SAP Supply Chain Management

In the present business scenario when the market for ERP packages for large enterprises is shrinking ERP vendors have to move towards the more conventional but growing market of small and medium enterprises (SME).The growth which is now taking place in the large enterprise space in terms of the enterprise application market is only value-addition and upgrades. Even as the debate over the long-term growth potential of the large enterprise market heats up, and vendors deny any threat of stagnation on this side of their business, the truth of the matter is that SMEs are clearly on their radar.

Most of these SME do not have a dedicated ERP package within their system to work upon. These industries generally use different systems for their different departments leading to the compartmentalization of information. This helps them to have a cheap automation of their departmental process leading to inefficient means of tracking the information. These systems are generally not integrated and hence communication between the systems created a lot of discrepancies. At the same time redundancy of data leads to extra work. Since a bigger ERP package is beyond their budget they are skeptical to use these.

These companies can use SAP ICH as their front end for gathering data from the customers through a more efficient way. At the same time it will lead to integration of their existing legacy system. This will help them to enhance their real time data visibility leading to the reduction of time lag in the shipment of products. SAP ICH will interact with the current legacy system and complete the chain leading to a smooth flow of information starting from the supplier to the customer.

Present ERP Market

Enterprise Resource Planning (ERP) systems are modular application software that helps businesses increase the productivity of such mission-critical components as human resources, finance, parts purchasing, inventory control, supply chain and customer relationship management. ERP systems are enterprise-wide and claim to incorporate best business practices that replace legacy systems and current business processes.

The ERP market has reached a high level of maturity. Although squeezing inefficiencies continues to be a business goal, enterprise systems today also have to address ecosystem dynamics such as interoperability, extended value chains, and compliance processes.

The worldwide market for Enterprise Resource Planning (ERP) solutions continues to grow on the plethora of acquisitions. The worldwide market for ERP was $16.67 billion in 2005 and is forecasted to grow at a Compounded Annual Growth Rate of 4.8 percent over the next five years, surpassing $21 billion in 2010, according to the latest ARC Advisory Group ERP market analysis.

With the ongoing saturation in the bigger segment, the small and medium enterprises segment is coming under the increased focus of ERP vendors. The strong economy has seen many small businesses expand rapidly, creating a large pool of mid-size companies. Small business is also showing considerable interest in features that hitherto would have only been used by larger firms. They are becoming more sophisticated in their approach and changing their outlook towards the technology aspect. This market was traditionally dominated by niche players who are now facing the influx of big players in the segment. The numbers of vendors are increasing not only due to the intervention of bigger players but also due to the intrusion of many smaller ones. They are expecting much more as they are becoming tech savvy now. However they differ from large enterprises in their vision regarding the effectiveness of software. Large enterprises look the implementation from a holistic approach including intangible aspect of customer satisfaction while SME want real value for money and to be able to calculate, say, a total cost of ownership over five years.

There always has been a need for integrated solutions, especially when talking about an integrated enterprise from the plant floor up to the executive offices. With the continued demand on acquisitions, along with the programs to address the Small-Medium Business (SMB) market, systems integration is a necessary evil between ERP and other enterprise solutions. Integration has been difficult, but SOA provides value to the enterprise by freeing key pieces of business functionality from individual systems, and making them available for integration with other applications

Issues in the Implementation of ERP in SMEs

Traditionally SME is considered to be a conservative market in case of adoption of high end technologies. Each vendor claims that using its product will give an enterprise a competitive advantage. SMEs want to have a safe, consistent business infrastructure that allows them to compete without a disadvantage. Large companies can afford to invest in ideas that may bring them a competitive advantage. They also have a large business to use to write off their mistakes and benefit from their successes. The SME does not have this luxury. They are pretty much skeptical about the change in their working style unless and until they are sure about the effectiveness of the new technology in terms of bottom line results.

In one of the surveys carried out by Knowledge@Wharton among Indian SME it was found that the major reasons cited for their apprehensions included lack of knowledgeable technology vendors, inadequate follow-up support, and problems with integration.

When we are talking about lack of knowledgeable technology vendors it means that the ERP vendors do not have sufficient knowledge about the SME sector. The SME sector differs in the way it works and needs a more insightful approach towards finding of the solution. The cliché is that these SME do not need technologies, they need solution for their existing problems. At the same time they do not want to trash away their existing hardware system for using a completely new one.

With regard to obstacles, the biggest tension seems to exist between too-rapidly advancing technology and the slow rate of change acceptance within organizations. An SME generally works in a short to medium tenure of focus which do change with the changing circumstance. This can lead to shortening the usage of technology and at times it absolution. As a result a traditional SME gives a lot of thought before investing any amount in the technology. If we talk

about large scale business they have their diversified interest in the market which helps them to scale down their losses if any one of their business goes down during the implementation. SME do not have this luxury with them.

