Demand-driven Supply Chain with SAP IBP
- January 03, 2018
Just a few decades ago, supply chains and the expensive systems that ran them epitomized inefficiency, expense and risk. Operational centers and warehouses were geographically dispersed and technologically disconnected; software “bugs” were commonplace; vendors and suppliers exploited gaps; and disjointed legacy applications made certain that nothing along a company’s supply chain could ever be known with 100% certainty.
Today, supply chains have not only become longer, more complex and more global, but the businesses depending on them are facing fiercer global competition, an increasingly tumultuous global economy, stringent regulatory oversight; customers who expect genuine personalization; and mountains of big data ripe for predictive analysis.
To be sure, we’ve entered a new era for supply chains and the technologies that power them.
The road to Integrated Business Planning
Traditional supply chain planning approaches stem from the middle of last century and are dependent on extremely precise forecasts. The problem is that in today’s volatile business world exact predictions of demand are simply impossible, which is why forecasts for most products are more than 50% wrong.
The consequences of forecast-driven supply chains are dramatic: incorrect quantities are bought, produced or sent to the wrong locations. This in turn leads to high stocks while providing a poor service to the customer. Ultimately, a growing disconnect between supply and demand can sound a death knell for a business.
To improve synchronization of supply and demand, most companies adopted techniques such as Sales & Operations Planning. Developed in the 1980s, S&OP has been the standard of doing business for companies that run supply chains and has led to great improvements in efficiency and profitability.
However, too many companies view S&OP as a “supply chain-only” process, creating a “siloed” approach and giving rise to poor communication across internal departments and exacerbating the disconnect with various IT platforms in a company’s extended chain.
Over time, the focus of S&OP has shifted towards a better alignment and synchronization among the internal company functions and a better understanding of (and connection to) the external environment.
Enter Integrated Business Planning (IBP)
IBP is a model that enables greater planning accuracy and operational performance by aligning strategic planning, finance, supply chain, sales, marketing, and product development functions. It is this alignment that drives real corporate performance like earnings per share, operating margin, and working capital.
Integrated business planning software enables companies to better support their goals and targets by incorporating insights from a wider range of stakeholders. IBP differs from S&OP in that it doesn’t just align demand and supply, it aligns all the key functions – marketing, R&D, operations, logistics, finance, HR and even IT – into one company plan.
Often led by senior management, IBP is a monthly process that takes into account demand, supply, new product development, strategic projects, and financial plans to generate a single operating plan. When IBP is done right, it becomes the primary management process for running the entire business.
The goal of IBP is to tightly align and coordinate all players across the supply chain by offering real-time information on current demand and inventory levels to all supply-chain participants so that they can react quickly and effectively—by revising forecasts given to their own suppliers, for instance, or by altering production or distribution plans—when unexpected changes arise. This allows companies to optimize planning, procurement, production, inventory replenishment, and order delivery for better service, higher sales, and lower costs overall.
The IBP payoff
With IBP, companies can become more responsive to changing market conditions, minimize stockouts and lost sales, maintain lower inventory levels, sharply reduce the costs of expediting orders, and make far better use of their operating assets.
With integrated business planning software, strategies and technology, you can:
- Move supply chain data out of silos and make it available across your business
- Enhance your business plan with the input and intelligence of dozens of collaborators
- Involve multiple departments in discussions on lowering prices, adding features, entering new markets, and more
A strong integrated business planning process can help provide:
- Aligned financial and operations plans
- A formal cycle for proactive executive review and commitment
- Ownership and accountability in all areas and levels of the organization
- Sales, inventory, and production plans reviewed by all areas
- Goals focused on business performance
- Enhanced revenue, reduced operating expense and improved shareholder value
A study by Hitachi Consulting and Aberdeen Research found that with IBP, companies can achieve a nearly 50% reduction in the monthly forecast cycle and a 34% reduction in forecasting errors. In a 2012 study by PricewaterhouseCoopers, with IBP finance teams were spending 17% less time gathering data and 25% more time on analysis compared to their peers, and were delivering forecasts in less than half the time.
As reported in LogisticsViewpoints, after implementing IBP, an American steel company has improved its delivery performance from the low 60s to over 90%; their quoted lead times are now the shortest in the industry. They have saved millions of dollars in transportation ($8.9 million through less expediting) and warehousing (at least $5.4 million in excess storage avoided), reduced weeks of inventory by 12% (about a $20 million reduction in working capital), and improved throughput.
SAP IBP delivered by NTT DATA
Launched in 2014 and set to eventually replace SAP Advanced Planning and Optimization, or SAP APO, by 2025, SAP Integrated Business Planning (SAP IBP) is a next-generation planning application built on SAP HANA for cloud deployment that helps companies engage stakeholders across the organization in a truly integrated planning process that aligns their business to profitable solution. SAP IBP delivers a new paradigm of user experience and efficiency, leveraging real-time dashboards, advanced predictive analytics, interactive simulation, embedded social collaboration and Microsoft Excel-enabled planning tables.
Core components of SAP IBP include:
SAP IBP for S&OP — The ability to use different forecasting models, coupled with the ability to simulate various demand, supply and financial models, provides a holistic view of the entire supply chain network, including customers, suppliers, manufacturing and distribution units.
SAP IBP for Demand — A collaborative and consensus approach to predicting demand and working backward to ensure timely supply, enabling a demand-driven approach for short to medium term, when verifiable demand signals, such as confirmed sales orders, help supply chain planners to quickly adapt the supply.
SAP IBP for Response and Supply Planning — Simulates and evaluates different planning scenarios to strike a balance among demand, supply and capacity constraints, while taking into account the procurement, production, inventory and warehousing costs.
SAP IBP for Inventory — Enables complete modeling of the inventory network -from raw material supplier to the end customer - and all the logical supply chain links involved between them.
SAP Supply Chain Control Tower — A dashboard and analytics tool to provide real-time, end-to-end visibility of the entire supply chain of the company.
At NTT DATA, we understand the importance of software solutions and business networks in today’s dynamic supply chains. We also understand the need for an over-arching strategy that ensures full optimization and integration of all cloud-based and on-premise technology investments.
NTT DATA is trusted to manage some of the world’s largest and most complex supply chains, including global Ariba implementations. We have been recognized by both SAP and Ariba for our excellence.
Contact NTT DATA today to learn more about our experience and success in creating and optimizing demand-driven supply chains for the digital age.