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Becoming Adaptive

San Jose Business ForumsMarch 10th, 2005

New Rules, New Tools

Variability & Its CostSupply Chain Planning & Diminishing ReturnsDriven by Demand: Becoming AdaptiveSAP Solutions to Support an Adaptive Business

SAP AG 2005, Chris Foti & Matt Cook / 4

Demand Variability Increases with Time

Time

Sale

s

Sales Forecast

Sales Forecast

Sales Exceed Forecast

Sales Fall Short

Actual Sales Volume

Prob

abili

ty


•SKU•Key Account•Day

Demand Variability Increases with Granularity

Time

Sale

s Sales Forecast

Granularity

•Product Group•Distribution Center•Week

•Brand•Region•Month

•Business Unit•National•Quarter/Annual


Demand & Supply Variability are Additive

Sales Forecast

Sales Exceed Forecast

Sales Fall Short

Actual Sales Volume

Prob

abili

ty

Supply Plan

Short Stock

Excess Stock

Actual Supply

Prob

abili

ty

Plan

Lost Sales

Prob

abili

ty

Obsolete Inventory

Supply Variability

Supply Variability

Demand Variability

Demand Variability

Future Uncertainty

Future Uncertainty


Compensating for Variability

Time50%

90%

95%98%99%

Target Service Level

Extra Inventory

Extra Resources

Extra Inventory

Extra Resources

Extra Inventory

Extra Resources

Extra Inventory

Extra Resources

Extra Inventory

Extra Resources

99.9%

Planned Inventory

Planned Resources


Demand Variability and Process Focuson

she

lf av

aila

bilit

y

time

VMI Process

1 Day 1 Week 1 Month 1 Quarter

Sales & Operations Planning Process

Execution

Event Management

Responsive Replenishment

Time

Sale

s

Sales Forecast

Granularity


Diminishing Returns or Quantum LeapSu

pply

Cha

in

Effe

ctiv

enes

s

Time

Inflection Point: Focus on Planning

Inflection Point: Demand Driven (Adaptive)

1985 – 2005: The age of Advanced Planning

The Retailer ReignsGrowth was GlobalRetail was Constrained! Mantra: Plan & Collaborate! Metric: Forecast Accuracy

1940 – 1985: The era of Taylor & Galbraith

Brand was BossGrowth was GivenMfg. was Constrained! Mantra: Mfg. Efficiency! Metric: Cost/Time per unit

2005 – 2010: The return of Deming & Goldratt

The Consumer is KingGrowth from InnovationGlobal Overcapacity! Mantra: Consumer Driven! Metric: Responsiveness


What Analysts Say

Analyst Views on DDSN(Emphasis Added)

The key to profitable growth is to evolve the enterprise into a DDSN. With a DDSN, companies switch from a push method of moving product, based on incomplete or inaccurate demand information to a pull method, based on responding quickly to real-time demand signals…Industry winners will be the first to build DDSN-based foundations that enable them to be agile, quick, and innovative in responding to consumer needs.

Consumer Products Industry Outlook: Profitable Growth Requires DDSN StrategiesAugust, 2004

We call this philosophy real-time, demand-driven SCM, and we expect many SCM projects to fail unless their strategies are driven by these processes. This isn’t an entirely new idea, but it is a complete and understandable way for supply chain professionals to communicate a complete view of SCM and encapsulate an SCM vision that’s comprehensive to more-casual users.

By 2007, 50 percent of the Fortune 500 companies that don’t have demand-driven supply chain strategies will fail in their SCM initiatives (0.6 probability).

Predicts 2005:SCM Strategies for Business Applications

November 2004


What is an Adaptive Business Network?

Adaptive Supply Chain Networks

New Product Development & Introduction

Design & Engineering Integrated Sales & Marketing

Adaptive Manufacturing

Service Management

Lifecycle Data Management

Sourcing & Procurement

NETWORKSuccessful business harness a network of tiered suppliers, distributors and customers…

BUSINESS…in order to develop, manufacture, and sell products into the market…

ADAPTIVE…by sensing the needs of the market and responding with the capabilities of the network.


What is Real World Awareness?





