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Powerfully Simple April 10, 2015 Getting the Most Out of SAP APO in a Demand Driven World
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Mar 22, 2022

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Page 1: Powerfully Simple

Powerfully Simple

April 10, 2015!

Getting the Most Out of SAP APO in a Demand Driven World! !

Page 2: Powerfully Simple

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

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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

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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.

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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

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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

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//

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.

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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?

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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  

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ToolsGroup Contact Information

ToolsGroup 75 Federal Street Boston, MA 02110 Toolsgroup.com

Pat Smith, General Manager

[email protected] 617-600-7522