One of the most important and critical issue in this is the total cost of ownership. The SME segment is very cost conscious, especially about expenses with mostly long term and intangible benefits. They are very concerned about controlling the cost of customization and implementation.

Overall there is lack of vision in the management about the use of technology due to the non-existence of any clear cut strategy in the enterprise with respect to information technology. They have insufficient or at times complete absence of integrated, high-level IT resources within small- to medium-sized enterprises. Their stand is that their resources don’t allow for additional staffing at a level that would solve the problem (i.e., the management level). Ultimately, this affects the IT decisions made by company management, as there is no coherent vision at the top to help a company accept various IT solutions or see them as necessary.

Many SME cites problems with vendors, who are “unable to mix and match technologies/products to provide the most optimum solution to the customer. The most common issue is that they do not have any single vendor who can provide them a complete solution customized for their requirement. Although SMEs tend to integrate technology where it is readily available and the advantages are clear, major impediments to wider adoption include prohibitive costs and a lack of insight and vendor support when it comes to integrating new technology into individual systems

ICH and SME

What is ICH?

As traditional supply chains evolve into supply networks, collaboration becomes increasingly critical. Supply Chain Collaboration is achieving seamless integration of processes and information with the extended enterprise (both suppliers and customers) resulting in a synchronized supply chain. And for manufacturers and their suppliers, successful collaboration starts with making sure that everyone has clear visibility into inventory information, so suppliers know what their customers need and when they need it. Often, however, that visibility is not easy to achieve. Supply networks are typically complex and involve a wide range of suppliers, making it difficult to share timely inventory information.

Beyond cost and efficiency, there is much value in relationships based on closer stakeholder integration. In an environment that promotes collaboration rather than confrontation, customers and suppliers can benefit from increased cooperation, openness, and flexibility. This offers many practical advantages, including reduced inventory, shortened lead times, and minimized risk of stock outages. Ultimately, the promotion of tighter collaboration improves end-customer service by ensuring that each stakeholder in the supply chain can meet its service agreements. One of the obstacles to achieving these benefits is the heterogeneous IT environments commonplace in businesses, which can add to cost and time pressures. Few organizations share the same IT architectures, platforms, and applications as their business partners, which can generate additional layers of complexity as organizations seek to establish broader, value based collaboration. Smaller organizations may not have the necessary IT infrastructure or support, so a solution that eliminates telephone calls and faxes without overburdening the organization is required.

SAP Inventory Collaboration Hub (SAP ICH) is an innovative, Web-based component that supports SAP’s global vision for adaptive supply chain networks. SAP ICH is one of the components of SAP SCM4.1 business suite which provides inventory visibility to your suppliers and supports the replenishment process. Suppliers can see the status of their inventory at all your plants and are alerted via email when levels get too low. Suppliers can respond to these alerts by creating ASNs via the web. The SAP ICH integrates with the backend transaction and

planning systems and updates them with the relevant data in real-time. It reduces costs and increases the overall velocity and accuracy of the supply network. It gives you and your supply network partners a central, secure vehicle for collaborating and responding to changes in demand. Based on the exchange infrastructure (XI) platform, the SAP ICH within SAP SCM 4.1 allows you to share information and track and audit the full range of transactions and communications with suppliers – all via the Internet. And with its open, scalable design, it can be implemented as a stand-alone solution, or quickly and easily integrated with mySAP Business Suite or non-SAP solutions.

SAP ICH is a stand-alone solution focusing on inventory visibility and collaboration. It makes no assumptions about back-end planning and transaction systems, and it has user-management, role-based authorization built-in. It is designed as an Internet application. Furthermore, because it is built on the open, standards-based mySAP™ Technology platform, SAP ICH can integrate

readily with any backend planning and transaction system including SAP APO and SAP R/3. . Eventually, the SAP ICH will become the platform for all types of inventory collaboration. Additionally, it will continue to integrate with the other SAP solutions via open, industry-standard interfaces.

Currently, the ICH supports two supplier-side processes – supplier managed inventory (SMI) and release processing. More processes will be delivered, including VMI, CPFR, and N-Tier collaboration. The SMI process focuses on inbound material. It gives suppliers visibilities into material inventory at the buyer’s site, enabling them maintain agreed upon inventory levels. It is similar to VMI on the outbound side.

Release processing is a variation on SMI. In SMI, the supplier determines when to ship and how much inventory to include in a shipment. In release processing, the buyer specifies precisely what material is needed when and where through a scheduled release document. This approach is used for strategically important components where the buyer wants more control over inventory levels. These processes, when used effectively, can drive stock outs down to zero and improve order fulfillment rates. Using the SAP Exchange Infrastructure (XI) component in SAP NetWeaver, the ICH is designed to be integrated into any system – SAP or non-SAP. It does not require SAP Advanced Planning and Optimization (SAP APO) or even SAP R/3 Enterprise, but it does integrate with these applications if they are present.

