Wells SAP Insider 2006

Supporting Sales
and Operations
Planning with
mySAP SCM

Arnold Mark Wells CPIM
SAP America

Supporting Sales and
Operations Planning
with mySAP SCM
Arnold Mark Wells CPIM
SAP America

Sales & Operations Planning (S&OP) Adds Value
Thought Leadership in S&OP
An Integrated Process Requires an Integrated Footprint
Aligning Business Functions
How It Should Look
Customer Examples
Helpful Enhancements
Conclusion

S&OP Adds Value

S&OP Check-up
 Have mergers & acquisition activities resulted in
duplications and inefficiencies?

 Are supply planning and demand planning isolated functions

?
from each other . . . from sales, procurement, logistics or
finance?

 Do you optimize supply chain plans for profit?

 Are inventory turns flat or decreasing?

 Is inventory increasing as a percent of sales?

 Are significant stocks sold off through deep discounts or
written off at the end of the year?

 Are capacity or material constraints are making it difficult to
allocate and schedule supply?

 Is your return on assets flat or trailing the industry leaders ?

 SAP AG 2006, 4

S&OP Adds Value

(Best-in-Class)

Class A B C D

Customer Service 26% 18% 13% 8%

Productivity 20% 13% 9% 5%

Purchasing Costs 13% 9% 6% 4%

Inventory Levels 30% 21% 13% 8%

Source: Oliver Wight

 SAP AG 2006, 5

Oliver Wight Recommends a Balanced Approach

Requires
focus,
People alignment,
and engagement
throughout the
company
Class A
Processes Technology

 SAP AG 2006, 9

Oliver Wight: S&OP is Integrated Business Management

Overview of Steps In the Process

Management
Business
Review
Latest View &
Recommendation

Strategy
Business Plan New Product/
Supply Performance
Activities
Review Review

Demand
Review

 SAP AG 2006, 11

Success Depends Upon a Closed Loop Process – Not Just Planning

Whereas in the past, this S&OP cycle would consist of an annual and quarterly
planning process and a periodic — monthly and quarterly — review and performance
report, the volatility of the new marketplace demands a structural change in the
process, based on:

 Testing the validity of the plan assumptions themselves, as much as analyzing
performance against the plan

 Developing the frequency and level of granularity of the performance measurement
based on decision importance — no fixed periodic review of everything — no “peanut
butter” approach

 Much greater emphasis on the “why” rather than just the “what” of what has happened —
does this indicate a trend, a blip, an anomaly, etc — and what to do about it

 Much more frequent and systematic testing of pilot initiatives with sharply focused
interpretation of the results based on viral deployment strategies — the enterprise
cannot afford to “bet the farm” on a single, all embracing thrust

Source:
Best Practices in S&OP
June 2005
 SAP AG 2006, 13

Analyst View – Bottom Line Impact

S&OP practices are a prime determinant of business performance
and competitiveness

100%
90%
80%
Current % performance

70%
Laggard
60% Industry norm
50% Best-in-class
40%
30%
20%
10%
0%
Complete order % Gross margin % Customer
fill rate retention
Performance Metric
Source:
The Sales and Operations Planning Benchmark Report“
Leveraging S&OP for Competitive Advantage”
 SAP AG 2006, 15

Analyst View - S&OP Enables Demand Driven Supply
Networks

S&OP is a cornerstone of DDSN leaders’ initiatives
Companies with immature processes question the effort. Companies in Stage I of the
DDSN model capabilities questioned the benefit of the S&OP process on the bottom line.
While they could see the potential of their future process, their S&OP processes were
plagued with limited cross-functional support, poor attendance at the consensus meetings,
and a lack of executive sponsorship.
Companies with mature processes never question the effort. None of the companies
with Stage III or Stage IV DDSN capabilities questioned the impact of the process
improvement on the company’s bottom line, with five companies sharing that the process
“paid for itself, and then some, every month.”
Mature processes generate substantial business returns. Seven companies interviewed
stated that the impact on the bottom line was within 6 months with a project payback of 9 to
12 months.

Sales and Operations Planning: A Cornerstone of DDSN Leadership
July 2005
Lora Cecere, Debra Hofman, and Guy Dunkerley

 SAP AG 2006, 17

SAP View: Fully Integrated, Closed-Loop Process

All five steps of the process are integrated
1. Strategic Planning
 Market Planning
 New Product Planning 2. Demand Planning
 Resource Planning  Quantitative Forecasting
 Alignment to Corporate Goals  Sales, Marketing Input
 Margin Management  What-if Analysis
5. Management  Orders/Demand Balancing
Evaluation & Analysis  Consensus
 KPI Measurement
 Plan vs. Actual
 Forecast error
 Root Cause Analysis

