Adaptive Supply Chain Networks: Delivering Integrated Supply Chain Planning and Execution by Design
Today, all companies operate in a turbulent economic environment a result of the shift in the market after the downturn of the last few years and changes in the balance of power in the global economy. Every dimension of business requires greater speed and efficiency.
As one of todays key business processes, SAPs vision of the adaptive supply chain network has become solid reality. The goal: replace the traditional linear supply chain with a responsive, flexible and dynamic network of supply chain partners. This accelerated evolution is in response to rapidly advancing technology and a clear and pressing business need: adaptability. This adaptability the ability to sense, respond to and thrive on unexpected change is now a key competitive differentiator.
Adaptive supply chain networks are communities of customer-centric companies that thrive by sharing knowledge, quickly seize new market opportunities and proactively respond to shorter and less predictable product life cycles while intelligently adjusting to changing market conditions. Suppliers, manufacturers, distributors and customers simultaneously share information. Network participants can act on that information in real time, and they can coordinate planning and execution so that all partners in the network can work together seamlessly toward a common goal.
Critical Business Process Challenges
The ability to efficiently plan, execute, sense and respond based on real-time signals is being driven by the following factors:
- We are living in a networked economy New channels and more demanding customers have led to a proliferation of new products, which are more mass-customized. The reality is that every company lives within many business networks and can play different roles in each. In many cases, channel masters such as Wal-Mart and the U.S. Department of Defense are mandating changes based on their business needs. These mandates have forced companies to seek different ways to meet these demands. Partnerships are formed to create win-win situations in which collaboration and information sharing are critical success factors.
- Increased pace of innovation is driving supply chain decisions The velocity of change in customer needs and trends makes innovation a key competitive differentiator for achieving profitable growth. The best-performing companies integrate innovation into the core of their business processes and focus on time to volume and time to market.
- Global operational competitiveness is here to stay To stay competitive, you need to be faster, leaner and more productive than ever before. In a business climate demanding that you respond to constant business changes and customer and shareholder requirements, many companies are increasingly focusing on core competencies and partnering to fill in the gaps.
- Compliance is driving many industries Governments and other regulators are pressing for compliance with various sorts of regulations, such as the U.S. Sarbanes- Oxley Act, the Waste Electrical and Electronic Equipment (WEEE) directive and the U.S. Food and Drug Administration requirements for improved tracking and drug pedigree information.
All of these factors result in a pressing need to reach beyond supply-driven efficiency. The preferred business model is fast becoming a pull- or demand-driven environment, and the ultimate source of demand is the customer. You now have to balance your supply chains based on these push and pull dynamics. To sum all this up: You must anticipate your customers requirements and improve responsiveness to their demands by bringing high-quality, value-added products to market faster than your competition.
Adaptive Supply Chain Networks: Rising to the Challenge
To meet the challenges of rapidly changing market dynamics, traditional linear supply chains and their sequential processes must be transformed into virtual communities or networks. These networks allow all participants such as customers, suppliers, logistics providers and so on to sense changes in demand and supply conditions as they occur and to share the critical knowledge needed to respond intelligently.
The result is an adaptive supply chain network that is not only demand driven, but can also leverage its assets to influence demand where appropriate. This requires a dynamic synchronization of demanddriven planning, logistics and network execution based on real-time information that provides the capability to (see Figure 1 for details):
- Synchronize supply with demand by balancing push and pull network planning processes and to replenish and produce based on actual demand;
- Sense and respond with an adaptive supply chain network in which distribution, transportation and logistics are driven and integrated into real-time planning processes; and
- Enable networkwide visibility, collaboration and analytics across the extended supply chain.
Bringing Real-World Awareness to the Network
As discussed earlier, adaptive supply chain networks are communities of customercentric companies that thrive by sharing knowledge, quickly seize new market opportunities and proactively respond to shorter and less predictable product life cycles while intelligently adjusting to changing market conditions.
However, most of todays best-practice supply chain processes do not provide this flexibility as they are based on a plan/execute paradigm. The goal of planning and then executing on the plan has its natural limitations. Unfortunately, we plan in a perfect world and execute in the real world, and in the real world things do not always go according to plan. When things change in the real world, SAP delivers the ability to sense these changes and respond with timely and intelligent actions.
