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Becoming Adaptive
San Jose Business ForumsMarch 10th, 2005
New Rules, New Tools
Variability & Its CostSupply Chain Planning & Diminishing ReturnsDriven by Demand: Becoming AdaptiveSAP Solutions to Support an Adaptive Business
Variability & Its CostSupply Chain Planning & Diminishing ReturnsDriven by Demand: Becoming AdaptiveSAP Solutions to Support an Adaptive Business
SAP AG 2005, Chris Foti & Matt Cook / 4
Demand Variability Increases with Time
Time
Sale
s
Sales Forecast
Sales Forecast
Sales Exceed Forecast
Sales Fall Short
Actual Sales Volume
Prob
abili
ty
SAP AG 2005, Chris Foti & Matt Cook / 5
•SKU•Key Account•Day
Demand Variability Increases with Granularity
Time
Sale
s Sales Forecast
Granularity
•Product Group•Distribution Center•Week
•Brand•Region•Month
•Business Unit•National•Quarter/Annual
SAP AG 2005, Chris Foti & Matt Cook / 6
Demand & Supply Variability are Additive
Sales Forecast
Sales Exceed Forecast
Sales Fall Short
Actual Sales Volume
Prob
abili
ty
Supply Plan
Short Stock
Excess Stock
Actual Supply
Prob
abili
ty
Plan
Lost Sales
Prob
abili
ty
Obsolete Inventory
Supply Variability
Supply Variability
Demand Variability
Demand Variability
Future Uncertainty
Future Uncertainty
SAP AG 2005, Chris Foti & Matt Cook / 7
Compensating for Variability
Time50%
90%
95%98%99%
Target Service Level
Extra Inventory
Extra Resources
Extra Inventory
Extra Resources
Extra Inventory
Extra Resources
Extra Inventory
Extra Resources
Extra Inventory
Extra Resources
99.9%
Planned Inventory
Planned Resources
Variability & Its CostSupply Chain Planning & Diminishing ReturnsDriven by Demand: Becoming AdaptiveSAP Solutions to Support an Adaptive Business
SAP AG 2005, Chris Foti & Matt Cook / 9
Demand Variability and Process Focuson
she
lf av
aila
bilit
y
time
VMI Process
1 Day 1 Week 1 Month 1 Quarter
Sales & Operations Planning Process
Execution
Event Management
Responsive Replenishment
Time
Sale
s
Sales Forecast
Granularity
SAP AG 2005, Chris Foti & Matt Cook / 10
Diminishing Returns or Quantum LeapSu
pply
Cha
in
Effe
ctiv
enes
s
Time
Inflection Point: Focus on Planning
Inflection Point: Demand Driven (Adaptive)
1985 – 2005: The age of Advanced Planning
The Retailer ReignsGrowth was GlobalRetail was Constrained! Mantra: Plan & Collaborate! Metric: Forecast Accuracy
1940 – 1985: The era of Taylor & Galbraith
Brand was BossGrowth was GivenMfg. was Constrained! Mantra: Mfg. Efficiency! Metric: Cost/Time per unit
2005 – 2010: The return of Deming & Goldratt
The Consumer is KingGrowth from InnovationGlobal Overcapacity! Mantra: Consumer Driven! Metric: Responsiveness
Variability & Its CostSupply Chain Planning & Diminishing ReturnsDriven by Demand: Becoming AdaptiveSAP Solutions to Support an Adaptive Business
SAP AG 2005, Chris Foti & Matt Cook / 12
What Analysts Say
Analyst Views on DDSN(Emphasis Added)
The key to profitable growth is to evolve the enterprise into a DDSN. With a DDSN, companies switch from a push method of moving product, based on incomplete or inaccurate demand information to a pull method, based on responding quickly to real-time demand signals…Industry winners will be the first to build DDSN-based foundations that enable them to be agile, quick, and innovative in responding to consumer needs.
Consumer Products Industry Outlook: Profitable Growth Requires DDSN StrategiesAugust, 2004
We call this philosophy real-time, demand-driven SCM, and we expect many SCM projects to fail unless their strategies are driven by these processes. This isn’t an entirely new idea, but it is a complete and understandable way for supply chain professionals to communicate a complete view of SCM and encapsulate an SCM vision that’s comprehensive to more-casual users.
