Supply Chain Performance Management

This post is an extract of a project related to implementing BI at a Automotive Parts Manufacturing.

In order to effectively manage the Supply Chain, it is critical to obtain quality KPI in order to ensure that business objectives are being achieved, but more important required improvement’s can be identified and executed. Avoid the ‘so what KPI’.

Therefore SCM BI are fundamental to monitor and continuously optimize the Supply Chain, quality data allows for effective and rapid decision´s to carry out change.

In a manufacturing organization, just looking a inventory level and customer service on its own will not ensure that the specific weakness are identified so that relevant improvements can be initiated. In this scenario; taking factory capacity, manufacturing change-over rate, inventory levels, and customer service will provide a clear picture. Trends in high capacity utilization, high inventory and low customer service indicates that either the wrong product is being produced or the batch size produced is too big (low change over, because of large batch size not enough capacity available to satisfy customer requirements). With this information a more objective decision can be made for improvements which could result in improvements in planning methodology(IT and process problem) or modify factory tooling (physical problem) to allow quicker change over, or reduce batch size. Any one of these actions can actually worsen a specific KPI, example factory capacity, why ? Lower factory utilization capacity (capacity KPI on its own is own provide a poor KPI) means that manufacturing equipment are not churning out at its maximum, this could be due to higher product cut-over due to shorter batches, but the trade off would be lower inventory and higher service level. This means that one is getting higher cash throughput (capacity KPI, linked to inventory and service level provides a more realistic/value KPI). This is what business is about (The Goal). When this happens certain KPI become secondary by achieving total SCM benefit and not individual benefit like factory capacity.

If one had just Inventory and Customer service, one would be limited in trying to optimize stock levels without understanding the causes.

In order to define optimum SCM Performance Management KPI for a Business Intelligence System (BW) , the following cardinal rules apply:

• Define
Important to define the KPI that will measure performance in the Supply Chain, critical to understand performance versus plan and KPI’s that can provide meaningful data for rapid improvements.

The scope of KPI must provide required details to relevant BI Customer (Financial controller, Factory Manager , Supply Chain Manager ect..)

The scope of KPI relate to two key aspects:
 Width, how many KPI’s needed for BI customer, example for Factory Manager would require different KPI to SCM Manager, the SCM manager would look at the total integrated KPI of plants while the factory Manager a more limited picture, Factory Manager might be indifferent to Customer Service , but more on Factory Capacity
 Depth entails the meta data available to BI customer, a SCM Manager with respect to Inventory levels might require classification based on slow moving, expired, quality (certain products might be out of specification but can still be sold). This level of detail allows SCM Manager to initiate relevant actions to reduce inventory. A Marketing Manager might require classification based on brand, product introduction ect…

• Measure
In order to satisfy the KPI for the relevant Business Customer, data may be sourced from multiple system’s and applications. It is critical for the technical efficiency of a BI system to avoid duplication of extraction and update to the relevant info cube and multi cube’s. Obviously an organizing that has achieved homogenous (IT systems and process) ways of working will simplify data extraction. Knowing the bigger picture of scope of the KPI allows simplified and efficient extractors as well as the BW design (info cube, info sources ect..).

Dimension and time buckets must satisfy the BI customer. A Factory Manager is interested in a hourly view of critical bottleneck resources, while a SCM Manager interest might be limited to daily view (More SOP orientated)

• Analyze
The KPI must be simple and provide quality, better 10 quality KPI rather than 50 KPI. They must provide trends, graphs are critical, they must flag abnormalities based on specific baseline predefined by BI customer. The scope of KPI must enable decision that can improve efficiency and reduce costs. Graphical information is fundamental to provide view of data that enables better understanding of the situation. A graphical view to SCM Manager in a single graph containing Factory Capacity, Inventory Levels and Customer service provide an ideal snap-shot. A single view of Customer Service level provides the ‘so what KPI’

• Improve
The KPI provided can then be the stepping stone to initiate change and improvement by the relevant BI customer. Important that the BI tool allows for flagging the start an improvement/change/optimization so that benefits can be measured.


The difficulty of the above is to extract data considering that source can be R3 data or SCM APO platform consisting of BW Cube for demand planning, planning areas in SNP, order based data in gATP and PPDS versus simple tables in SAP R3.

Consideration must be give to multi-cubes to mesh data coming from SAP R3 and APO data sources (info cube) considering the interrelationship between the two systems.

Building a BI platform using APO PPDS as base will be discussed in a later post.

