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Building a Profitable Supply Chain with SAP S/4HANA

July 6, 2016 by Amr El Meleegy

Traditionally, supply chain operations have been viewed as a function responsible for matching supply with demand. While true, this assumption is only partially correct.

If you look at the best supply chains, you soon notice that they accomplish the one thing that keeps most executives up at night: Fulfilling demand profitably.

For some products that require low storage costs and rarely expire or become outdated by newer versions, balancing supply and demand profitably can be achieved by padding the supply chain with safety buffers. These act as insurance policies during periods of demand variability or during spikes when demand exceeds production capacity.  However, for the vast majority of products that are sold in today’s marketplace, this strategy comes at a steep price. For these businesses, warehousing costs and  write-offs on outdated inventory created by safety buffers can eat up profit margins very quickly. This is in addition of course to the opportunity cost of locked up working capital.

What’s the underlying problem that’s making this situation all too common? Most likely, it’s limited visibility into customer demand, the uncertainty it creates and the rigidity of today’s supply chain solutions. Combined these limitations make it difficult for supply chain executives to respond to real time changes in consumer demand.

Pairing Visibility with Agility in the Supply Chain

Increased visibility can reduce the need for safety buffers and guard the brand against unpredictable spikes in demand, which can cause supply chain disruptions and stock-outs. Of course, perfect visibility is not always 100% attainable – our world is sometimes too unpredictable. So in addition to increasing demand visibility, supply chain executives are also adopting strategies to improve supply chain agility so they can quickly respond to changing market requirements.

A common question some customers have when they first learn about SAP S/4HANA is “How is it different from my existing (SAP or Non SAP) Supply Chain solutions?” SAP S/4HANA relies on simplified data structures and business processes, native integrations into the SAP Ariba network and personalized user experience to help bring the agility and visibility that is missing in today’s supply chain solutions.

How SAP S/4HANA Supply Chain is Different

Let’s take a closer look at how these SAP S/4HANA enhancements play out across the supply chain.

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With fast SAP HANA-based material requirements planning (MRP), planning can now be run more frequently allowing users to quickly re-plan when faced with potential production issues or material availability gaps. This in turn increases responsiveness to demand variability and last minute changes in customer orders. Additionally, SAP S/4HANA business users can simulate the impact of varying production decisions on delivery dates, reducing uncertainty and risk and improving business outcomes.

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SAP S/4HANA comes with native integrations into the SAP Ariba network eliminating the need for Add-Ons and mapping middleware dramatically shortening supply chain lead times. The solution supports automated and digitized document exchange processes between buyers and sellers allowing users to create their purchase requisitions in SAP S/4HANA, and automatically send them to suppliers on the SAP Ariba network for processing. Suppliers on the network can confirm orders, notify buyers when items have been shipped, and automatically send an invoice for payment directly to the buyers’ SAP S/4HANA systems.

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Multiple layers of data complexity and aggregations have been simplified in the inventory management side of SAP S/4HANA (26 tables to be specific are now down to 2) allowing material data to be available in real time and at the granular line item level. Business users now have real time visibility into inventory metrics such as slow-moving items, supplier lead times, and production patterns making it easier for them to make decisions that can increase inventory turnover and reduce revenue loss due to stock outs. Additionally the new Material Valuation in SAP S/4HANA supports multiple currencies and valuation methods to better capture inventory price variances.

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It’s not unusual for global manufacturers today, especially those that produce goods with complex bills of materials that are many levels deep, to execute millions of material postings per day. Classical supply chain solutions were not designed to process such a large number of transactions in parallel, leading to latency and causing manufacturers to postpone material postings until after production. This hampered manufacturers’ ability to effectively respond to production issues that might arise during the day. The design of SAP S/4HANA overcomes the technical limitations of classical solutions (namely database locking) allowing it to instantly execute goods movement and backflushing update processes, enabling faster, more accurate re-planning and order promising.

The Before and After Picture

For those who are a little more visually inclined and looking for an even more simplified before and after comparison, the below light infographic depicts some of the enhancements that SAP S/4HANA can bring to the supply chain.

 

To learn more about SAP S/4HANA for Supply Chain download this special report at www.sapinsideronline.com/s4hana.

This story originally appeared on SAP Business Trends.

Top image via Shutterstock

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