By 2007, 50 percent of the Fortune 500 companies that don’t have demand-driven supply chain strategies will fail in their SCM initiatives (0.6 probability).
Predicts 2005:SCM Strategies for Business Applications
November 2004
SAP AG 2005, Chris Foti & Matt Cook / 13
What is an Adaptive Business Network?
Adaptive Supply Chain Networks
New Product Development & Introduction
Design & Engineering Integrated Sales & Marketing
Adaptive Manufacturing
Service Management
Lifecycle Data Management
Sourcing & Procurement
NETWORKSuccessful business harness a network of tiered suppliers, distributors and customers…
BUSINESS…in order to develop, manufacture, and sell products into the market…
ADAPTIVE…by sensing the needs of the market and responding with the capabilities of the network.
SAP AG 2005, Chris Foti & Matt Cook / 14
What is Real World Awareness?
Adaptive Supply Chain Networks
New Product Development & Introduction
Design & Engineering Integrated Sales & Marketing
Adaptive Manufacturing
Service Management
Lifecycle Data Management
Sourcing & Procurement
Variability & Its CostSupply Chain Planning & Diminishing ReturnsDriven by Demand: Becoming AdaptiveSAP Solutions to Support an Adaptive Business
SAP AG 2005, Chris Foti & Matt Cook / 16
SAP Solutions Support an Adaptive Business Network
Adaptive Supply Chain Networks
New Product Development & Introduction
Design & Engineering Integrated Sales & Marketing
Adaptive Manufacturing
Service Management
Lifecycle Data Management
Sourcing & Procurement
TPM
CR
M
SD
APO
-DP
ICH-RR
ICH-SMI
EM
AM
xPDxRPM
MM
EH&SRM
SRM
APO-SNP
APO-PP/DS
cFolders cProjects
APO-gATPLES
eWMS
BI SEM
AIIMDM MIXI
PP
FI
SAP ERP
SAP SCM
SAP CRM
SAP SRM
SAP xApps
SAP NetWeaver
SAP AG 2005, Chris Foti & Matt Cook / 17
Materials Management
Production Planning
Sales & Distribution
Warehouse Management
Master Data Management
Exchange Infra-
structure
Advanced Planning & Scheduling
Enterprise Portal
Business Intelligence
SAP NetWeaverSAP ERP
SAP SCM
Supplier Relationship Management
Point of Sale Data
Mangement
Auto-ID Infra-
structureEvent
Management
Technology Roadmap: Building Critical ASCN Capabilities
Respond
SAP SRM
SAP AG 2005, Chris Foti & Matt Cook / 18
DDSN Process Roadmap
Step 2 Focus on integration of planning and execution
processes
Step 3 Focus on
integration with strategic partners
Step 1Focus on transactional
and Integration backbone
BWBW
ERPERP
Demand & Supply
Planning
Demand & Supply
Planning
S&OPS&OP
Fcst & Promotion CollaborationFcst & Promotion Collaboration
DesignCollaboration
DesignCollaboration
Integr.Portfolio Mgmt& Product Definition
Integr.Portfolio Mgmt& Product Definition
SharedScorecards
SharedScorecards
MRPMRP High Level Capacity PlanningHigh Level Capacity Planning
Distribution &Transport. Pl.
Distribution &Transport. Pl.
Production Planning
Production Planning
VMIVMI Responsive ReplenishmentResponsive Replenishment
Supplier Inventory CollaborationSupplier Inventory Collaboration
Demand Driven S&OP
Demand Driven S&OP
Distr. ManufacturingDistr. ManufacturingMasterDataMgmt
MasterDataMgmt
POS AnalyticsPOS Analytics
Project, Resource& Cost Mgmt
Project, Resource& Cost Mgmt RFIDRFID
Integrated New Product Development& Introduction
Integrated New Product Development& Introduction
Brand ManagementBrand Management
Global DataSynchronisation
Global DataSynchronisation
Trade Promotion ManagementTrade Promotion Management
Customer ServiceCustomer Service
Category ManagementCategory Management
Sales Force ManagementSales Force Management
Digital Asset ManagementDigital Asset Management
Consumer InsightsConsumer Insights
Retail ExecutionRetail Execution
Campaign MgmtCampaign Mgmt
Strategic SourcingStrategic Sourcing
Integrated Sales & Marketing
Demand Driven Supply Network
New Product Development & Intr.
