White Paper - Leveraging SAP APO Capabilities for Improving SCOR Performance Attributes

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Leveraging SAP APO Capabilities for Improving SCOR

Performance Attributes 24-FEBRUARY-2014. VERSION 1.0. AMIT PARANJPE

Leveraging SAP APO Capabilities for improving SCOR Performance Attributes

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Contents

Executive Summary ............................................................................................................................... 3

SCOR Model .......................................................................................................................................... 3

Performance Attributes ........................................................................................................................ 4

Performance Metrics ............................................................................................................................ 4

SCOR – APO High Level Process-Module Mapping ............................................................................... 5

SCOR – APO Capability-Performance Attribute Mapping ..................................................................... 6

Detailed Module – Attribute Mapping.................................................................................................. 8

Demand Planning .................................................................................................................................. 8

Supply Network Planning ...................................................................................................................... 9

Production Planning/Detailed Scheduling .......................................................................................... 10

Global Available To Promise ............................................................................................................... 11

Concluding remarks ............................................................................................................................ 12

Future Scope of Research ................................................................................................................... 12

References used .................................................................................................................................. 12


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Executive Summary

As several organizations are looking to boost their supply chain efficiency, the need for such companies to look beyond plain vanilla Enterprise Resource Planning (ERP) tools is a mandate. Such traditional tools only help to a certain extent in managing data and providing more visibility. To rise on the technology curve, these organizations need to think about planning solutions which can streamline their production plans and can help in better demand-supply matching. Firstly, they need to define their business objectives and then think of IT solutions which can help them in achieving those objectives. Switching over to a planning solution like SAP Advanced Planning and Optimization (APO), incorporated with features like Demand and Supply management, will help these companies to build a more agile and responsive supply chain, along with enhanced customer satisfaction. This paper tries to explore the impact of an SAP APO implementation on the Key Performance Indicators (KPIs) of an organization’s supply chain. It uses the standard Supply-chain Operations Reference-model (SCOR), which is a process reference model developed by the management consulting firm PRTM, now part of PricewaterhouseCoopers LLP (PwC). This model has been endorsed by the Supply-Chain Council (SCC) as the cross-industry standard diagnostic tool for supply chain management. After describing the model and enumerating its benefits, the paper goes on to briefly explain the mapping of SAP APO to SCOR processes and how various SAP APO planning modules can have a beneficial impact on the performance attributes of an organization’s supply chain. This is followed by a more detailed exploration of how certain features within a particular module can positively impact SCOR level one performance metrics, which in turn improve upon a particular performance attribute of the organization’s supply chain. The main motive of this paper is to encourage a discussion on how implementation of SAP APO specifically and IT solutions in general can have a deep positive impact on an organization’s supply chain processes. This is meant to help an organization decide whether it wants to adopt a planning solution like SAP APO which can leverage its ERP data for planning purposes.

SCOR Model

According to the standard definition as given by the SCC, the SCOR® model provides a unique framework that links performance metrics, processes, best practices, and people into a unified structure. The framework supports communication between supply chain partners and enhances the effectiveness of supply chain management, technology, and related supply chain improvement activities. It consists of five basic processes of any supply chain, which is shown in Figure 1.


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Figure 1: SCOR Process Model

Following are the attributes and metrics featured in this model which provide a foundation on which organizations

can benchmark their current processes and based on which they can lead supply chain transformation initiatives.

Performance Attributes

A performance attribute is a group of metrics used to express a strategy. The SCOR model consists of five core

supply chain performance attributes: Reliability, Responsiveness, Agility, Costs and Asset Management.

1) Reliability: The Reliability attribute measures if the supply chain can reliably satisfy the demand by generating supplies based on available capacities. Metrics for the reliability attribute include: on time, the right quantity, the right quality. The SCOR KPI (level one metric) is Perfect Order Fulfillment. Reliability is a customer focused attribute.