4. Supply/Demand Balancing 3. Supply Planning
 Capacity Planning
 Product Mix
 Inventory Planning
 Constraint Management
 Procurement Planning
 What-if Analysis
 Logistics
 Allocation of Demand to Supply
 Consensus

 SAP AG 2006, 19

 SAP AG 2006, 21
 SAP AG 2006, 21

S&OP: Major Process Steps Supported by SAP Software

1. Strategic Planning
 Strategic Enterprise Management (SEM)
5. Management Evaluation & Analysis  Business Intelligence - Business
 Supply Chain Analytics and Visibility (Supply Warehouse – Business Planning &
Chain Performance Management – SCPM) Simulation (BW – BPS)
 APO Demand Planning (DP)
 BW – CRM Analytics
 Event Management (SCEM)
 Pricing and Margin Management
(Vendavo®)

2. Demand Planning
 APO Demand Planning (DP)
 Supply Chain Event
Management (SCEM)

4.Supply/Demand Balancing
 APO Demand Planning (DP) 3. Supply Planning
 APO Supply Network Planning
 APO Supply Network Planning (SNP)
(SNP)
 Supply Chain Event Management (SCEM)
 Supply Network Collaboration (Inventory
Collaboration Hub – ICH)

 SAP AG 2006, 22

The Same Data, But from Different Perspectives

All departments can see the same data at the same time from their
own perspective
Customers and Channels
Product Families and Brands

Products
and Sources
Marketing
Products and
Sales Destinations

Supplier Customer

Products, Sources,
Capacity & Destinations Revenues, Margins
& Working Capital

Manufacturing
& Logistics Finance
 SAP AG 2006, 29

S&OP: Start With Demand

The evidence is clear that the areas most likely to generate the greatest
improvement in total S&OP business performance occur when you tackle
the demand component of the demand/supply alignment. This is . . . due
to the . . . fact that no amount of added flexibility and adaptiveness
invested on the supply side can offset an ineffective demand
management capability.

Source:

Best Practices in S&OP
June 2005

 SAP AG 2006, 31

Sales & Operations Planning (S&OP) Adds Value
Thought Leadership in S&OP
An Integrated Process Requires an Integrated Footprint
Aligning Business Functions
How It Should Look (Offline Demonstration)
Customer Examples
Helpful Enhancements
Conclusion

We have already been through the demand
planning process of anticipating market
requirements from all of the best perspectives
(sales, marketing, customer, quantitative, etc.).
Here we are looking at the supply picture and
automatically highlighting issues that need to b
addressed, relative to various demand scenario
(expected forecast, high side forecast and
another simulation forecast).

The data in APO can be directly read by BW to
create information in other formats.

 SAP AG 2006, 34

Now we have moved into Demand Planning
where we can see the margin impact of various
demand outcomes. We will make a selection o
data based on the relevant characteristics.

We can see the quantity forecast, revenue,
contribution margin, earnings before interest and
taxes (EBIT), and even Economic Value Added
(EVA) for three demand possibilities. The
Simulation Total FCST 1 allows us to make
changes to the forecast outcome and immediately
see the impact. In this selection, we are viewing
the data for all countries, a particular sales
channel and a particular product group.

We need to have the ability to drill down and
aggregate up to the appropriate, meaningful level
within each characteristic of dimension.

Sliding over, we can view the Brand
characteristics of dimension.

And select the brand that we want to see. For
example, if we are the brand manager for the
Luxus brand, we would need to see the data as it
impacts the Luxus brand.

We can also bring our supply plan information
into the same view . . .

And quickly view the contribution margin of the
three demand scenarios.

 SAP AG 2006, 44

Or, the high level forecast by plant
or any other selection of data that
puts it in the terms of the relevant
S&OP stakeholder.

 SAP AG 2006, 45

Here we have made a change to the selection of
data so that we are viewing all brands.

We have also simulated the impact of a
significant demand spike in week 6.

And, quickly graphed the impact on contribution
margin.

Borealis

CUSTOMER OBJECTIVES & PAIN POINTS
 Must have high capacity utilization
 Streamline planning & control process and move from
fire-fighting to predictable operations
 Demand planners spend 80% time on unplanned
demand
Borealis is a € 4 billion supplier
of bulk polyethylene and  Excess inventory
polypropylene plastic resins
serving the auto, packaging, SAP SOLUTION
pipe and appliances industry.
 mySAP SCM APO integrated with R/3 and BW
Borealis primary strategy is to
create and deliver value  Partner with Camelot IDPro
through a vertically integrated
product chain from feed stocks BUSINESS BENEFITS
straight through to end use  Integrated planning approach with sales, marketing,
consumers. plant supply planners and demand managers
 “One Source of the Truth” – APO
 Standard business processes for long-term rough cut
capacity plan, mid-term master production schedule
and short- term grade mix