SAP AG 2005, Chris Foti & Matt Cook / 19
DDSN Process Roadmap - Advanced Energy
Step 2 Focus on integration of planning and execution
processes
Step 3 Focus on
integration with strategic partners
Step 1Focus on transactional
and Integration backbone
BWBW
ERPERP
Demand & Supply
Planning
Demand & Supply
Planning
S&OPS&OP
Fcst & Promotion CollaborationFcst & Promotion Collaboration
DesignCollaboration
DesignCollaboration
Integr.Portfolio Mgmt& Product Definition
Integr.Portfolio Mgmt& Product Definition
SharedScorecards
SharedScorecards
MRPMRP High Level Capacity PlanningHigh Level Capacity Planning
Distribution &Transport. Pl.
Distribution &Transport. Pl.
Production Planning
Production Planning
VMIVMI Responsive ReplenishmentResponsive Replenishment
Supplier Inventory CollaborationSupplier Inventory Collaboration
Demand Driven S&OP
Demand Driven S&OP
Distr. ManufacturingDistr. ManufacturingMasterDataMgmt
MasterDataMgmt
POS AnalyticsPOS Analytics
Project, Resource& Cost Mgmt
Project, Resource& Cost Mgmt RFIDRFID
Integrated New Product Development& Introduction
Integrated New Product Development& Introduction
Brand ManagementBrand Management
Global DataSynchronisation
Global DataSynchronisation
Trade Promotion ManagementTrade Promotion Management
Customer ServiceCustomer Service
Category ManagementCategory Management
Sales Force ManagementSales Force Management
Digital Asset ManagementDigital Asset Management
Consumer InsightsConsumer Insights
Retail ExecutionRetail Execution
Campaign MgmtCampaign Mgmt
Strategic SourcingStrategic Sourcing
Integrated Sales & Marketing
Demand Driven Supply Network
New Product Development & Intr.
SAP AG 2005, Chris Foti & Matt Cook / 20
Advanced Energy
Adaptive Supply Chain Networks
New Product Development & Introduction
Design & Engineering Integrated Sales & Marketing
Adaptive Manufacturing
Service Management
Lifecycle Data Management
Sourcing & Procurement
TPM
CR
M
SD
APO
-DP
ICH-RR
ICH-SMI
EM
AM
xPDxRPM
MM
EH&SRM
SRM
APO-SNP
APO-PP/DS
cFolders cProjects
APO-gATPLES
eWMS
BI SEM
AIIMDM MIXI
PP
FI
SAP ERP
SAP SCM
SAP CRM
SAP SRM
SAP xApps
SAP NetWeaver
SDMM
BI
PP
SAP AG 2005, Chris Foti & Matt Cook / 21
SAP AG 2005, Chris Foti & Matt Cook / 22
Advanced Energy Industries
Power Management Flow Management Thermal Management
Source Technology Data Management
Value-added supplier of custom components and subsystems critical to plasma-based manufacturing processes.