Advanced Inventory Optimization with SNP

The optimum inventory balance would be managed via combination of the following key factors and elements driving the level of inventory and supply chain costs:

- buffer stock (safety stock) needed within the market to avoid potential Stock-Out caused by adverse effects of forecast errors and supply chain underperformance

- stock availability or customer service performance required to ensure customer satisfaction with their order fulfillment
- DRP planning parameters driven by manufacturing or 3rd party suppliers costs associated with the inventory (inventory value, storage costs, shipping costs, financial interest of holding inventory etc)

Safety stock is a function of all these factors. To make things more complex, all these factors are interrelated.

At the item level, there are some immediate obvious sources of error and uncertainty:

► Forecast error – the worse it is, the more safety stock you need to cover the uncertainty.
► Production batch size – the larger it is, the less often the stock will be low.
► Production reaction time – the longer this is, the greater the time over which the uncertainty has to be managed.

► Customer service level – the higher this is, the greater the safety stock needs to be.

The APO SNP provides a number of techniques to optimize inventory.

The current offering consists of:

     ► Standard Safety Stock Planning
     ► Extended Safety Stock Profile

Details can be found in http://help.sap.com/saphelp_scm2007/helpdata/en/1c/4d7a375f0dbc7fe10000009b38f8cf/frameset.htm

Should the above not be suitable, the custom approach can be adopted using advance marco functionality available within the SNP Planning Book.

A particular example wrt to inventory optimization is where SNP planning book was enhanced to manage a complex safety stock formula based on Robert G.Brown instead of using what is available in standard SNP.

The above formula shows safety stock is calculated based on:

Safety stock formula:
LT = Supply Chain Lead time (Total = Production + Transit , and expressed in months)
SR = Std. Deviation over production reaction time
BS = Batch size (Expressed in units as Production Minimum Order Quantity)
CS = Customer Service Level (shown as percentage)

Weighted forecast error calculation

F1 to Fn = Forecasts for weeks 1 to n (13 periods will do), for selected forecast types. The current average forecast over the next three months is.

 AF = Average Monthly Forecast = (Sum (F1 to F13)) / 3

An ‘average’ forecast error determined by SKU.

 WE = Weighted error

The previous 2 years Forecast accuracy percentages by SKU will be exported as 24 discrete monthly values.

The optimal inventory calculations require a single value of forecast error per SKU. The forecast error is defined as follows:

Forecast Error = 100 – Forecast accuracy Percentage.

That is an accuracy of 85% equates to a forecast error of 15%.

The functionality provided allows the error to be calculated on the last six months accuracy figures. The weighting is configurable. A higher weight is likely to be given to the more recent forecast error.

STEP IN BUILDING THE SNP OPTIMIZATION TOOL

The possible approach would be to use would be:

1. Copy standard SNP supplied Planning Books into Custom Planning Book

2. Add the required custom key fields, custom fields depends on how the macro calculation are carried. If standard macro functions are used then more custom key figures will be used. In the SNP planning, limit the additional field to Safety Stock only and use macro to calculate desired stock levels, other key figures like service level and forecast accuracy can be included for reporting purposes and for macro function to facilitate user mgt. Also handy for alerts. These key figures will be loaded from custom DP planning book which contains the guts of Safety Stock Calculation using Process Chain.

3. Create DP planning book with custom fields (key figures) to contain the fundamental fields needed for SS calculation. The number of Key Figures will depend on using SAP supplied macro’s functions or reducing Key Figures using custom built macro function (see http://sapscminfo.blogspot.com/2008/10/custom-macro-functions.html) The advantage of creating custom DP planning book is that it provides maximum flexibility and does not have the SNP constraints and simplifies the import from BW to the relevant key figures. Note it is possible to load data from DP planning book to custom SNP using the Process Chain mechanism to Load data from DP Planning Book to SNP planning on a regular basis. This custom planning book will import from DP planning books data such as forecast accuracy.

Concluding remarks: If implementing SNP with release SCM5.1 onwards, then priority would be to exploit the standard functionalities for advanced safety stock (ASS) planning. The ASS allows for the creation of profiles containing rules such as:

• Forecast Error : Percentage to correct demand forecast

• Determination of Replenishment Lead time rules

• Demand type, sporadic or regular demand

• Source determination

• BADI’s (very important to enhance logic) BADI for custom formula’s, replenishment lead time and forecast error.

SAP SCM Project Opportunities during economic crisis

We are currently experiencing the worst economic crisis seriously impacting the IT SAP (basically all Software packages) consulting world. Some of the big five consulting companies have allowed a large percentage of their work-force to take a 2 year sabbatical, this implies that they only see a upturn in late 2010 early 2011 (most probable 3 quarter of 2011). This is also logical considering that IT projects lags’ 6-9 months the economic upswing.