2) Responsiveness: The Responsiveness attribute measures the speed with which the supply chain can

respond to the demand and thereby ensure a high customer service level. Examples include cycle-time

metrics. The SCOR KPI is Order Fulfillment Cycle Time. Responsiveness is a customer focused attribute.

3) Agility: The Agility attribute measures how a supply chain adjusts to external volatility in terms of demand

or procurements from vendors. Examples include non-forecasted increases or decreases in demand;

suppliers or partners going out of business; natural disasters and so on. The SCOR KPIs include Flexibility

and Adaptability. Agility is a customer-focused attribute.

4) Assets: The Asset Management Efficiency (Assets) attribute measures how well a supply chain utilizes its

various physical and financial assets. Example metrics include inventory days of supply and capacity

utilization. The SCOR KPIs include Cash to Cash Cycle Time and Return on Fixed Assets. Asset Management

Efficiency is an internally-focused attribute.

5) Costs: The Cost attribute measures the cost of operating for a supply chain. It includes various costs

related to labor, production, inventory and transportation costs. The SCOR KPIs include Cost of Goods

Sold and Supply Chain Management Cost.

Performance Metrics SCOR metrics are diagnostic metrics which help us in deriving quantitative measures for the various qualitative attributes of the supply chain.


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Organizational benefits which focused on the SCOR model include:

• Rapid assessment of supply chain performance

• Clear identification of performance gaps • Efficient supply chain network redesign and optimization • Enhanced operational control from standard core processes • Streamlined management reporting and organizational structure • Alignment of supply chain team skills with strategic objectives • A detailed game plan for launching new businesses and products • Systematic supply chain mergers that capture projected savings

SCOR – APO High Level Process-Module Mapping

SAP APO is a planning tool which is used to plan and optimize supply chain processes by making use of various

modules like Demand Planning (DP), Supply Network Planning (SNP), Production Planning and Detailed Scheduling

(PPDS) and Global Available to Promise (GATP). This paper covers DP, SNP, PPDS and GATP in its scope. Below

diagram shows a broad relationship between the planning features of the SCOR model and the corresponding

capabilities of SAP APO.

Figure 2: SCOR Performance Metrics


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Figure 3: SCOR - APO Process Mapping

SCOR – APO Capability-Performance Attribute Mapping

When businesses think of implementing SAP APO, sometimes it becomes very difficult to translate the product

capabilities and competencies into the resultant benefits accruing to the organization after implementing this tool.

As described above, SCOR performance attributes and metrics are recognized industry wide. There is a need to

map SAP APO capabilities to these metrics to demonstrate the true strength and potential of this set of tools; this

in turn will then bring about business transformation and improve the top and bottom line of the organization.

Below is a brief summary of how SAP APO modules can have a positive impact on supply chain KPIs of an

organization.


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Figure 4: APO - SCOR KPI Mapping

APO Demand Planning (DP): This module provides a platform for taking inputs from multiple stakeholders in the

organization to come out with a consensual forecast plan which is based on past demand history. It contributes to

a better demand-supply match for an organization and preventing stock-outs at warehouses/retail outlets. This in

turn directly and positively impacts Perfect Order Fulfillment, Supply Chain Flexibility and Adaptability, Cash to

Cash cycle time and reduction of overall costs.

APO Supply Network Planning (SNP): This module provides a midterm finite capacity plan which is accurate

enough to match demand while also ensuring optimum aggregate capacity utilization. This contributes directly and

positively to Cash to Cash cycle time, Order Fulfillment cycle time, Supply Chain Flexibility and Adaptability in terms

of managing upstream and downstream supply chain partners by taking into account their capacities and lastly,

reducing overall supply chain costs and Cost of Goods Sold (COGS).

APO Production Planning and Detailed Scheduling (PPDS): This module leads to a more short term plan with

better capacity utilization and a detailed scheduling which leads to a better throughput. This contributes directly

and positively towards Cash to Cash cycle time, Order Fulfilment cycle time and reduction of overall costs incurred.

