SAP S/4HANA: Supply Chain Planning

DEMAND-DRIVENMRP ROADMAPCREATING A FLOW-OPTIMIZED SUPPLY CHAIN GLOBAL CONTEXTCompanies need to drive profitable growth in a volatile and disruptive environment by establishing new strategies that balance cost, capital and service whilst dealing with increasing pressures due to innovation, growth and agility.Key factors of complexity• Customer expectations: Buying experience, personalized products and services, multi-channel buy, collect / return anywhere• Market volatility: Competition, regulatory and geopolitical factors, unpredictability in price and supply • Globalization: Large trading partners, buy and sell across the globe• Digital technology and expanding dataFigure 1: Key factors of supply chain complexityNew business modelsDemanding customersPhysical network complexityAsset-light supply chain modelsRapid product proliferationGrowth of new digital technologiesGeopolitical changesExpanding dataEXPONENTIAL GROWTH OF SUPPLY CHAIN COMPLEXITYOver the last few years, the global context has forced companies to rethink the way they operate and interact with their customers, suppliers and consumers.2 | DEMAND-DRIVEN MRP ROADMAP THE PARADIGM SHIFTFast material flow through the supply network will ensure inventory reduction, optimal asset utilization and increased customer service whilst maximizing return on investment. An intelligent supply chain enabled by real-time material tracking and the IoT supports this new approach. Supply chain leaders will also need to start thinking differently on the role of inventory. Many regard inventory as a cost that needs to be reduced, often to exaggerated levels. This can create even bigger losses in sales and increased cost due to emergency deliveries, changeovers and low asset utilization. In the context of material flow, inventory becomes an asset when it is right-sized, properly managed and smartly positioned, and becomes the key enabler for an optimal material flow. This requires a new planning methodology and systems to replace the traditional Sales & Operations Planning (S&OP), Distribution Resource Planning (DRP) and Material Requirements Planning (MRP) processes. There is an emerging need for supply chain leaders to shift from cost, cash and service-focused supply chain management to a new paradigm based on speed of material flow and real-time information visibility.These traditional methodologies work well in an ideal world of accurate forecast and perfect execution of supply and distribution plans. As soon as there is a discrepancy between planning and execution, the system becomes unmanagable due to the overwhelming exception messages, amplified by the bullwhip effect. The delays in different components and processes will cause constant firefighting from planners. The Demand Driven Operating Model, combined with Demand Driven Sales & Operations planning and the Demand Driven MRP (DDMRP) process developed by the Demand Driven Institute is the new standard for setting up and managing the supply chain in a volatile environment. The Demand Driven Adaptive Enterprise modelis a new approach that combines this breakthrough methodology and a new operational system with the power of SAP S4HANA©.DEMAND-DRIVEN MRP ROADMAP | 3 TRADITIONAL MRPThe traditional MRP engine from the 1950`s and 60`s has served it’s time. It could cope with supply chain challenges 60 years ago but is no longer suitable to deliver an optimized supply plan in a world with increasing volatility, uncertainty, complexity and ambiguity. The traditional MRP engine struggles to keep up with today’s challenges because it: • Relies heavily on forecasts with a high probability of being wrong• Requires manual intervention from planners to compensate forecast errors versus orders• Implies last-minute changes in production and deliveries which increase costs and changeover losses• Suffers from demand and supply variability which are transmitted and amplified through the supply chain (known as the bullwhip effect)• Doesn’t relate exception messages (e.g. advance or postpone production, deliveries) to service risks • Generates untrusted plans, leading to planners often using complex speadsheet-based tools for decision making• Can’t adequately absorb demand and supply variability through safety stocks placed at the extremities of the supply chain (e.g. finished product at customer-facing delivery centers, raw materials at the supplier-facing manufacturing sites). As a result, companies often end up with:• Excess inventory for unneeded products• Stock outages for urgently needed products• Bad inventory performance and high obsolescence cost• Poor customer service levels• Constant firefighting from planners to compensate for planning errors• Frequent shuttling for finished products and emergency deliveries for components.Figure 2: Traditional MRPSuppliersCustomer order visibility lead timeForecast variabilitySupply chain lead timeTraditional MRP uses the forecast as demand si