This downturn implies over-supply of IT resources exceeding demand, rates have dropped to 50% of 2008, and some consulting companies are providing 2 for 1 especially the (small consulting companies). Even at these reduced rates IT investment is not taking off. The reasons for this are as follows:

1: Business is weary of IT, they see IT as cost builder rather than cost reducer, these continuous new acronyms (SOA/BPMN) do not really bring business benefits if they are not orientated towards business needs. See below the ‘Value Proposition Myth’
2: The over-supply of low cost consultants has resulted in many disasters, limited business benefits Having stated the above, are there opportunities for IT investment during this serious downturn?
In my opinion, YES.

These opportunities could be:

● IT RATIONILIZATION
● NICHE IMPLEMENTATION
● BUSINESS OPTIMIZATION

IT RATIONILIZATION
Rationalization of IT infrastructure;

How many multi-national companies out there have a disaster in place, many ERP systems (different types, SAP, ORACLE, JDE, different versions/release ect…) with costly interfaces and costly IT resources supporting these systems. I have even seen a SAP System Sales Order mgt, integrated with Oracle Delivery processing , integrated with a Catalyst Warehouse Management system integrated with a Transportation system (four system to manage Order to Cash) with complex custom interfaces, many support teams and many consulting companies.
Why is this? Very simple IT Managers approach in the past was the more complex, the bigger the budget, the bigger the power (parking space next to VP and personal secretary and nice office).

I recently worked on a APO Planning Project (DP and SNP) in a consumer environment whereby every time there was a roll-out to a new country a totally new project was started instead of making use of existing core template (actually most IT manager have no clue of what a template is) resulting in costly implementation and costly support (people and infrastructure). Even worse, the project was based on replicating a legacy logic built in EXCEL instead of really adopting a SCM optimization project.

Rationalization means getting rid of all the fluff and consolidating into one ERP/Planning System , single server architecture across all continents/countries. Cost saving is enormous. This actually contradicts SOA and adoption of the so called ‘Cloud Computing’

To make this a success the following are critical aspects to consider:

● Project ownership must be with business not IT (possibly a Finance VP)
● Strong project governance is needed (tools, control framework, methodology) with respect to managing the global rationalization. The rules of game must be clear.
● Manage project internally, use consulting companies or contract consultants to provide specialized resources on demand, using a consulting company to manage a IT rationalization normally has limited success, consulting companies objective is to bill as much as possible therefore strong conflict
● A system baseline is needed (template) of the ERP and SCM System, this baseline becomes the core for any global roll-out, rules for changes must be simple:
► Legal requirements (Country X requires that any delivery that cross regional borders requires certain financial requirements)
► Customer Service related, will the functionality result in poor customer service (obviously consideration of business volume is critical)
► Cost and Efficiency related, will it result in more people to pick pallets in my warehouse. Cost efficiency consideration must also look at cost of IT, no use in implementing a best of breed because you plan to save 2 forklift drivers but at the same time need to employ costly IT support people and costly interfaces
● Have a strong Design and Implementation Architects (people that know business and IT) that are able to link business needs with a solid IT solution. This means people that come from solid business background and have solid IT experience. People that can provide guidance to IT manager have to make smart decisions..
● To make the various VP interested (the ones that approve the project) IT managers will have limited success in trying to sell this, why? Simple, admission of their own failure. Best to use consulting companies (not IT) better Strategic or Auditing firms to approach the relevant VP. This is also an opportunity for SAP do some good solid marketing, it also in their interest to get rid of all the ‘Fluff’.

NICHE TOOLS IMPLEMENTATION
SAP has released over past couple of years within the Supply Chain Framework many new functionalities that could provide a business benefit. Typically to name a couple these functionalities:

► SCM Event Management
► SCM EWM (Extended Warehouse Management)
► SCM SPP (Service Parts Planning)
The problem with this is that IT must be able to sell this kind of project, success can be achieved if these functionalities can provide a perceived benefit in terms of IT rationalization or Business Optimization. A further problem is that most consulting companies have limited skills to implement these niche functionalities, you will not find the usual ‘low cost resource’ consultant.

BUSINESS OPTIMIZATION
This is more difficult to manage mainly due to lack of management skills, optimization from a IT perspective tends to fail because of trying to look at things from IT perspective only and not from a business perspective. Real optimization requires a good understating of Business and Mechanism needed to support a process (IT, manufacturing infrastructure ect..).