Service Management




SAP Solutions Support an Adaptive Business Network





Service Management



TPM

CR

M

SD

APO

-DP

ICH-RR

ICH-SMI

EM

AM

xPDxRPM

MM

EH&SRM

SRM

APO-SNP

APO-PP/DS

cFolders cProjects

APO-gATPLES

eWMS

BI SEM

AIIMDM MIXI

PP

FI

SAP ERP

SAP SCM

SAP CRM

SAP SRM

SAP xApps

SAP NetWeaver


Materials Management

Production Planning

Sales & Distribution

Warehouse Management

Master Data Management

Exchange Infra-

structure

Advanced Planning & Scheduling

Enterprise Portal

Business Intelligence

SAP NetWeaverSAP ERP

SAP SCM

Supplier Relationship Management

Point of Sale Data

Mangement

Auto-ID Infra-

structureEvent

Management

Technology Roadmap: Building Critical ASCN Capabilities

Respond

SAP SRM


DDSN Process Roadmap

Step 2 Focus on integration of planning and execution

processes

Step 3 Focus on

integration with strategic partners

Step 1Focus on transactional

and Integration backbone

BWBW

ERPERP

Demand & Supply

Planning

Demand & Supply

Planning

S&OPS&OP

Fcst & Promotion CollaborationFcst & Promotion Collaboration

DesignCollaboration

DesignCollaboration

Integr.Portfolio Mgmt& Product Definition


SharedScorecards

SharedScorecards

MRPMRP High Level Capacity PlanningHigh Level Capacity Planning

Distribution &Transport. Pl.


Production Planning

Production Planning

VMIVMI Responsive ReplenishmentResponsive Replenishment

Supplier Inventory CollaborationSupplier Inventory Collaboration

Demand Driven S&OP

Demand Driven S&OP

Distr. ManufacturingDistr. ManufacturingMasterDataMgmt

MasterDataMgmt

POS AnalyticsPOS Analytics

Project, Resource& Cost Mgmt

Project, Resource& Cost Mgmt RFIDRFID

Integrated New Product Development& Introduction


Brand ManagementBrand Management

Global DataSynchronisation


Trade Promotion ManagementTrade Promotion Management

Customer ServiceCustomer Service

Category ManagementCategory Management

Sales Force ManagementSales Force Management

Digital Asset ManagementDigital Asset Management

Consumer InsightsConsumer Insights

Retail ExecutionRetail Execution

Campaign MgmtCampaign Mgmt

Strategic SourcingStrategic Sourcing

Integrated Sales & Marketing

Demand Driven Supply Network

New Product Development & Intr.


DDSN Process Roadmap - Advanced Energy

Step 2 Focus on integration of planning and execution

processes

Step 3 Focus on

integration with strategic partners

Step 1Focus on transactional

and Integration backbone

BWBW

ERPERP

Demand & Supply

Planning

Demand & Supply

Planning

S&OPS&OP

Fcst & Promotion CollaborationFcst & Promotion Collaboration

DesignCollaboration

DesignCollaboration



SharedScorecards

SharedScorecards

MRPMRP High Level Capacity PlanningHigh Level Capacity Planning



Production Planning

Production Planning

VMIVMI Responsive ReplenishmentResponsive Replenishment

Supplier Inventory CollaborationSupplier Inventory Collaboration

Demand Driven S&OP

Demand Driven S&OP

Distr. ManufacturingDistr. ManufacturingMasterDataMgmt

MasterDataMgmt

POS AnalyticsPOS Analytics

Project, Resource& Cost Mgmt

Project, Resource& Cost Mgmt RFIDRFID



Brand ManagementBrand Management



Trade Promotion ManagementTrade Promotion Management

Customer ServiceCustomer Service

Category ManagementCategory Management

Sales Force ManagementSales Force Management

Digital Asset ManagementDigital Asset Management

Consumer InsightsConsumer Insights

Retail ExecutionRetail Execution

Campaign MgmtCampaign Mgmt

Strategic SourcingStrategic Sourcing

Integrated Sales & Marketing

Demand Driven Supply Network

New Product Development & Intr.


