Supply chain and manufacturing are not the first lines of business that come to mind when thinking about technology innovation in the enterprise. But throughout their history, these business areas have been at the forefront of innovation.
For example, reorder points and two-bin systems were used to manage and plan inventory before the modern computing wave of the 1970s. In the former, once an inventory dropped below a predetermined re-order point (economic order quantity, or EOQ), an order would be immediately placed to replenish the inventory. In the latter, once one bin was emptied you would switch to the second bin and place an order to fill up the first one.
Download the new SAP Digital Supply Chain Special Report and see how SAP S/4HANA enables companies to integrate, embed intelligence, and visualize all supply chain processes from supplier to customer.
When material requirement planning (MRP) first emerged, it was regarded as a radical departure from the way things are done. Although it was new, unconventional, and untested at the time, supply chain and manufacturing executives took notice and adopted them to reap significant economic and productivity benefits. MRP didn’t completely replace previous systems and methodologies, but it certainly became the foundation of many supply chain and manufacturing processes and grew in scope and functionality, eventually giving birth to today’s enterprise resource planning (ERP) systems.
Three fundamental limitations in supply chain and manufacturing ERP are now resolved, thanks to SAP S/4HANA
But a lot has changed since the initial introduction of ERP. Nowadays, e-commerce giants such as Amazon and Alibaba are running complex supply chains and dealing with scores of orders — and the sheer number and complexity of that volume is nothing short of amazing. In 2016, Amazon sold over 90,000 TVs on Amazon Prime Day,and Alibaba generated $17.8 billion in sales on November 11. Along the same lines, global logistics provider UPS delivered over 700 million packages between Thanksgiving and New Year’s Eve of the same year.
While the volume is certainly impressive, Amazon, Alibaba, and UPS are not alone in experiencing this burst of supply chain and manufacturing activity. Which begs the question: Can traditional ERP systems keep up with the pace of these changes and the challenges they bring?
ERP May Not Be Enough for Today’s Supply Chain and Manufacturing Challenges
I recently joined Cindy Jutras, founder and president of the independent research-based consulting firm Mint Jutras, in a panel discussion about the supply chain limitations of classical ERP systems. Throughout the 60-minute conversation, it became apparent that supply chain and manufacturing operations continue to grow more complex while ERP system performance degrades very quickly. Issues such as latency and the inability to re-plan and rerun processes during business hours – when exceptions arise – are becoming more troublesome.
However, as I contested during the event, latency is not a problem; it’s a symptom of a much more pervasive problem. The real culprit is the legacy database, which is based on a hard disk and resides underneath it. To overcome the performance limitations of these databases, ERP needs to rely on redundant data structures and batch processing, increasing disruption and hampering visibility across the supply chain.
How SAP S/4HANA Makes the Difference
By relying on a faster and smarter in-memory data platform, SAP S/4HANA paves the way for the next generation of ERP. In short order, the software replaces the redundant data models and slow batch processing of classical ERP with simplified data modeling, real-time processing, on-the-fly reporting and analytics, and application consolidation across supply chain and manufacturing processes.
For the very first time in many years, advanced supply chain and manufacturing capabilities are being consolidated back in the ERP environment without the need for expensive middleware and complex integration. In fact, there are three fundamental limitations in supply chain and manufacturing ERP that are now resolved through this consolidation, thanks to SAP S/4HANA.
1. Constraint-Based Production Planning
One of the most well-known limitations of MRP is the creation of production plans that assume infinite resources. As a result, these plans became impractical in a constraint-based production environment. One example of such an environment is seen in the beverage industry, where the volume of the container in which ingredients are mixed and the time needed to empty and clean the container act as a production constraints that needs to be factored into the production planning process.
In most cases, businesses chose to deploy a secondary constraint-based production planning system such as the SAP Advanced Planning and Optimization component or relied on Excel spreadsheets to account for capacity constraints. This added unnecessary complexity and was prone to error. With SAP S/4HANA, constraint-based production planning is now delivered within the core solution – without the need for additional systems or spreadsheets.
2. Advanced Available to Promise
Available to promise (ATP) responds to customer order inquiries with committed delivery dates and quantities based on actual supply chain resources. For many years, basic ATP processes have been a fundamental part of ERP. Although it was easy to use and implement, ATP didn’t offer the advanced functionality that many businesses needed.
Examples of such advanced functionality include product allocation, a capability that allows the setting of confirmation limits to prevent larger customers from placing big orders that could hog a company’s entire supply chain leaving the rest of its customer base without delivery confirmations. Another example of an advanced functionality in ATP is rules-based availability checking, which allows for availability checks to be executed on more than just a single material/plant combination including automated product and location substitution.
Corporations that require these advanced functionalities used to rely on secondary systems such as global ATP capabilities within SAP Advanced Planning and Optimization or other third-party solutions. With SAP S/4HANA, advanced ATP is now becoming part of the ERP core to give customers the best of both worlds: simplified implementation and deployment of a fast, responsive ATP solution, along with the advanced functionality needed to operate in multichannel fulfillment environments.
3. Extended Warehouse Management
Extended warehouse management (EWM) is another example of a solution that was kicked out of traditional ERP system due to the performance limitations of the underlying database. Similar to ATP, ERP only covered the basic components of the warehousing functionality. Businesses looking for more advanced warehousing functionality – such as slotting and kitting that optimize the location of warehouse items for fast storage and recovery– had to deploy a separate standalone SAP EWM application.
Bringing advanced warehousing back into ERP through SAP S/4HANA allows manufacturing and supply chain organizations to advance warehousing capabilities without the need for a separate standalone solution and complex middleware. On the other hand, customers that had already deployed SAP EWM in a decentralized standalone architecture can now consolidate their systems by deploying it inside SAP S/4HANA to simplify the IT landscape and reduce total cost of ownership.
SAP S/4HANA can help your supply chain and manufacturing organizations overcome the challenges of classical ERP. To find out more and hear corporations discuss how they deployed SAP S/4HANA to support a variety of use cases, register for the SAP S/4HANA Digital Supply Chain Webinar series and download the SAP S/4HANA Digital Supply Chain Special Report.