Powerfully Simple April 10, 2015 Getting the Most Out of SAP APO in a Demand Driven World
Powerfully Simple
April 10, 2015!
Getting the Most Out of SAP APO in a Demand Driven World! !
Company Confidential All Right Reserved!2!
occurs and how targeted investment in demand modeling analytics can make a big difference in getting back to revenue growth.
Overview
ERP systems are the backbone of many organizations. Yet when it comes to supply chain planning, tools such as SAP APO often fall flat. This presentation sheds light on why this
Company Confidential All Right Reserved!3!
What’s Changed: Increasing Long Tail of Demand
The “top down” approach to forecasting embedded in SAP APO does not capture long tail / variable demand as effectively as a “bottom-up” approach.
Managing forecast accuracy may be sufficient here from SAP APO ….
…. but does not work as well here …..
…. and this part is growing every year
Drivers • Closer to demand consumption • Shorter product life cycles • SKU proliferation • More responsive – high granularity replenishment cycles (daily/intra-day time buckets) • Forecasting at SKU-location daily
Company Confidential All Right Reserved!4!
What’s Changed: The Need to be Demand Driven
SAP APO views the world in only one
dimension
The one number view provides unattainable
and impractical outcomes
Demand modeling analytics can overcome the
limitation of a one number view
The one dimension is a time series forecast that is derived from historical shipments.
The reality is that the explosion of transactional data (web, promotions, NDI, POS, etc.) and “non-
traditional” demand signals need to be interpreted into a range of possible demand outcomes – NOT a single view to deliver growth and profitability to the business.
This demand-driven process analyzes multiple demand streams to understand the predictability (a
range of possibilities and confidence) of future demand consumption.
Company Confidential All Right Reserved!5!
What’s Changed: It is No Longer Just Forecasting
This is a reasonable approach for those items in the ‘head’ of the tail - but the reality is that operational forecasting needs to be about two simultaneous outcomes.
1) Forecast reliability 2) Understanding of demand volatility
The details of the demand behavior go beyond a one number time series forecast.
Demand-driven demand modeling synthesizes the various components of demand to understand what is true signal vs. noise.
Signal being forecast reliability, noise being the uncertainty or probability range of how future demand could materialize in the short, medium and long term horizons.
APO applies a ‘best fit approach’ with a rudimentary ‘top-down’ SKU-level forecast
Demand driven takes a probabilistic approach working from the bottom up
Company Confidential All Right Reserved!6!
The Solution: Augmenting SAP APO
Augmenting SAP APO with demand modeling dramatically improves the quality of the demand signal.
The output from the modeling feeds inventory stocking, production planning, and logistics decisions.
Plus augmenting SAP APO is a minimally invasive way to scale capabilities towards a more sophisticated approach to planning
Without augmentation,
SAP APO is “stuck” here
Company Confidential All Right Reserved!7!
//
Service levels increased by 16%
Inventory turnover Increased by 25%
Sales increased by 50%
Positive market share growth
Moving from a national stocking model to a hub-and-spoke model with 55 shipping and 161 selling
locations
A 250% increase in physical locations
450,000 SKU-Locations consisting of both parts and finished
goods
High product availability targets-
Some customers need 'Same Day' pickup
Highly variable Independent demand
Highly seasonal demand
(AC and heating)
Many new product
introductions
Balance service levels with inventory cost
Simulate network changes
Model both seasonality and variable demand
patterns reliably using machine learning
Let’s Use Lennox as an Example
Lennox is a major HVAC supplier with highly seasonal demand and long tail inventory items (some items have to be in stock for 15 years post-manufacturing to meet service requirements). As the example below shows, implementing an enhanced solution to SAP APO can have a major effect on service and growth.
Company Confidential All Right Reserved!8!
So What Does This Mean to You?
Enhancing SAP APO (or other ERP system) with 3rd party solutions such as ToolsGroup’s SO99+ can significantly improve your forecasts, revenue, and cost structure. Ask yourself these questions and see if you are ready to enhance your planning process. 1. How much of my inventory is tied up in long tail, intermittent demand items?
2. How many items do I have where forecasting delivers little to no value in trying to plan such items?
3. What obstacles exist in SAP APO that prevent me from attaining my goals?
4. Am I overly dependent on excel spreadsheets to glean insights from my supply chain?
Company Confidential All Right Reserved!9!
Additional Reference Sources If you want to learn more about improving your forecasting with demand modeling analytics, ToolsGroup has an extensive resource library. Check out any of the links below to learn more.
Ar#cle Descrip#on Link
How ToolsGroup’s SO99+ Complements SAP APO
Detailed white paper on SAP APO expanding on what is contained in this high level deck bit.ly/1GZwEVh
Systagenix Case Study on how a healthcare company using SAP APO achieved significant improvements in forecast accuracy, inventory turns, and level of effort
bit.ly/1z3phrj
Next-‐GeneraSon ForecasSng is Closer than you Might Think
Surrounded by an explosion of data, most forecasSng systems have no way to leverage or take advantage of it. bit.ly/1v0gtjI
PredicSve Commerce
Learn how PredicSve Commerce helps companies return to growth and accelerate their business performance by connecSng upstream demand sensing with downstream supply chain planning and execuSon, all in a single model
bit.ly/1r7inDV
Company Confidential All Right Reserved!10!
ToolsGroup Contact Information
ToolsGroup 75 Federal Street Boston, MA 02110 Toolsgroup.com
Pat Smith, General Manager
[email protected] 617-600-7522