SAP AG 2005, Chris Foti & Matt Cook / 23
Advanced Energy’s Key Markets
Semiconductors Data Storage Flat Panel Display
SAP AG 2005, Chris Foti & Matt Cook / 24
Advanced Energy: Blue Chip Customers
SAP AG 2005, Chris Foti & Matt Cook / 25
Global Infrastructure
Global officesFort Collins, CO Headquarters Distributors
SAP AG 2005, Chris Foti & Matt Cook / 26
AE’s Strategic Imperatives
Increase Gross Margin
Increase Cash Flow
Creating value for shareholders
"Potential to increase gross margin as a result of the proposed solution and the underlying benefits1
"Potential to increase operating margin
"Significant improvement in on-time delivery due to improved forecasting, and improved collaboration with suppliers
Improve On-Time Delivery
"One time cash in-flow due to reduction in inventory levels
"Annual increase of operating cash flow
AE Strategic Needs
Source: Discussion with AE executives
SAP AG 2005, Chris Foti & Matt Cook / 27
Problem & Process to resolve
What was wrong:
Supply Chain Complexities and Problems
Partnership with SAP:
Value Engineering
Outcome:
Specific projects for Supply Chain Efficiencies and sub projects to complement the ultimate solution
SAP AG 2005, Chris Foti & Matt Cook / 28
Three Categories of Pain Points Examined
Pain Point Categories
Functional Areas
"Engineering Change Management"Manufacturing and fulfillment1"Quality Management"Demand Management" Inventory & Supply Planning"Production Planning"Commodity Management &
Procurement"Data and Document Management"CAD Integration"New Product Introduction (NPI)" Transportation Planning
Note 1: Only partially achievable with current footprint. Global ATP capability is a part of SCM solution
SAP AG 2005, Chris Foti & Matt Cook / 29
Pain Points Addressable with Current Systems
• Leverage SAP Quality Management
• FLT based model
• ATO will still remain a challenge
• Leverage SAP ECR/ECO Management
• SAP Superusers• Better Training
SAP Solution
" Make-to-Stock based supply model is matched with demand signals with lower lead time causing execution challenges across the operations
" Inventory inaccuracy issues and expedited customer order leads to last minute changes in the floor
" Many Engineering Change Orders to manage
Manufacturing and Fulfillment
" SPC data is collected in separate system" RMA process is very manual and takes several resources to complete" Costs can be reduced via integrated system
Quality Management
" Cumbersome standalone processes" Numerous changes in backlog " ECOs Process Time Reduction" Purchasing buying materials from more expensive suppliers due to duplicate part numbers" End-of-Life process for products" The Product Data Management System is homegrown –efficient for what is needed, but to
grow should be migrated into enterprise system
Engineering Change Management
" Processes are dependent on ‘Tribal knowledge’ and individual business acumen" Silos and disjoined business practices rather than a synchronized decision support system " Dissatisfaction with SAP GUI and its usability" Perceived inadequate training in SAP has caused discontent with the SAP system
General
Observations Areas
Source: AE Interviews
SAP AG 2005, Chris Foti & Matt Cook / 30
Pain Points that Require Additional Solutions
PLM: Product Data ad Document Management
PLM: Product Document Management
Supplier Strategy and Operational Procurement
Production planning and scheduling
SNP: Optimal Planning and Inventory Planning
Demand Planning/ Management
SAP Solution
" Slow “Available/Capable to promise”" material expediting expenses" No what-If simulation planning and scheduling capabilities for new products
Production Planning
" Disparate document managementDocument Management
" Engineering purchasing, proliferation of supplier population and supply chain" Numerous manual processes" Process and data inconsistencies for US suppliers vs. Asian suppliers – effect of “tribal knowledge”" Not able to leverage the volume discount" MRP cycles are too frequent, creating unmanageable worklist and exceptions" Upon communication from the suppliers buyers do not systemically change the PO due dates
Commodity Management & Procurement
" No simulation or what-if capabilities" Manual inventory strategies for optimal planning" Lack of modeling capabilities for the entire supply chain model" Inability to model globally; i.e. perform demand supply matching with all the pertinent constraints
Inventory and Supply Planning
" No systematic information sharing with suppliers" Product structure exists in several tools (homegrown PDM, SAP, others), makes sharing difficult" Suppliers not sharing IP with Advanced Energy; AE needs to own the IP or they cannot replicate product
with new supplier