Advanced Energy





Service Management



TPM

CR

M

SD

APO

-DP

ICH-RR

ICH-SMI

EM

AM

xPDxRPM

MM

EH&SRM

SRM

APO-SNP

APO-PP/DS

cFolders cProjects

APO-gATPLES

eWMS

BI SEM

AIIMDM MIXI

PP

FI

SAP ERP

SAP SCM

SAP CRM

SAP SRM

SAP xApps

SAP NetWeaver

SDMM

BI

PP


Advanced Energy Industries

Power Management Flow Management Thermal Management

Source Technology Data Management

Value-added supplier of custom components and subsystems critical to plasma-based manufacturing processes.


Advanced Energy’s Key Markets

Semiconductors Data Storage Flat Panel Display


Advanced Energy: Blue Chip Customers


Global Infrastructure

Global officesFort Collins, CO Headquarters Distributors


AE’s Strategic Imperatives

Increase Gross Margin

Increase Cash Flow

Creating value for shareholders

"Potential to increase gross margin as a result of the proposed solution and the underlying benefits1

"Potential to increase operating margin

"Significant improvement in on-time delivery due to improved forecasting, and improved collaboration with suppliers

Improve On-Time Delivery

"One time cash in-flow due to reduction in inventory levels

"Annual increase of operating cash flow

AE Strategic Needs

Source: Discussion with AE executives


Problem & Process to resolve

What was wrong:

Supply Chain Complexities and Problems

Partnership with SAP:

Value Engineering

Outcome:

Specific projects for Supply Chain Efficiencies and sub projects to complement the ultimate solution


Three Categories of Pain Points Examined

Pain Point Categories

Functional Areas

"Engineering Change Management"Manufacturing and fulfillment1"Quality Management"Demand Management" Inventory & Supply Planning"Production Planning"Commodity Management &

Procurement"Data and Document Management"CAD Integration"New Product Introduction (NPI)" Transportation Planning

Note 1: Only partially achievable with current footprint. Global ATP capability is a part of SCM solution


Pain Points Addressable with Current Systems

• Leverage SAP Quality Management

• FLT based model

• ATO will still remain a challenge

• Leverage SAP ECR/ECO Management

• SAP Superusers• Better Training

SAP Solution

" Make-to-Stock based supply model is matched with demand signals with lower lead time causing execution challenges across the operations

" Inventory inaccuracy issues and expedited customer order leads to last minute changes in the floor

" Many Engineering Change Orders to manage

Manufacturing and Fulfillment

" SPC data is collected in separate system" RMA process is very manual and takes several resources to complete" Costs can be reduced via integrated system

Quality Management

" Cumbersome standalone processes" Numerous changes in backlog " ECOs Process Time Reduction" Purchasing buying materials from more expensive suppliers due to duplicate part numbers" End-of-Life process for products" The Product Data Management System is homegrown –efficient for what is needed, but to

grow should be migrated into enterprise system

Engineering Change Management

" Processes are dependent on ‘Tribal knowledge’ and individual business acumen" Silos and disjoined business practices rather than a synchronized decision support system " Dissatisfaction with SAP GUI and its usability" Perceived inadequate training in SAP has caused discontent with the SAP system

General

Observations Areas

Source: AE Interviews


Pain Points that Require Additional Solutions

PLM: Product Data ad Document Management

PLM: Product Document Management

Supplier Strategy and Operational Procurement

Production planning and scheduling

SNP: Optimal Planning and Inventory Planning

Demand Planning/ Management

SAP Solution

" Slow “Available/Capable to promise”" material expediting expenses" No what-If simulation planning and scheduling capabilities for new products

Production Planning

" Disparate document managementDocument Management

" Engineering purchasing, proliferation of supplier population and supply chain" Numerous manual processes" Process and data inconsistencies for US suppliers vs. Asian suppliers – effect of “tribal knowledge”" Not able to leverage the volume discount" MRP cycles are too frequent, creating unmanageable worklist and exceptions" Upon communication from the suppliers buyers do not systemically change the PO due dates

Commodity Management & Procurement

" No simulation or what-if capabilities" Manual inventory strategies for optimal planning" Lack of modeling capabilities for the entire supply chain model" Inability to model globally; i.e. perform demand supply matching with all the pertinent constraints

