SAP EM is the standard tool, provided by SAP, used to provide real-time exception management and instance-level status visibility. E.g. Show me all my production orders that are late in being delivered to the warehouse.

Often, we aren’t able to adequately tie functionality back to the overall business process but with SAP EM that is a rather easy subject to cover 😉

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