Protect your SAP ERP investment & improve your cor...

volker_vongloeden · ‎06-13-2010

In the previous blog Why SAP offers different tools for Business Process Monitoring & Business Process Optimization I outlined a logical sequence where basically every customer, we talked to, agrees with: Business Process Implementation > Business Process Stabilization > Business Process Improvement > Business Process Optimization. As every customer spent a lot of money for their respective SAP implementation they want to protect this investment of course and want to get an appropriate return on investment (ROI) as fast as possible. Goals that are often named by customers when asked why they implement SAP, especially SAP ERP, are:

Standardized and more efficient processes
Better planning results
More accurate data for reporting purposes

Business Process Analysis - General Observations

Over the last two years we have analyzed (as part of the two SAP services "SAP CQC Business Process Analysis & Monitoring" and "SAP Business Process Analysis") somewhere between 400 and 500 SAP R/3 and SAP ERP systems around the globe, across different industries and of all sizes (from 10 to more than 100.000 sales orders processed per day). The analysis is based on key figures that have been described in previous blogs Best Practice: Business Process Monitoring for Order to Cash, Best Practice: Business Process Monitoring for Procure to Pay and Best Practice: Business Process Monitoring for Manufacturing.

The surprising results also for us: Over 90% of all analyzed systems show (very) significant potential for Business Process Stabilization & Improvement! We cannot see any significant differences/trends between countries, industries or system sizes. The only trend we see: The best systems (less than 10%) are always operated by in-house IT where the IT department has a very, very close collaboration with the business department. If you think about it, it comes as no real surprise that no system that is operated in an outsourcing model made it into the top ranks so far! The communication channels between the outsourcer and the business department are, per definition, just too long and the outsourcer works based on what was defined in a contract and not based on what is necessarily best for the business department.

If you look at the different key figures highlighted in the mentioned blogs above, then you will (hopefully) recognize that a document backlog indicated by those key figures will have a direct or indirect impact on your company's success. Some key figures indicate a possible

Decrease in customer satisfaction
Delay in the revenue stream
Inaccurate planning results in the supply chain
Inaccurate system data in general

Now take these indicators, recall that 90% of all analyzed systems show (very) significant potential for Business Process Stabilization & Improvement, and compare it with the goals why many customers implement SAP ERP and you'll see that those goals are often undermined and the return on investment is rarely achieved to a degree as was initially planned.

An example for direct and indirect business impact

While some customers immediately understand the business impact of the analyzed key figures (and especially the excellent companies take immediate counter-actions once confronted with our analysis results) there are many customers that seem to have lost the sense for understanding the business relevance in its entirety.

Hence I would like to bring up one example in detail. We will look at the key figure Overdue Purchase Requistion items which counts the number of requisition items that have not yet been converted into corresponding purchase order items and where the planned delivery date lies already in the past. The implications I'll describe are very similar for other key figures like Overdue Purchase Order items, Planned Orders not converted to Production/Process Orders in time, or Production/Process Orders not released on time.

In our internal system we can for example find 3.972 Purchase Requisition items which have been automatically created via MRP and which are overdue in the sense described above. I limit my results list to material HEA100 only.

Possible direct business impact:

The direct business impact should be clear. If you trust your planning results, the material is still used operationally, and really no corresponding Purchase Order item exists and hence no goods have been received, then you might miss materials or goods that are required for your own production or for your sales. So either you may encounter stock-outs in your production facilities (hence your production line/machines may stop because necessary materials are not available in time), or you may not be able to deliver goods to your customers on time or encounter stock-outs in your shops leading to lost revenue and decreased customer satisfaction.

Possible indirect business impact:

The indirect business impact is often not clear to customers. The results of our Business Process Analysis often show very many business documents which are old and hence no longer relevant for daily operations. Do you think that anybody really expects that the outstanding Purchase Requisition items with planned delivery date in 2009 (as shown above) will be still delivered? Most likely not. Hence customers have a tendency to play down these backlog figures as mere un-nicety and housekeeping problem. But is this true? Are we really just talking about cleaning old, outdated data with no impact on the daily business?

First we check for possible planning file entries (transaction MD21). There we see that changes have happened for the material/plant combination. Hence the next MRP planning run would also automatically plan this material HEA100 for plant 1000.

Let's check the stock and requirements list next (transaction MD04) for this material/plant combination. All our overdue Purchase Requisition items are part of this list and the SAP system considers them all as supplying elements. The SAP system raises even the exception 07 indicating that the finish date lies already in the past.

Nevertheless an automated planning run like the MRP run will base its planning on the assumption that these quantities will still be received. Hence the MRP will start a possible replenishment process later than what may be actually necessary.

Similarly overdue Purchase Order items, not converted Planned Orders or Production Orders overdue for release would be counted as outstanding supplying elements and would lead to possible delayed replenishment processes. On the other hand issuing elements like overdue Sales Orders would possibly lead to replenishments that take place earlier than necessary.

By the way it wouldn't make a difference if you used the MRP in SAP ERP or if you used SAP APO for planning. The planning results can only be as good as what the input data provides as data basis. If youput faulty data in you will never get an optimal plan out!

Even if you say that your MRP controllers cross-check the planning results then you also have to admit that the task for the controller becomes more and more challenging the more old outstanding planning elements you find in transaction MD04. Not closing Purchase Requisitions, Purchase Orders etc. properly leads to unnecessary long work lists.

Actually the consequnces outlined so far are only one side of the house. If we look now at the availability check (transaction CO09) we will see that the same overdue Purchase Requisition items also lead to another effect which can make the business impact even worse.

The availability check also counts these requisition items as supplying elements and considers them as available quantities. Hence the ATP check may promise goods to your customers that are actually not on stock (and as we learned before might even be replenished later than necessary). Again the same holds true for overdue Purchase Order items, not converted Planned Orders or Production Orders overdue for release. On the other hand issuing elements like overdue Sales Orders would be possibly lead to situations where the goods are not committed to customers although they are actually available.

Conclusion

As most customer systems show significant potential for Business Process Stabilization & Improvement, you should check out what "treasures" are hidden in your systems and undermine your initial intention why you implemented SAP ERP in the first place.

You should then check how the functionalities Business Process Monitoring and Business Process Analytics (see New key figure catalog for Business Process Monitoring available) in SAP Solution Manager can help to improve your business processes. And improvement usually doesn't mean expensive and time consuming re-engineering but often just means

Checking if the current process design covers an appropriate close step (e.g. setting indicators like "Close" or "Delivery Completed")
Training end users that process close steps are properly performed
Sharing best practices from some organizational units with other units

Frequently Asked Questions about Business Process Monitoring are answered under http://wiki.sdn.sap.com/wiki/display/SM/FAQ+Business+Process+Monitoring.

The following blogs provide further details about Business Process Monitoring functionalities within the SAP Solution Manager.