 SAP AG 2006, 49

Chemical Manufacturer: S&OP Process Enabled by APO Tool

PLAN
(18-month horizon; monthly/ quarterly time buckets)
Statistical Forecast
DP Sales Adjusted Forecast
Statistical Forecast Final Sales Plan
Plan Demand Trial Forecast
Sales Adjustments to Stat Forecast

Sales

Forecast
Constrained
Supply
Final Sales
Plan (FSP)
Forecast
Parameters

SNP
SNP Balance
Set FSP (Gross) FSP (Gross)
Supply &
Inventory
Inventory Targets Demand Supply/ Demand
Targets Plan

FSP (Net)

Feedstock Plans
Production &
High-level
Inventory Targets
Planned Stock

Prod’n Sched
Supply Point

Transfers
Fill-rate Targets

SCHEDULE
(4-6 mo horizon; daily time bucket)
Operation Schedules
ATP PP/DS • Production
Available to Schedule • Replenishment
SNP • Packaging
Promise Planned Receipts Production & Replenishment • Tolling & Compounding
R/3 PP • Raw Mat’l Procurement

MEASURE
SAP BW Performance Measures
(3 yrs historical data) Performance Analysis Diagnostics

 SAP AG 2006, 51

Enhancements in SAP APO Demand Planning

Major Enhancements
 Offline Planning – File Upload

 Demand Split in Release from Demand Planning

 Seasonal Planning

 Distinguish 0 and Nothing

Continuous Improvements
 Maintenance of Planning Areas Containing Data

 Forecasting (Flexible Horizons & Composite Forecast)

 Macro Performance Improvements

 SAP AG 2006, 54

Offline Planning Process

1. Download data 2. Working on the file 3. Upload file data
Challenge: File data could only be uploaded using Copy & Paste

Solution: During download, source information is added for use in later upload.
Upload launched from interactive planning, offers various options.

 SAP AG 2006, 55

Offline Planning - File Upload Details

A CSV file can be uploaded directly from
interactive planning.

The existing download function has been
enhanced to include planning
environment information.

The user can set options for the upload:

 Level change

 Execution of default macros

 Overwriting of fixed values

 Treatment of empty cells

 Update of objects on detailed or
aggregated level

 Horizon

During the upload, several checks are
applied to ensure the correct entry in the
planning grid. A log is written.

 SAP AG 2006, 56

Demand Split in Release from Demand Planning

Challenge:
Dynamic splitting of a demand
plan to a more detailed time
granularity (e.g. from months
to weeks or from weeks to
days) when releasing to SNP or
mySAP ERP was previously
only possible using a BADI
(user exit).

Solution:
A splitting profile has been
introduced which contains
different distribution functions
for different periodicities (i.e.
year, quarter, month, week,
day, accounting period).

 SAP AG 2006, 57

Seasonal Planning

Challenge: The time granularity is defined for a Planning Area and applies to all
planning items and levels. This prevents seasonal planning with different period
definitions by product.

2003 2004 2005
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan

Product A
SRING '03 SUMMER '03 FALL '03 HOLIDAY '03 SRING '04 SUMMER '04 FALL '04 HOLIDAY '04
(Apparel)

Product B
SRING '03 SUMMER '03 FALL '03 HOLIDAY '03 SRING '04 SUMMER '04 FALL '04 HOLIDAY '04
(Apparel)

Product 1
SEASON C '02 SEASON A '03 SEASON B '03 SEASON C '03 SEASON A '04 SEASON B '04
(Footwear)

Product 2
SEASON C '02 SEASON A '03 SEASON B '03 SEASON C '03 SEASON A '04 SEASON B '04
(Footwear)

Apparel Planning Year
Footwear Planning Year

Solution: Freely definable seasons and planning years are introduced that can
be flexibly assigned to characteristic combinations.

 SAP AG 2006, 58

Seasonal Planning – Seasonal Pattern

Introduction of two additional
aggregated planning levels:
 Seasons as an aggregate of
basic periods (e.g. months,
weeks)
 Season Years as aggregate of
multiple seasons
Seasonal patterns can be
flexibly assigned at any
characteristic combination level

 SAP AG 2006, 59

Interactive Seasonal Planning

Supported processes:
 Interactive planning
 Macro execution

Features:
 Dynamic switch between
Season year, Season,
Time & Storage bucket
profile, as extension of
existing 'Period structure
settings'
 Also part of user-specific
setting
 Also available without
using Seasonal Planning
 Prevention of time
disaggregation in the past
for current period that is
partly history (key figure
specific)

 SAP AG 2006, 60

Distinguish 0 and Nothing

Challenge: The system cannot distinguish between an empty cell and a cell
with a 0. This leads to unattractive workarounds.

Solution: The system can now differentiate between an empty cell and a cell
with a 0 (time series specific). This required a redesign of the fixing
functionality and corresponding macros.