Inventory and Supply Planning

" No systematic information sharing with suppliers" Product structure exists in several tools (homegrown PDM, SAP, others), makes sharing difficult" Suppliers not sharing IP with Advanced Energy; AE needs to own the IP or they cannot replicate product

with new supplier

Collaboration

" Lack of any statistical model in forecasting and no Sales and Operations Planning" Inability to use historical consumption (forecast netting)" Inability to evaluate the quality of forecast from any level or any perspective" Forecast (grass roots to consensus) cycle time

Demand Management

Observations Areas



Pain Points Not Addressed Through the Proposed Solution

SCM Solution

PLM Solution

PLM Solution

SAP Solution

" Lack of planning tool to account for constraints in stocking assets" Inability to model what-if scenarios with considerations of lead time, cost, and service level

Transportation Planning

" No central repository for all project data" Lack of rigorous Program or Portfolio ManagementNPI

" Manual integration processes with CAD systemsCAD

integration

Observations Areas



Three Categories of Pain Points Examined

Requires Additional Solution

Not Addressed Through Proposed Solution

Addressable with Current Systems

Pain Point Categories

Functional Areas

"Engineering Change Management"Manufacturing and fulfillment1"Quality Management

"Demand Management" Inventory & Supply Planning"Production Planning"Commodity Management & Procurement"Data and Document Management

"CAD Integration"New Product Introduction (NPI)" Transportation Planning

Note 1: Only partially achievable with current footprint. Global ATP capability is a part of SCM solution


PRODUCT LIFE CYCLE MANAGEMENTDesign Collaboration (cFolders)Change and Configuration Management (LCDM)Document and Product Structure Management (ERP)Quality Engineering (ERP)

Transportation PlanningSupply Chain VisibilitySupplier Portal (Supplier Self Service)CAD Integration PLM Program ManagementStrategic Enterprise Management

SUPPLIER RELATIONSHIP MANAGEMENTStrategic Sourcing (Spend analysis, RFX, Auction)Catalog ManagementOperational Procurement (Self Service)

SUPPLY CHAIN MANAGEMENTDemand Planning (Forecasting & S&OP)Supply Network Planning and Inventory ManagementProduction Planning and Detailed SchedulingGlobal ATP

Overall *User Acceptance

GapValueAreas Evaluated

Solution Prioritization

* Criteria Weighting: Value (30%), Gap (30%), User acceptance (40%)High Low

Priority

Solution not proposed due to low priority


Supply Chain Management: Key Issues & Solutions

! Demand Management" Lack of planning and simulation flexibility" Lack of visibility into forecast accuracy" Lack of statistical modeling capability to account

for factors like options and features etc" Inability to accurately predict demand" Inability to evaluate the forecast from any level

or any perspective" Inability to evaluate multiple alternatives" Inability to Generate Alert" Inability to manage the “significant few” versus

the “trivial many”! Inventory Management

" Lack of planning flexibility" Lack of inventory strategies to be optimized

towards safety stock levels" Extended Lag time of new process Enablement" Inability to streamline updates of information

within planning levels" Lack of modeling capabilities for entire supply

chain model" Lack of ability to plan at aggregate levels" Lack of visibility of stock-in-transit" Lack of consistent plan" Low accuracy of replenishment" Lack of time-dependent constraints to be

modeled easily

! Forecasting" mySAP APO - Demand Planning: Enables supply

chain partners to forecast and plan demand, considering historical buying and selling behavior, market intelligence, and sales objectives. The demand is profitably matched to supply to maximize return on assets in consideration of operational constraints; updates and synchronizes plans based on the dynamic exchange of information; and allows manufacturers to derive total supply chain production requirements and to publish results to all members of a supply chain.

! Supply Planning" mySAP APO- Supply Network Planning: The Supply

Network Planning solutions made possible by SAP APO support and enable the generation of an organizational demand plan and the subsequent creation of production, distribution, warehousing, and transportation plans across your entire organization’s supply network.

