Now is the Time for Chemical Companies to Evaluate S/4HANA 2020
Last October, SAP S/4HANA 2020 was released. Given the COVID crisis, economic and political uncertainties, and the general end-of-year furor, few chemical companies had the time or energy to dig into this release and assess its new functionality. With the new year upon us and some glimmers of light on the horizon, I offer this selective survey of S/4HANA capabilities new in the 2020 release that can help chemical companies navigate 2021 and beyond. For a full and very detailed (i.e. over 1,000 pages) list of new functionality, see What’s New in S/4HANA 2020.
Manufacturing Planning/Supply Chain
At the top of the list, manufacturing planning enhancements in S/4HANA support the agile and lean manufacturing processes chemical companies require as they adjust to new demand realities.
Production Planning Optimizer
Let’s start with the Extended Production Planning & Scheduling capabilities that first moved into S/4HANA in release 1610, coming from the legacy Production Planning/Detailed Scheduling solution that was part of the SAP Advanced Planning and Optimization (APO) suite. In S/4HANA 2020, planning capabilities have been further extended to include a production planning optimizer, which will generate the optimal production schedules based on lowest cost. The optimizer takes into account constraints such as shared production resources, common ingredients/components, and stock transfer relations between plants. Its cost calculations include costs such as waste penalties (based on shelf life), stock out penalties, transportation costs, and other inventory carrying costs.
Companies who can benefit from this type of low cost manufacturing optimization are commodities and base chemicals producers such as polyolefin manufacturers, who are faced with severe margin pressure as COVID-constrained demand has exacerbated excess capacity.
Predictive Material Requirements Planning (MRP)
MRP has also been enhanced in this release to support simulations and predictions. Predictive MRP helps planners to identify potential capacity issues and to evaluate possible solutions as early as possible. Simulations, supported by solution proposals, help planners make rapid decisions when conditions have changed unexpectedly.
Companies faced with rapid and unexpected change in short term demand need these changes to flow down to the manufacturing floor ASAP. Predictive MRP facilitates this agile planning process, which will be particularly helpful as companies navigate the volatile trade agreement environment.
Synchronized Production Planning
To support more robust manufacturing planning, this release of S/4HANA enables order based process integration between S/4HANA, Extended Production Planning & Scheduling (ePPDS), and Integrated Business Planning (IBP) for Response and Supply (requires IBP 2008). In this process, IBP provides a rough cut plan, while ePPDS fine tunes the schedule, with detailed scheduling results passed back to IPB. This integration supports synchronized planning, bringing together supply planning, distribution planning and production planning in one place, enabling a holistic planner’s workspace.
Specialty chemical companies, whose performance is more closely tied closely to the health of end-use markets (think the automotive market) will find particular benefit in harmonized supply chain planning from customer demand to deployment.
Next in the list of capabilities attractive to the chemical industry are enhancements that support the customer sales process (not that manufacturing planning doesn’t!). The pandemic has given a huge push to the digital economy and eCommerce, so much of the sales innovation from SAP comes from the SAP Cloud Customer Experience solutions like our Commerce, Marketing, Customer Data, and Sales Clouds. But if you consider core S/4HANA, digital commerce succeeds only when it integrates closely with a backend that has robust functionality for things like available-to-promise, pricing, billing, rebates, returns – and all those functions that enable providing a complete and personalized customer sales experience.
S/4HANA 2020 has a number of sales enhancements in these areas, starting with Available-to-Promise.
Advanced available-to-promise capability first moved into S/4HANA in release 1610, coming from the legacy Global Available to Promise (GATP) solution that was part of the SAP Advanced Planning and Optimization (APO) suite. In S/4HANA 2020, advanced ATP capabilities have been further extended to include enhancements to backorder processing, product allocation, and alternative-based confirmation. A new Supply Protection capability has been added to protect quantities of a material of a specific plant against other demands, helping companies to provide minimum guarantees to priority customers in supply shortage situations. In addition, a new display and drill-down from availability check results provides better understanding of ATP results and supports better decision making.
As chemical companies like 3M ramp up to fill demand for PPE and chemical companies like Lonza, Croda, and Wacker sign contracts to supply new drug substances for customers like AstraZeneca and Pfizer, ability to promise and allocate product intelligently is and will be critical.
Returns Management and Analytics
As eCommerce grows, so do product returns. Dealing with customer complaints and returns has always been possible in S/4HANA and, in fact, in ECC. But S/4HANA 2020 extends and rounds out claims, returns, and refund management processes. It now supports returns for sales bills of material (BOM) items, handles returns of replacement materials from plants different from the original delivery plants, and retroactively creates return POs based on order confirmations.
As the chemical industry rebounds in 2021 – with Chemical Week predicting production increases of almost 4% – competition for customers will heat up, with the winners being those companies who are easiest to do business with. Prompt and efficient handling of complaints and returns will become an even more critical part of customer service.
Product Compliance in Sales
S/4HANA 2020 introduces comprehensive product compliance checks in sales quotations and sales contracts, in addition to sales orders and outbound deliveries. These checks cover product marketability, dangerous goods compliance, and safety data sheet provision. New status fields are provided for these areas on both header and item levels, along with automated blocking if compliance checks for dangerous goods or marketability fail.
Further automation is provided around safety data sheets, which are now automatically triggered in delivery processing. Subsequent safety data sheet shipment is also automated according to U.S. and EU regulations and monitored so companies can document compliance with the regulations.
Increasing regulation of chemical substances and the volatile trade agreement environment expected to continue in 2021 require more efficient and compliant sales fulfillment processes. For example, companies doing business in the UK will have to deal with the proposed UK REACH regulations, which will reportedly diverge from the EU version of REACH. The S/4HANA capabilities to automate compliance activities will benefit the bottom line of chemical companies who do business across borders.
Finally, we get to the work horse of chemical enterprise processes, asset maintenance. Like ECC, core S/4HANA has robust asset maintenance functionality. S/4HANA 2020 extends this functionality with the Maintenance Scheduling Board, which enables drilldown into the maintenance schedule of any functional location or equipment for the next 4 weeks and also provides visibility into to cross-order relationships. Single and multiple operations can be changed, even if the operations are related, and activity logs monitor all schedule and operation changes.
In addition to managing maintenance schedules and activities, monitoring maintenance costs, which directly impact margin, is important. To enable monitoring of maintenance cost, S/4HANA 2020 now provides real-time visibility of estimated, planned, and actual maintenance costs.
As companies postpone investment decisions in new facilities due to the uncertain economy, getting the most out of existing assets is critical. These maintenance enhancements in S/4HANA 2020 will help to increase equipment utilization even as they control costs.
S/4HANA 2020 has many other enhancements useful to the industry – the ones covered here are simply my take on what’s most interesting. To form your own opinion, see the complete S/4HANA Feature Scope Description. Happy reading.