Optimization is like trying to fine-tune a symphony orchestra. Imagine trying to tune a violin without considering other instruments, or imagine sheet music for 1st violinist that in not in tune with a Cello.

Optimization in Supply Chain means doing things more efficiently (cost effectiveness).

● Right qty at the right place at the right time at lowest possible cost. (Planning, distribution and transportation)
● Supply Chain Network, most cost efficient network to deliver product to market. (centralized warehousing, multi-market warehouse), transportation methods, loading , route mgt.
● Producing more of the right product based on customer demand without increasing inventories (on time delivery, maximum manufacturing output at lowest inventory levels)
● Obsolescence avoidance.
● Inventory optimization; What is the optimal inventory policy that minimizes inventory holding cost while maintaining or improving serviceability and financial performance.


The fundamental aspect when undertaking a optimization project is to consider the above framework in order to ensure maximum success. Trying to focus only in System Optimization results in limited benefit. The ideal is to determine the correct synergy between Business Optimization and System Optimization so that the end result is a IT solution that totally supports business needs and achieves optimization objectives.

Some typical examples regarding the optimization framework;

Consider a SCM project whereby one of the possible optimization objectives is the rationalization of distribution center’s. This kind of work requires the following:

Business Optimization
This covers business strategy, understanding potential solutions and defining a TO-BE model.
The impact to the business with respect to distribution rationalization. This also includes opportunity assessment.
Business potential analysis from a cost effectiveness situation and other consideration such as tax implications, local Government benefits ect…
A conceptual TO-BE (Business Process Re-design, benchmarking) design Blueprint, organizational change, is needed to address location, type of warehouse, business model that leads to the desired cost effectives.

Implementation Consulting
This entails implementing and providing operational support for the conceptual TO-BE model with the ideal IT infrastructure.
Design , Build and implementation of the required IT tools, this could be the usage of existing functionality provided by the current ERP or SCM platform with the ideal hardware platform.
Operational IT system support.
I recently worked on a optimization project related production planning and execution, this was in the auto component supply. Reality was that business had very low confidence in the SAP IT solution, customer service was bad (50% on time delivery) inventories too high; too much was manufactured of the wrong product. Through the years, IT invested a lot of money bringing in consulting companies to try and fix the problem, but never succeeded because they always tried to optimize the IT part and never really understanding what was happening from a business perspective. Obviously IT and SAP was not well considered in the organization. This changed when the VP decided to personally engage the problem by using a consulting company specialized in manufacturing (not SAP or any IT system) to do a detailed work-study analysis and understand what exactly was happening within manufacturing, planning and execution and to identify a TO-BE situation, then based on the TO-BE model was the SAP System Optimized resulting in improved performance.

The above shows that there are different roles and skill set’s needed, the difficulty is to manage these task and clearly understand what skill sets are needed keeping in mind that during optimization process there are many role-players to consider. Not many organization have Change/Optimization champions that can mange an optimization project. Most IT managers lack ability to understand the grey area related to Business Optimization versus System Optimization.
The role of a skilled Design and Implementation Architect is also critical, this person normally not only has strong business skill but also has strong system expertise and help’s to bridge gap between Business Optimization and System Optimization and also provie guidance to what is technically possible.

CIF Management for eWM

The eWM SCM platform is connect to the ECC system using CIF (qRFC) integration. The same integration technology used for APO.
The CIF is used both master data and transaction data.


Data is transferred using buffered qRFC technology:

Master data via standard CIF master data model, for eWM consideration/limitation must be made around vendor and customer replication as well batch managed products. Further consideration relates to managing batch determination in eWM. Critical to understand how characteristics and class are replicated and very critical to consider that it is not possible to use a SCM system for eWM batch management if set-up for configurable materials. This could be a problem if decision is made to use same SCM/APO development system for APO and eWM.
Changes are automatically updated for active models depending on Application Component (APO) flagged as well as change pointers set-up.
Transaction data, deliveries replicated to eWM system. From eWM delivery confirmation and goods movement. It is important that correct queue name is assigned to QIN scheduler.

One of the fundamental aspects regarding the CIF between ECC and eWM is related to monitoring and model management.

Queue must monitored for errors, job’s set-up to re-activate queue in error due to locking.

For active models, jobs must be set-up to de-activate a activate in order to include newly created master data objects. It is important in the CIF not to specify actual vendor or product codes but rather use other selection criteria such as plant / material types. For product material status is very useful to manage timing of replication in order avoid replicating a product that is still in the process of being updated in ECC.