! Production Planning" mySAP APO Production Planning: The Production

Planning and Detailed Scheduling (PP/DS) component of SAP APO is an integrated set of tools that helps you respond rapidly to changing market conditions. Using this component, you can plan and optimize production while taking into account product and resource availability. The component improves performance using state-of-the-art methods and optimization libraries.

SAP Solution EnablersPain Points


DPSS Methodology

Demand Planning Service Select Methodology! Designed to be implemented in 14 weeks! Pre-configured system used as beginning point! Allows some client customization within guidelines! Based upon SAP’s ASAP Methodology

Phases! Project Preparation ! Translate / Tailor ! Validate! Go-Live and Support


Demand Planning Timeline

Feb Mar MayApr

2005

Project Preparation

Demand Planning

Delay due to hardware delivery

Translate / Tailor

Validate

Final Prep & Go-live

Support 3rd quarter process

Jun AugJul Sep OctJan


Demand Planning Vision

Single forecast owner (Generally Sales and Marketing)

Single forecast – adjustments to sales need to be made at product / customer level

Consensus forecast of multiple views of forecast! Marketing! Statistical! Sales

Emphasize the forecasting process – accuracy will follow! Good work flow! Ownership! Simplified tools! Monthly forecast! Forecast volume at highest level that is practical

# Hierarchy level with disaggregation# Material Number when necessary


Old Versus New Process

Rollup

Reference data

Statistical Forecast

Single forecast

Frequency

Level of detail

QSR

Interlock Spreadsheet

Task / Event

Automatic rollupManual rollup

Sales history, statistical forecast, prior period consensus forecast, backlog, marketing forecast, adjustments

Sales history & backlog – manually extracted

Predicated on accurate historySystem will create statistical forecast

None – sales person reviews history and creates forecast

Sales forecast changes must be made at customer / material level

QSR (MSR) and interlock become same forecast

Interlock becomes input to QSR, changes to QSR not integrated back into interlock

Need to establish within week update process

Monthly – entire process

Weekly updates

Quarterly

Forecast at best known level, use history to disaggregate down to material number – ability to override disaggregation percentages / material number volume

Material number level

Will become monthly, currently includes many summary tables, graphs, design wins & account strategy

Data maintained online – accessible via intranet

Manually created

Can be downloaded to be worked off-line – updated forecast can be pasted into online tool

Maintained online – data automatically extracted from BW –accessible via intranet

Manually created

CommentsProposedCurrent


Old Versus New Process

Monthly with quarterly rollupBeen monthly, but moving to quarterly

Time Periods

MFC’s

Workflow order

Workflow

Alerts

Forecast accuracy

Cost

Average Selling Price

Task / Event

Requires changes to BWSales history at Model / Fitting level and then forecast made at Model / Fitting level

Sales history at material number level and then forecast made at Model / Fitting level

Statistical forecast first, marketing and production update then sales review and then meeting

Sales person makes forecast first then marketing review takes place later in meetings

Intranet update – much of consensus process can take place prior to meeting

Pass spreadsheets and meetings

Identify sales vs forecast exceptions

Identify forecast adjustments

Manual

Will be measured for multiple forecasts – consensus, statistical, & marketing

Not measured

Automatically extracted from BW

Can be updated at material number level

Not included in process, done separately in Margin management

Automatically extracted from BW

Can be updated at material number level

Manually added to spreadsheets –extracted from BW

CommentsProposedCurrent


Final Objectives and Benefits

•One set of numbers

•Improved forecast accuracy

•More responsive forecast

•More accurate information

•Reduced resource usage

•Reduced cycle time

•Ability to have more frequent forecasts

•Reduced effort

•Improved accuracy

•Eliminate forecast bias

•More focus on the importance of the forecast

•Earlier identification of problems

•Single forecast

•Monthly forecasting

•Discipline around weekly updates

•Improved consensus work flow / reduced manual effort

•Statistical forecast integrated with marketing and sales information

•Forecast accuracy reporting

•Forecast alerts

BenefitObjective

=More Accurate Forecast

=Greatly Reduced Inventory


Thank You.

san jose bf scm 4fm.sap.com/pdf/bf05sj/2_cook_san_jose_bf_scm_4.pdf · apo-dp ich-rr ich-smi em am...

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