The 0 will be treated like any other number, with respect to all existing
functions, like loading & copy of data, forecasts, realignment, proportional
factors, background processing, etc.

Also SNP is affected for the mass maintenance of key figures, or optimizer
constraints for e.g. procurement or stock levels.

The development removes workarounds (with e.g. additional key figures, or
use of small numbers) and by this ease the use of the software.

 SAP AG 2006, 61

Maintenance of Planning Areas Containing Data

Challenge:
A planning area could only be changed when it contained no data. Therefore
data had to be stored first (e.g. in an Info Cube) and uploaded again after
maintenance.

Solution:
The maintenance of a planning area containing data is now enabled for:
 Changing dis-/aggregation method and key figure for disaggregation
 Adding key figures
 Deleting key figures (if not used)
 Changing between Info cube and liveCache key figure
 Switching key figure type between fixing and non-fixing
 Changing key figure accuracy
 Flagging if negative values are allowed
 Flagging if zeros are allowed/fixable
 Flagging if history is changeable
Inconsistencies created during the change can be checked and repaired.
Transport of the changes to other systems is enabled.

 SAP AG 2006, 62

Forecasting: Flexible Horizons

Challenge:
The definition of the historical & forecast horizon is possible using from
and to dates or number of periods and offset.
The definition screens differ in the forecast profile and interactive
forecasting.

Solution:
Support of more flexible forecast and history horizon definition
allowing a mixture of dates and number of periods:
 Start or end date with number of periods
 Only start or end data and no number of periods
The screens for maintenance of horizons are harmonized, i.e. in
interactive forecasting the screen of the forecast profile definition
is used
BADI (/SAPAPO/SDP_FCST3) offers possibilities to:
 Enable limitation of horizons to maximum number of periods
 Avoid errors if history and forecast horizons overlap

 SAP AG 2006, 63

Forecasting: Composite Forecast

Challenge: The composite forecast view did not show the history key
figure. The user could not overrule the system selection of the forecast

Solution:
 Historical data is visible on forecast screen
 The user can interactively select any forecast of a single profile in the
composite forecast profile to be used as composite forecast result
 The composite ex-post forecast can be saved in a key figure

 SAP AG 2006, 64

Macro Performance Improvements

Challenge:
The performance of macros executed in interactive planning is sometimes
not as expected.

Solution:
Improved macro execution performance in interactive planning, especially
when:
 Changing cell attributes (e.g. color, icon, read only)
 Calculating quantities

A new BADI (/SAPAPO/ADV) is offered that replaces the user exit
APODM005. The BADI enables not only the access to the data (like the user
exit) but also the layout attributes of the planning grid.

Furthermore performance improvements are offered for:
 Starting the Macro Workbench
 Changing & creating macros in the Macro Builder
 Generating macros

 SAP AG 2006, 65

Why SAP? Great S&OP with Lower Total Cost

1. Feasible Plans 2. Synchronized Plans

• Make decisions that can be executed in the • Align production, procurement and
real world logistics
• Include new product introductions into plans • Align operations plans with sales and
marketing
• Consider financial constraints and
implications • Synchronize regional plans into global
plans
Different views • Collaborate and Coordinate with partners
of the same data (e.g. VMI)

at the same time
3. Optimized Plans 4. Adaptable Plans

• Make decisions that globally optimize KPI’s • Conduct fast, frequent S&OP cycles
• Optimize customers and channels • Adjust plans and re-plan based on real-
time exceptions
• Optimize product mix
• Make decisions that consider all of the
• Optimize allocation of scarce resources (production and relevant perspectives and information,
transportation) internally and externally
• Continuously improve

T0 Tn
Shorten the planning cycle to < 1 month
 SAP AG 2006, 67

7 Key Points

The quality of your S&OP process always has and always will
impact the bottom line

Your biggest hurdle in improving the timeliness and quality of
supply chain decisions will be interdepartmental alignment

Interdependent sets of supply chain decisions must be feasible,
synchronized, optimal and adaptable

You need multi-dimensional, integrated software to do perform
fast, feasible, synchronized, optimal and adaptable S&OP

SAP APO Demand Planning can give you a significant, step-
function improvement in S&OP

DuPont, Borealis, Brown-Forman and other leading companies use
SAP APO to support S&OP

New features such as improved upload and download functionality
in SAP APO make S&OP even easier
 SAP AG 2006, 68

Resources

http://www.sap.com/industries/inde
x.aspx

http://www.sap.com/solutions/busin
ess-suite/scm/index.aspx

mark.wells@sap.com

AMR Research

Aberdeen Group

 SAP AG 2006, 69

Questions?

Arnold Mark Wells. CPIM
SAP America
mark.wells@sap.com

 SAP AG 2006, 70

Wells SAP Insider 2006

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