Predict, Not Just Respond

Where is the S&OE in SAP®-IBP*?


Like many other S&OP solutions, SAP®-IBP* is designed to perform high level “rough cut” planning. On the supply side, it uses a simplistic logic that has been used in spreadsheets, for decades, to plan production. It assumes fixed leadtimes, pre-defined bottleneck resources and bucketed capacities. This is not much different than the old MRP methodology from the 70’s, but now categorized under Sales and Operations Planning S&OP. Advanced planning came to play because this was not effective and plans were not accurate enough to model the capacities and coordination of material and capacity was missing. SAP®-IBP*, much like almost all other current S&OP solutions, is intended for very high-level reporting. Once the supply chain plan is generated it can be at best 60% accurate. Hence, once given to the operations side of the business, it does not work. SAP’s answer to this problem is usually faster what-if analysis, which still adds up to lots of manual adjustments, much like working with spreadsheets to make unworkable plans to work.

This is exactly what the APS industry felt the need to change with the use of powerful optimization engines in the late ’90s followed by AI techniques in the past 15 years. Yes, SAP-IBP provides nice reports and charts, and maybe even help in collaboration, but in the final analysis, it lacks realistic plans and cannot feasibly translate generated plans into actual execution of those plans. In other words, it misses the mark when it comes to Sales and Operations Execution (S&OE). Specifically, it lacks proper modeling of resources to understand true capacities, it fails to estimate true lead times dynamically, it does not take into account the mix of products, it fails to estimate the impact of setup times and changeovers on the overall capacity of resources and subcontractors, it lacks pegging of orders and it cannot do attribute based planning other than at the finished goods level. Consider this, if SAP-IBP fails to do full pegging of orders, how can it accurately determine the true cause of lateness of any orders? If it does not model the capacity of resources properly with dynamic lead times, then how can it provide accurate Available to Promise (ATP) and Capable to Promise (CTP)? — There is something to think about next time you are wondering why your inventory and service levels are never on target.

Fact: realistic supply chain plans require accurate modeling of the supply side and all-in-one unified planning environment (what Gartner refers to as the ultimate or stage 5 supply chain). Transformation of plans into execution requires “model integration.” By model integration, I mean the ability for S&OE engine to have the same data model as the S&OP albeit at different levels of detail. Accurate plans remove the need for excessive what-if scenarios and wasting time to adjust the supply chain plans, over and over. Accurate plans ensure delivery performance levels that are required by a customer, by region, by product, and so on. Accurate plans provide much better visibility into the supply chain and what is possible and what is not. Accurate plans ensure the financial projections are realistic and reliable, as you plan for the long term. As an example, one of Adexa’s clients, a global high-tech manufacturer plans tens of millions of orders within minutes with an accuracy of almost 100%. This is done for both long-term planning, as well as short-term changes in the orders. Reallocation takes place every day depending on changes in the orders and availability of resources. End to end visibility of the supply chain is provided for close to one hundred sites worldwide. The best part is that planners have no need to make any adjustments and changes once the plan is published, i.e. they can go home early!

The bottom line, unless the supply chain plans are accurate and the model of the supply side is a true reflection of your supply chain (i.e. a digitalized supply chain) then you are not getting much more than just half-accurate, but pretty reports. Spreadsheets will do just fine at this level of planning and give you a lot more control too, not to mention they are most certainly a lot less expensive! By deploying S&OE solutions to SAP solutions, as experienced by more than 70% of our clients, you will experience enormous benefits of what true plans can do for your organization: lower cost of operations, much lower cost of inventory and much improvement in delivery performance across all customers and products.

I encourage you to go beyond what is peddled today as S&OP, by SAP or anybody else and look how much further you can go with more accurate and realistic plans by considering technologies that transition your supply chains into S&OE.

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