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Everybody remembers the scene from the first Terminator movie when young John Connor gets “easy money” from ATM. By reading this post you will learn how SAP IBP can be used by companies to save “Easy Money”.
SAP IBP is said to get rid of the current problems that many companies are facing today: Partial optimization of their supply chain, several tools needed for planning, long runtime, several integrations between systems, separate reporting tool, lots of manual work and so on. IBP is said to be aligned between Sales, Marketing, Manufacturing, Sourcing and Finance. Goal of companies is to create the optimal business plan to drive revenue growth and increase market share. But what does this actually mean within SAP IBP? There are lots of generic presentations about this but I have not found any concrete examples what does this mean in practice. In this post I will show concrete example how the finance part works in standard SAP IBP and how that can support the decisions making process of companies.
- Supply chain optimization by using cost factors
- Finance view: Visualization of the plans on monetary terms
Supply Chain Optimization with SAP IBP
The goal of supply chain planning in IBP is to create cost optimal plans taking into account all possible constraints. This is enabled by modeling the whole business operating model and network in the system. By using optimization relevant cost factors system will find out the most optimal plan. The objective of optimizer is to minimize the total costs or maximize profit of the supply chain plan. Optimizer uses for example the following penalty key figures as input:
- Non-delivery cost rate
- Production cost (Fixed and per unit rate)
- Transportation cost (Fixed and per unit rate)
- External procurement cost (Fixed and per unit rate)
- Inventory holding cost rate (Per unit rate)
- Safety-stock violation cost (Per unit rate)
I will not go for the details of how supply chain optimizer works. I will concentrate to explain the standard key figures related to showing the planning results on monetary terms (finance view).
Finance View with SAP IBP
First input data that we need to know is the sales price for product / customer level:
Overall key figures used and the calculation logic:
SAP IBP Finance view:
For the above the basic idea is pretty similar for each. For example total receipts value key figure is calculated by multiplying the unit costs on product / location level with the total receipts in the manufacturing plant. Then we can see the manufacturing location related costs. Similar way we can calculate for example initial stock value (stock multiplied by the unit cost). Example of the total receipts value:
By using IBP functionalities like attribute transformation, period shift, etc. there is also possibilities to enhance the financial calculations. For example you could calculate all the costs occurred in the supply chain to derive the sales price for the customer. This would off course change then based on the costs occurred on different time horizons and would bring more details to the plans. For example you could say that next year some component purchase price increases 20% and transportation costs would be lowered by 7% because of a new deal with a transportation service provider. Based on these changes the new sales price would be calculated for next year and this would be used to calculate the above financial key figures.
By using the finance related key figures and the calculations there is almost unlimited possibilities to view the financial affects of the supply chain plans. They are not giving the most detailed level financial plans but they can guide companies to make accurate decisions based on financial view in addition to the volume view. Companies can create several scenarios and compare the results based on volume and money. Based on the results the most optimal company overall solution can be selected.
I would say that there are several possibilities how to integrate finance to the integrated business planning and companies need to find the most suitable for their planning needs.
Thanks for reading and all the best,
Source of the pictures: All the pictures are made by myself