Collaboration
" Lack of any statistical model in forecasting and no Sales and Operations Planning" Inability to use historical consumption (forecast netting)" Inability to evaluate the quality of forecast from any level or any perspective" Forecast (grass roots to consensus) cycle time
Demand Management
Observations Areas
Source: AE Interviews
SAP AG 2005, Chris Foti & Matt Cook / 31
Pain Points Not Addressed Through the Proposed Solution
SCM Solution
PLM Solution
PLM Solution
SAP Solution
" Lack of planning tool to account for constraints in stocking assets" Inability to model what-if scenarios with considerations of lead time, cost, and service level
Transportation Planning
" No central repository for all project data" Lack of rigorous Program or Portfolio ManagementNPI
" Manual integration processes with CAD systemsCAD
integration
Observations Areas
Source: AE Interviews
SAP AG 2005, Chris Foti & Matt Cook / 32
Three Categories of Pain Points Examined
Requires Additional Solution
Not Addressed Through Proposed Solution
Addressable with Current Systems
Pain Point Categories
Functional Areas
"Engineering Change Management"Manufacturing and fulfillment1"Quality Management
"Demand Management" Inventory & Supply Planning"Production Planning"Commodity Management & Procurement"Data and Document Management
"CAD Integration"New Product Introduction (NPI)" Transportation Planning
Note 1: Only partially achievable with current footprint. Global ATP capability is a part of SCM solution
SAP AG 2005, Chris Foti & Matt Cook / 33
PRODUCT LIFE CYCLE MANAGEMENTDesign Collaboration (cFolders)Change and Configuration Management (LCDM)Document and Product Structure Management (ERP)Quality Engineering (ERP)
Transportation PlanningSupply Chain VisibilitySupplier Portal (Supplier Self Service)CAD Integration PLM Program ManagementStrategic Enterprise Management
SUPPLIER RELATIONSHIP MANAGEMENTStrategic Sourcing (Spend analysis, RFX, Auction)Catalog ManagementOperational Procurement (Self Service)
SUPPLY CHAIN MANAGEMENTDemand Planning (Forecasting & S&OP)Supply Network Planning and Inventory ManagementProduction Planning and Detailed SchedulingGlobal ATP
Overall *User Acceptance
GapValueAreas Evaluated
Solution Prioritization
* Criteria Weighting: Value (30%), Gap (30%), User acceptance (40%)High Low
Priority
Solution not proposed due to low priority
SAP AG 2005, Chris Foti & Matt Cook / 34
Supply Chain Management: Key Issues & Solutions
! Demand Management" Lack of planning and simulation flexibility" Lack of visibility into forecast accuracy" Lack of statistical modeling capability to account
for factors like options and features etc" Inability to accurately predict demand" Inability to evaluate the forecast from any level
or any perspective" Inability to evaluate multiple alternatives" Inability to Generate Alert" Inability to manage the “significant few” versus
the “trivial many”! Inventory Management
" Lack of planning flexibility" Lack of inventory strategies to be optimized
towards safety stock levels" Extended Lag time of new process Enablement" Inability to streamline updates of information
within planning levels" Lack of modeling capabilities for entire supply
chain model" Lack of ability to plan at aggregate levels" Lack of visibility of stock-in-transit" Lack of consistent plan" Low accuracy of replenishment" Lack of time-dependent constraints to be
modeled easily
! Forecasting" mySAP APO - Demand Planning: Enables supply
chain partners to forecast and plan demand, considering historical buying and selling behavior, market intelligence, and sales objectives. The demand is profitably matched to supply to maximize return on assets in consideration of operational constraints; updates and synchronizes plans based on the dynamic exchange of information; and allows manufacturers to derive total supply chain production requirements and to publish results to all members of a supply chain.
! Supply Planning" mySAP APO- Supply Network Planning: The Supply
Network Planning solutions made possible by SAP APO support and enable the generation of an organizational demand plan and the subsequent creation of production, distribution, warehousing, and transportation plans across your entire organization’s supply network.
! Production Planning" mySAP APO Production Planning: The Production
Planning and Detailed Scheduling (PP/DS) component of SAP APO is an integrated set of tools that helps you respond rapidly to changing market conditions. Using this component, you can plan and optimize production while taking into account product and resource availability. The component improves performance using state-of-the-art methods and optimization libraries.