As companies migrate to more customer- centric, demand-driven supply chain processes, certain dynamics emerge:
- Planning and execution processes will need to converge into one combined capability;
- A 24/7 always on business capability will become an increasing necessity;
- Production and supply will become de facto response buffers for continuous demand fulfillment;
- All logistics, transportation and fulfillment operations will need to be synchronized;
- Sense-and-respond technologies will enable a faster means to adapt to unpredictable changes; and
- Leveraged use of RFID-enabled processes will provide real-world awareness of physical objects. Real-world awareness is the capability to sense information in real time from people, IT sources and physical objects using technologies like RFID, sensors, etc., and to respond to certain business situations accordingly.
By exploiting the connectivity of the Internet and leveraging RFID and other such technologies, the adaptive supply chain network creates the following capabilities that, when combined, provide tremendous benefits (see Figure 2 for details). In adaptive supply chain networks, partners can:
- Plan and execute Partners can execute more accurate plans, use a single planning and execution data model and plan for capacity and execute for demand.
- Sense and respond Partners can forge deep connections with customers and partners, develop a 360-degree view of the business and practice distributed control and exception management.
- Learn and adapt With comprehensive analytical capabilities, partners can rapidly change existing processes and can introduce new processes and products quickly.
Getting Started
The Adaptive Supply Chain Network provides an integrated, end-to-end feedback loop that links planning and execution by design not after the fact; this provides supply chain partners with the ability to sense changes, respond immediately and adapt to new conditions with speed and precision.
Becoming adaptive is a journey that all customers must choose for themselves whether to take. It is a transformative journey that may require a commitment to a change in business strategy, business process, organization or all three before a change in technology will make a difference.
Regardless of a companys level of maturity, SAP can help it move toward becoming adaptive both with solutions and services.
For more information, please call us at 610.661.1000 or visit www.sap.com/solutions/business-suite/scm.
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Brown-Forman Corp., a leader in the wine and spirits industry, decreased global inventory by 23 percent, which resulted in a 21 percent increase in inventory turns. The company also maintained product availability at more than 99.9 percent, sustained a high service level with reduced inventory and minimized transportation costs by reducing the number of carriers from 140 to 35. In mySAP SCM, we believe we have a strong base to do the things that we want to do now and in the future.
LOreal Germany, the leader in the cosmetics industry, reduced inventory at customer sites by 50 percent, doubled inventory turns and improved customer relationships after implementing the SAP® Advanced Planning & Optimization (SAP APO) component of mySAP SCM. The strength of SAP APO is that it can be integrated into our existing SAP systems for all our internal and external processes. This way, the whole process chain can be optimized. This is a great advantage as we are always up to date on what our customers need.
Dow Corning Corp., a manufacturer of ceramics for the aerospace industry, insulators, semiconductor- grade materials, lubricants and other products, improved forecast accuracy by up to 25 percent (depending on the product). It also reduced inventory days on hand by up to 20 percent, significantly improving its customer satisfaction index. Colgate-Palmolive, the consumer products giant, improved on-time delivery and complete orders from 70 to 98 percent for replenishment in a vendor-managed inventory environment. It also improved customer order fulfillment rates to 95 percent and reduced cycle times from 62 days to 33 days for cross-border sourcing. ITT Industries Night Vision, a leading manufacturer of night-vision devices, reduced its planning cycle time from 10 days to less than three days, improved capacity utilization by 20 percent and reduced finished goods inventory by 19 percent. Porsche AG, the legendary auto manufacturer, increased visibility with a virtual warehouse that allows customers, dealers, importers and employees to locate spare parts from anywhere in the world at any time. Hylsa, one of Mexicos largest steel makers, shortened planning cycle time from three days to two hours, improved on-time and in-full delivery from 70 to 90 percent and reduced finished goods inventory by 16 percent. PalmOne lowered channel inventory by 32 percent, lowered cash-to-cash cycle time from 23 to 14 days and reduced planning cycle times by 50 percent. |