SAP APO

Modules

APO Module

Capabilities

Supply Chain

Benefits

Direct Impact on SCOR Level 1

Metrics

SCOR Performance

Attributes


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APO Global Available-To-Promise (GATP): This module enables businesses to provide an order delivery

commitment date to customers. This helps in managing customer expectations better and delivering orders as per

the comfort of the production plan.

Detailed Module – Attribute Mapping

Now we will try to demonstrate in detail how each APO module contributes towards improving a SCOR

performance metric which in turn improves the performance attribute of the organization. We have enlisted

module capabilities which will impact a particular performance metric.

Demand Planning

Functionality Capability SCOR Level 1 KPI impacted SCOR Performance

Attribute

Demand Forecasting Generate accurate forecasts

to optimize inventory holding

Cash to Cash Cycle Time Supply Chain Asset

Management

Reduce Inventory holding

costs

Return on Working Capital

Collaborative

Demand Planning

Collaborate with external

supply chain partners for

inventory management

Upside Supply Chain

Flexibility, Downside

Adaptability

Supply Chain Agility

Lifecycle Planning Manage product phase ins and

phase outs

Cash to Cash Cycle Time Supply Chain Asset

Management

Promotions

Planning

Manage product promotions

to stimulate demand

Return on Working Capital Supply Chain Asset

Management Cash to Cash Cycle Time

APO DP improves Supply Chain Asset Management by rationalizing the amount of inventory that

needs to be maintained at various locations to fulfil customer demands. This functionality is essential

in a Make To Stock scenario.

APO DP also improves Supply Chain Agility through collaborative demand planning among supply

chain partners. This helps in reducing the Supply Chain bullwhip effect by reducing overall inventory

throughout the supply chain; Raw Material inventory (between supplier and manufacturer), Work In

Progress (WIP) inventory (between different manufacturing entities) and Finished Goods inventory

(between warehouse and retail customers).

APO DP also helps in lifecycle and promotion planning for various products. This allows a time bound

scaling up or scaling down of forecasted inventory depending on the product lifecycle and new

product introduction into the market.


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Supply Network Planning

Functionality Capability SCOR Level 1 KPI

impacted

SCOR Performance

Attribute

Demand Prioritization Prioritize customers, handle

critical rush orders

Perfect Order Fulfilment Supply Chain

Reliability

Ensure quick order turnaround

for key customer accounts

Order Fulfilment Cycle

Time

Supply Chain

Responsiveness

Safety Stock Planning Improve customer service level

by preventing stock outs


Time

Supply Chain

Responsiveness

Identify Source of

Supply Based on

Priorities or Quota

Arrangements

Manage in house or outsourced

multi-vendor material supply

based on various constraints


Time

Supply Chain

Responsiveness

Supply Chain Management

Cost

Supply Chain

Costs

Detailed Network Level

visibility with Order

Pegging

Peg RM, WIP and FG inventory to

customer orders, reduce

inventory in the network

Cash to Cash Cycle Time Supply Chain

Asset

Management

Return on Working Capital

Ensure timely delivery by

customer commit date


Reliability

Detailed Network Level

Planning

Optimize sourcing, inventory

storage, manufacturing and

transportation costs and times in

supply chain network


Costs

Supply Chain

Costs

Cost of Goods Sold


Time

Supply Chain

Responsiveness

Product Substitution Satisfy demand for a product by a

substitute product, customize

variants according to customer

needs

Downside Supply Chain

Adaptability

Supply Chain

Agility

Cash to Cash Cycle Time Supply Chain

Asset

Management Return on Working Capital

APO SNP can improve Supply Chain Reliability through Demand Prioritization and Order Pegging which

ensures On-Time Delivery in the right quantities.


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APO SNP can improve Supply Chain Responsiveness by reducing the order fulfilment cycle time to ensure

On Time Delivery.

