Overcoming ERP Supply Chain and Manufacturing Challenges with SAP S/4HANA
Supply chain and manufacturing are not the first lines of business that come to mind when thinking about technology innovation in the enterprise. However, a short walk down history lane and you will quickly come to appreciate that both lines of business have in fact been at the forefront of innovation but just in a different way than some may think.
For example, prior to the computer technology wave of the 70’s and 80’s Re-order Points and Two Bin Systems were used for inventory management and planning. In the former, once an inventory dropped below a predetermined re-order point (Economic Order Quantity, EOQ) an order would be immediately placed to replenish the inventory. In the latter, once one bin was emptied you would switch to the second bin and place an order to fill up the first one. Both models relied on maintaining a pre-calculated amount of safety stocks and buffers.
When MRP (Material Requirement Planning) emerged it was seen at the time as a radical departure from the way things are done. It was new, unconventional and untested but supply chain and manufacturing executives were quick to take notice and adopt this innovation of its time reaping in huge economic and productivity benefits. Now while MRP didn’t completely replace previous systems (EOQ is still taught in business schools today) it became the foundation of many supply chain and manufacturing processes and grew in scope and functionality eventually giving birth to today’s ERP.
Is ERP still up to today’s Supply Chain and Manufacturing Challenge?
But today’s world is very different from the world that ERP was born into. All of us intuitively expect that e-commerce giants like Amazon and Alibaba run complex supply chains and deal with large numbers of orders. But many might still be surprised to learn that last year Amazon sold over 90,000 TVs on a single day (Amazon Prime Day) or that Alibaba generated $17.8 Billion in sales on November 11th alone. Along the same lines, UPS delivered over 700 million packages between Thanks Giving and New Year’s Eve in 2016. These numbers speak to the rapidly evolving pace and complexity of supply chain and manufacturing today. The question is, has ERP kept up with the pace of these changes and is it up to today’s supply chain challenge?
This is the question I posed to Cindy Jutras, founder and president of the independent research-based consulting firm Mint Jutras specializing in analyzing the business impact of enterprise applications, on a recent webinar. It turns out that as Supply Chain and Manufacturing grew in complexity over the years, ERP systems started to demonstrate some structural limitations in terms of:
- Latency and the inability to re-plan and rerun processes during the day when exceptions arise .
- Disconnectedness with no easy way to share information such as demand and forecast changes with suppliers and partners
- Opaqueness, offering last week’s inventory information to solve today’s business problems with no real-time access to information.
- Rigidity relying on tons of customizations and modifications which made it difficult to upgrade when a new release or enhancement came along.
But these limitations are just symptoms to the real underlying problem which was rooted in the classical hard disk based database that sat underneath these ERP systems. To overcome the performance limitations of these databases, ERP had to rely on redundant data structures, batch processing and middleware that introduced latency and hampered visibility across the supply chain.
How is S/4HANA Different?
By relying on a faster and smarter in memory data platform, S/4HANA could go away with the redundant data models and slow batch processing in classical ERP relying instead on a much simpler data model, real time processing and on the fly reporting and analytics.
But it doesn’t stop there. These simplifications opened the door for an unparalleled wave of supply chain and manufacturing application consolidation. For the first time, advanced supply chain and manufacturing capabilities that have for many years been pushed outside of ERP due to the performance limitation of the underlying classical database are now coming back into the core with S/4HANA. Here are a few examples:
Production Planning and Detailed Scheduling
One of the well-known limitations of MRP is that it produced production plans that assumed infinite resources. This meant that these plans would become infeasible if used in a constraint based production environment. One example of such a constraint environment is in the beverage industry where the volume of the container in which the ingredients are mixed acts as a production constraint in a sense that it doesn’t have infinite capacity. Industries and organizations that operated in constraint production environments such as Automotive, Life Sciences, and Consumer Products, just to name a few, had to either deploy a secondary constraint based production planning system such as SAP APO (Advanced Planning and Optimization) or rely on excel spreadsheets to factor in their capacity constraints. With SAP S/4HANA, constraint based production planning is now delivered inside the core solution without the need for customers to deploy additional systems or rely on excel spreadsheet. (To learn more about constraint planning in S/4HANA check out my previous blog: Faster and More Efficient Manufacturing with SAP S/4HANA)
Advanced Available to Promise
Available-to-Promise or ATP is a supply chain function that responds to customer or sales order delivery inquiries with date and quantity delivery commitments. Basic ATP has been part of ERP for many years. It was easy to use and implement but it didn’t offer some of the advanced functionality that many customers were looking for such as Product Allocation that allows setting quantity allocations to prevent larger customers from placing big orders that could hog a company’s entire supply chain leaving its smaller customers without delivery commitments, or Cross Plant ATP Checks that allow supply chain executives to look at more than just a single material/plant combination when responding to customer delivery inquiries. Corporations that required these advanced functionalities, along with others such as Multilevel ATP or Rules Based ATP had to rely on secondary systems such as Global ATP in SAP Advanced Planning and Optimization or other third party solutions. With S/4HANA 1610, advanced ATP is now becoming part of the ERP core so customers can get the best of both worlds: a solution that is easy to implement and deploy and the advanced functionality that they need to operate in today’s multichannel environments. (To learn more about S/4HANA ATP check out my previous blog How S/4HANA Can Help You Make Supply Chain Promises You Can Keep)
Extended Warehouse Management
Extended Warehouse Management or EWM is another solution that has been kicked out of the core ERP solution of the past due to the performance limitation of the underlying database that has now been brought back into the core in S/4HANA. This in turn will allow customers that have for many years settled with the basic warehousing functionality that existed in their ERP system to upgrade to more advanced warehousing functionality such as Slotting and Kitting without the need to deploy a separate standalone solution. On the other hand, customers that have deployed SAP Extended Warehouse Management can now consolidate their systems by deploying it inside S/4HANA simplifying their IT landscape and reducing their total cost of ownership.
Want to learn more?
If you want to learn more about how S/4HANA overcomes some of the supply chain challenges of classical ERP sign up for the S/4HANA Digital Supply Chain webinar series, and if you’re coming to SAPPHIRE NOW 2017 (May 16-18 in Orlando), you can hear many SAP S/4HANA customers share their supply chain and manufacturing transformation stories in person. See the S/4HANA sample agenda or the S/4HANA for IT Professionals sample agenda.