SCM EWM Skill Set

What is needed to manage a EWM project ?

R3 WM skills ?

In order to effectively manage a EWM implementation the following skill set is need:

1. Strong Core Interface (CIF). This is because EWM runs on the APO platform, all interface are managed via qRFC

2. Strong ERP Delivery processing, this is because interfacing between ERP and EWM is via Deliveries.

3. WM experience helps, limited benefit from WM considering that eWM is totally new solution, not an upgrade. Therefore you need Functional EWM resources that know eWM processes around delivery processing, RF, yard mgt, cross docking, Warehouse tasks/order, Quality Inspection engine and maybe interface PLC. This functionality is not present in std SAP R3 WM, totally new, 10 x more complex than old WM.

4. ABAP, BADI know how. Most EWM projects are enhanced. Must be able to provide guidance to ABAP developers.

5. SAP Architecture. Knowing how to manage distributed architecture, change request transportation, sizing ect…

The above defines the Functional EWM Consultant. For technical parts regarding developments, any senior ABAP developer will be OK. The EWM technical platform is no different to APO or R3. What is critical is that the Functional EWM Consultant must provide guidance to the developer in terms of which direction the custom development should go, it could be sufficient that a BADI will do the job. A weak functional consultant normally leads to excessive developments, complex developments and in certain cases modification to SAP standard resulting in excessive support effort.

Bottom line, a WM consultant without the above requirements will take some months to get up to speed. The training courses provided are quite limited.

Focus on strong functional EConsultant and good ABAP developer (don't look at the low cost, you pay for what you get)

A simple WM consultant is suitable for junior role, a person that can cover all above 5 requirements is ideal for project lead.

A logical approach to SAP Supply Chain Management

The purpose of this blog is to provide and discuss various topics around Supply Chain Management within the SAP SCM platform. By placing Supply Chain Management into context helps do define a structured approach in covering various SCM topics and provides a framework on how to maximize and exploit the SAP SCM tool. My experience in working in the Sap SCM environment is that in certain cases limited success has being achieved with the IT investment when implementing a SCM platform. In most cases it is not due to a SAP weakness but rather poor implementation, lack of vision and in certain cases lack of expertise. I have experienced costly multi million investment projects whereby all we did was replicate a legacy solution (in most cases homemade or Excel driven) within the SCM offering.

A typical situation relates to a Parts Automotive manufacturer where the production planning and execution system had many shortcomings. This was reflected in two major indicators; 50% on time delivery and very high inventory: ‘Meaning, producing too much of the wrong stuff.’ This went on for many years whereby the typical IT approach was to maybe build a custom solution, a fancy report. Many external partners tried their luck, always same solution. The IT angle provided limited success.
Success was achieved by adopting a holistic approach between processes and the IT system in order to achieved the desired synergy:

o Re-design of manufacturing processes
o Lot size rules, change over tooling , sequencing logic. Processes and techniques that have nothing to do with SAP
o Modifying the SAP solution to consider critical process redesign:
o Modifying the logic around lot size rules
o Planning manufacturing considering key bottleneck resources in order to have realistic manufacturing scheduling (applying in the SCM solution Drum, Buffer Rope planning concept)
o Including buffer logic to protect key bottleneck resources
o Using sequencing logic that share similar tooling in order to minimize change over. Included building visual planning tables that allowed simple management

The above approach can be modelled within the modelling concept explained below.

In order to place SCM into context, I will adopt the IDEFØ methodology. Modelling SCM using IDEFØ approach help to organize the analysis of a SCM system. As an analysis tool, IDEFØ assists the modeler in identifying what functions/processes are performed, what is needed to perform those functions (mechanism/tools/resources), and what contols/constraints the process.

The basis of IDEFØ consists of the following when mapping processes:

o A process has inputs and outputs
o A process is constrained by controls. These controls could be constraints, legal requirements or o a business strategy, capacity. A IT system could be a constraint.
o A process is supported by mechanism (tools). Tools are resources (manufacturing, facilities and people) as well as a IT infrastructure. In certain aspect mechanisms adopted can become constraints on the effectiveness of a process.

Important to understand that process modelling plays an important role but has limitations, process modelling cannot optimize flow/movement. Optimizing flow and movement is also critical within the SCM, specifically in trying to optimize location (number of warehouse's) production process flow ect...

This blog's focus will revolve mainly around the SAP SCM system/mechanism (the SAP platform covering ERP and SCM)

The areas that are addressed with SCM area include: Planning, Execution and Control.