APO SNP can generate a detailed manufacturing and distribution plan which helps in reducing overall

supply chain costs, the total cost of goods sold and in improving asset utilization through inventory

optimization. It enables an agile supply chain which can adapt quickly to upstream and downstream

changes.

Production Planning and Detailed Scheduling

Functionality Capability SCOR Level 1 KPI

impacted

SCOR Performance

Attribute

Optimize Non-

variable Set-up Time

Sequencing

Optimizing non-variable production set

up times


Time

Supply Chain

Responsiveness

Detailed Scheduling Second/minute/hour level shop floor

planning, reduce production costs and

times


Time

Supply Chain

Responsiveness

Cost of Goods Sold Supply Chain Costs

Campaign Planning Combine production orders of similar

products in order to optimize fixed set

up and storage costs


Time

Supply Chain

Responsiveness

Supply Chain

Management Cost

Supply Chain Costs

Return on Working

Capital

APO PPDS can help in improving Supply Chain Responsiveness by reducing the overall order fulfilment

cycle time.

APO PPDS helps in preparing a detailed production plan with optimized capacity utilization and at

minimum possible cost. It also helps in campaign planning (batch scheduling) to optimize cost and

resource utilization.


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Global Available To Promise

Functionality Capability SCOR Level 1 KPIs

impacted

SCOR Performance

Attribute

Availability Check with

Location

Substitution/Stock

Transport

Orders/Consignment

Stock in warehouse

Check product availability at

multiple locations, in-transit

stock, Vendor Managed

Inventory (VMI) stock to

provide customer commit

date


Reliability

Back Order Processing Provide new commit date for

delayed/past orders


Reliability

Reduce delayed delivery

penalty cost


Cost

Supply Chain Costs

Availability Check with

Product

Allocation/Product

Substitution

Ensure supply reliability by

allocating stock to customers


Reliability

Event Driven Quantity

Assignment

Provide commit dates based

on event triggers like changes

in stock situation


Reliability

APO GATP is used for order promising and providing the customer with a commit date in a Make To Order

scenario. This helps in improving On Time Delivery and perfect order fulfillment based on customer sales

orders.

APO GATP helps in inventory optimization by consuming idle inventory, thereby preventing an

unnecessary build up throughout the network.


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Conclusion

This paper gives a brief outline of the SCOR model and the organizational benefits which can accrue by focusing on this model. It then goes on to bring out the tangible benefits of implementation of SAP APO on an organization’s supply chain in terms of the SCOR defined performance attributes. This paper is intended to generate curiosity about SAP APO among the IT departments. For those organizations which have already implemented or are in the process of implementing SAP APO, this paper tries to make them realize the full potential of this investment. They can use this paper to fully realize and demonstrate to the higher management, the positive impact of APO implementation on business KPIs. Organizations are now increasingly focusing on SCOR cards which give a holistic picture of the entire supply chain performance.

Future Scope of Research

This paper serves as a starting point towards delineating the benefits of SAP APO implementation by mapping its

capabilities to an industry standard benchmark, the SCOR framework. Further research will be undertaken later to

study the detailed impact of SAP APO on level two and further levels of SCOR performance metrics. In-depth

industry specific process mapping and defining industry specific operational metrics will be taken up in detail. The

current analysis of strategic higher level metrics will be further extended to drill into lower level tactical and

operational metrics.

References

1) Supply Chain Council website - http://supply-chain.org/scor

2) Wikipedia SCOR model description - http://en.wikipedia.org/wiki/Supply- chain_operations_reference

3) SCOR 10.0 Performance Metrics - http://supply-chain.org/node/13736

4) Bristlecone NOW series Process maps

http://supply-chain.org/scor

http://en.wikipedia.org/wiki/Supply-%20chain_operations_reference

http://supply-chain.org/node/13736

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White Paper - Leveraging SAP APO Capabilities for Improving SCOR Performance Attributes