Supply chain transformation: Short-term steps, long-term vision
July 15, 2021
July 15, 2021
In June, I had the pleasure of participating in a presentation at SAP SAPPHIRE NOW on how to create better supply chain resiliency and agility in a complex world. We had a lively discussion in which we looked at why companies need to transform their end-to-end supply chain to become more resilient, customer centric and competitive. But as important as such a transformation is, understandably, some companies can’t take on such a massive change all at once. So they should think about initial steps they can take that can help get them headed toward their ultimate goal while generating significant short-term improvements. Here are three good examples.
A number of companies still operate procurement (especially indirect procurement) as a decentralized affair, with each region acting independently in how it purchases products and services. The biggest challenge with this setup is a lack of visibility into the company’s global spend across categories which, in turn, obscures opportunities to optimize spend across the enterprise.
Moving the entire company onto the same e-procurement platform, such as SAP’s Ariba, can give all buyers standard catalogs to purchase from, improve the contract terms and conditions with suppliers, and boost the ability to do strategic sourcing—all of which enables the company to drive down its total spend across categories. Cost reductions of 2% to 3% are possible which, for a large company, could translate into $200 million to $300 million a year. And it can happen quickly, with such platforms’ cloud architecture enabling an accelerated deployment in a company. For instance, a large global company could completely transform its procurement organization with an e-procurement platform in about 18 months.
For many companies, planning remains a very disconnected process, which makes it difficult to, for example, shift production or distribution from one facility to another when business conditions dictate. This impairs a company’s ability to respond to unforeseen changes in supply or demand (just think about what happened during the early stages of the COVID-19 pandemic). With a disconnected process, a company can’t even do basic scenario modeling to understand how certain developments would affect its operations and map out some ideas for how to act.
Furthermore, in many companies, planning is still a very manual effort in which a person has to continually review the forecast, demand, and supply. In some companies, only about 20% of planning activities are automated. Adding automation and intelligence to planning can switch that to 50%+, getting a company closer to truly autonomous planning and execution.
Unlike with procurement, there’s no single planning solution on the market that can do it all. SAP’s Integrated Business Planning (IBP), for example, does provide leading capabilities for synchronizing the planning process, but it still needs to be complemented with add-ons that bring intelligence and automation on top of what IBP provides. For instance, a company can quickly add a sophisticated control tower capability that includes not just dashboards, but also scenario planning and automated decision-making algorithms.
Beside pure automation, new replenishment techniques can be considered to improve service levels without increasing inventory. SAP now offers a demand-driven approach to material requirement planning (DDMRP) that can mitigate the effects of supply and demand variability using strategic inventory buffers that reduce the amount of inventory needed to achieve high service levels and decrease lead times.
More autonomous planning is critical to keeping pace with customer needs and, consequently, strengthening customer loyalty and longer-term value.
With big global companies always comes the challenge of dispersed operations and all the complexity those bring. Companies should look for opportunities to harmonize their organization and bring people closer together. Doing so reduces overall organizational complexity and, in turn, boosts supply chain resiliency. As COVID-19 also illustrated, complexity is the enemy of resilience. For example, if a company has different ways of working across its regions, if their processes are so different, it’s very difficult to make a change quickly in the face of a disruption. Companies that standardize their processes on a core solution such as SAP S/4 HANA are better equipped to bounce back from unforeseen developments.
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Another factor in becoming more resilient is how a company considers its source of supply. SAP, for example, can help companies identify alternative suppliers to add to its mix—striking the right balance between redundancy to protect the company in case of supplier trouble and the somewhat higher supply costs that may come with that. Sustainability is also part of the supplier consideration. With around 45% of all CO2 emissions being related to how we supply and produce goods around the world, creating a more-responsible supplier base (often through the addition of more local suppliers) can offset the possible higher supplier costs with greater, longer-term perceived value in the eyes of customers. In fact, I believe a shift to a more-responsible supplier base as part of a post-COVID renewed focus on overall sustainability is going to be a significant trend in the next few years.
These are just three examples of how companies can start down the path to a full supply chain transformation and begin enjoying the benefits with SAP at the core. Today’s digital supply chain solutions make it possible for companies to mobilize quickly to make significant improvements in targeted areas—and make progress toward building a more relevant, resilient, and responsible supply chain.
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