SAP Solution EnablersPain Points
SAP AG 2005, Chris Foti & Matt Cook / 35
DPSS Methodology
Demand Planning Service Select Methodology! Designed to be implemented in 14 weeks! Pre-configured system used as beginning point! Allows some client customization within guidelines! Based upon SAP’s ASAP Methodology
Phases! Project Preparation ! Translate / Tailor ! Validate! Go-Live and Support
SAP AG 2005, Chris Foti & Matt Cook / 36
Demand Planning Timeline
Feb Mar MayApr
2005
Project Preparation
Demand Planning
Delay due to hardware delivery
Translate / Tailor
Validate
Final Prep & Go-live
Support 3rd quarter process
Jun AugJul Sep OctJan
SAP AG 2005, Chris Foti & Matt Cook / 37
Demand Planning Vision
Single forecast owner (Generally Sales and Marketing)
Single forecast – adjustments to sales need to be made at product / customer level
Consensus forecast of multiple views of forecast! Marketing! Statistical! Sales
Emphasize the forecasting process – accuracy will follow! Good work flow! Ownership! Simplified tools! Monthly forecast! Forecast volume at highest level that is practical
# Hierarchy level with disaggregation# Material Number when necessary
SAP AG 2005, Chris Foti & Matt Cook / 38
Old Versus New Process
Rollup
Reference data
Statistical Forecast
Single forecast
Frequency
Level of detail
QSR
Interlock Spreadsheet
Task / Event
Automatic rollupManual rollup
Sales history, statistical forecast, prior period consensus forecast, backlog, marketing forecast, adjustments
Sales history & backlog – manually extracted
Predicated on accurate historySystem will create statistical forecast
None – sales person reviews history and creates forecast
Sales forecast changes must be made at customer / material level
QSR (MSR) and interlock become same forecast
Interlock becomes input to QSR, changes to QSR not integrated back into interlock
Need to establish within week update process
Monthly – entire process
Weekly updates
Quarterly
Forecast at best known level, use history to disaggregate down to material number – ability to override disaggregation percentages / material number volume
Material number level
Will become monthly, currently includes many summary tables, graphs, design wins & account strategy
Data maintained online – accessible via intranet
Manually created
Can be downloaded to be worked off-line – updated forecast can be pasted into online tool
Maintained online – data automatically extracted from BW –accessible via intranet
Manually created
CommentsProposedCurrent
SAP AG 2005, Chris Foti & Matt Cook / 39
Old Versus New Process
Monthly with quarterly rollupBeen monthly, but moving to quarterly
Time Periods
MFC’s
Workflow order
Workflow
Alerts
Forecast accuracy
Cost
Average Selling Price
Task / Event
Requires changes to BWSales history at Model / Fitting level and then forecast made at Model / Fitting level
Sales history at material number level and then forecast made at Model / Fitting level
Statistical forecast first, marketing and production update then sales review and then meeting
Sales person makes forecast first then marketing review takes place later in meetings
Intranet update – much of consensus process can take place prior to meeting
Pass spreadsheets and meetings
Identify sales vs forecast exceptions
Identify forecast adjustments
Manual
Will be measured for multiple forecasts – consensus, statistical, & marketing
Not measured
Automatically extracted from BW
Can be updated at material number level
Not included in process, done separately in Margin management
Automatically extracted from BW
Can be updated at material number level
Manually added to spreadsheets –extracted from BW
CommentsProposedCurrent
SAP AG 2005, Chris Foti & Matt Cook / 40
Final Objectives and Benefits
•One set of numbers
•Improved forecast accuracy
•More responsive forecast
•More accurate information
•Reduced resource usage
•Reduced cycle time
•Ability to have more frequent forecasts
•Reduced effort
•Improved accuracy
•Eliminate forecast bias
•More focus on the importance of the forecast
•Earlier identification of problems
•Single forecast
•Monthly forecasting
•Discipline around weekly updates
•Improved consensus work flow / reduced manual effort
•Statistical forecast integrated with marketing and sales information
•Forecast accuracy reporting
•Forecast alerts
BenefitObjective
=More Accurate Forecast
=Greatly Reduced Inventory
SAP AG 2005, Chris Foti & Matt Cook / 41
Thank You.