A graphical mapping tool in XI makes it easy to create and maintain integration mapping content. However, to lower TCO, data-mapping content for SAP systems is delivered with the solution. Another TCO feature is integration with SAP applications through the Core Interface (CIF). The CIF technology, originally designed and implemented for SAP APO, simplifies master-data synchronization between the ICH and other SAP applications. For non-SAP applications, the master data can be updated manually or using file-upload (for example, Microsoft Excel, or flat file).

Benefits of ICH:
Increases the accuracy and velocity of the supply chain

• Provides global visibility of inventory and demand
• Enables several out-of-the box collaboration processes, like SMI, Release and Purchase Order Process and Dynamic Replenishment
• Improves customer service & increase revenue while reducing inventory levels on both customer and supplier side

Reduces time to value & realizes faster ROI

• Simple, stand-alone decoupled solution
• Does not require SAP APO or SAP R/3
• Easy to install, implement and configure
• Bring your suppliers on board fast and easy

Connects people & processes together

• Integrates with any backend system (none-SAP)
• Open XML message integration & infrastructure
• Suppliers can integrate via web browser or XML

ICH in SME

In the present condition as can be found out the major hindrances that an SME faces is due to the lack of integration between the different systems that they are using. In this state the information flow that needs to be there is absent. Every department uses their own system having their own data base. For example the finance department may be using the software tally for its information maintaining while the logistics department will be using software for their department. These systems do not have integration between them leading to discrepancies. These discrepancies can be in the form of redundancy of data and no real time flow. At the same time a manual intervention is required while transferring the data from one system to another making it more venerable to errors.

Other than this these systems are not connected in any way to the customer or the supplier. The flow of information in the complete supply chain is by means of mails, faxes, notices or phone calls. This can be depicted in the following fashion:

This situation leads to a basic time lag in the placement of orders by the customers and its deliveries by the suppliers. Since there is no real time data available it leads to build up of inventory at times while a stock out situations at other times. This also increases the cycle time from procurement to distribution. It is not possible to use a complete integrated package for the SME because of the high cost. At the same time they do not want to discard their old existing system just like that.

Under such circumstance it is possible to use SAP ICH as the savoir. SAP ICH can integrate readily with any backend planning and transaction system. For example many customers will have non-SAP systems installed in other plants or business units and would like to present inventory data from all of these systems to their suppliers. If this is the case, they should consider the SAP ICH, because it can provide a complete view of inventory to the supplier.

Since the SAP ICH integrates via the SAP Net Weaver, the customer can use any APS and transaction system that can integrate via XML. Depending on the needs of the customer, they might not even need an APS system to get value from SAP ICH. For example, they can directly
hook up their legacy MRP system to SAP ICH, or transfer Excel Spreadsheets into SAP ICH via XML.If they have a heterogeneous environment with multiple transaction systems they can

put the SAP ICH in front of all these applications and provide a unified view of inventory to their suppliers. In this fashion SAP ICH will act as the front end for the already existing different systems of the customers. SAP ICH will extract data from these different legacy systems and will act as a common platform for data visibility. This extraction of data will need an interface which will help for the exchange of data. There are different mechanisms that are already available which do help in this.

For example there is a mechanism DI-API which exposes an interface to the SAP Business One objects by which it is possible to read, browse, create, update and delete objects in a SAP Business One database, plus carry out a set of some advanced metadata and XML operations. DI-API internally handles communication with the underlying SAP Business One database, ensures full data validation, and automatically populates default field values based upon the business rules of SAP Business One.

In fact by using the DI-API the external system not only accesses the SAP Business One database but activates all the business logic underlying SAP Business One itself, ensuring coherence of the data in the SAP Business One database itself against the SAP Business One business logic.

At the same time if the external system that is being used is a Microsoft product then it is possible to use the interface called DUET. Using Duet software, a company’s entire employee population can easily and quickly access SAP business processes and data via their familiar Microsoft Office environment. Built as a composite application, Duet works with the SAP NetWeaver platform and Microsoft’s .Net framework to extend select mySAP processes and information into Office, simplifying the way information workers access SAP applications. Duet uses XAML to pull information from SAP back-end data into Microsoft Office applications. This will help the user to access the information on their desktops with having a login for SAP.

Supply chain with ICH

The company will have both the conventional system and SAP ICH while the suppliers and customers will be able to access to this by means of web link which they can access if they have access to internet which is always available in the present business scenario. This will help the company to capture the point of sales data which will improve the overall forecasting capability and help in promotion planning. At the same time since the data available will be real time it will lead to prevention of stockouts and reduced inventory ultimately increasing the cash flow.

One of the best features of SAP ICH is that it does not require constant monitoring. The system gives an alert when required which can be directly dealt with. These alerts can be in the form of email, sms or mobile messages as per the configuration done and the requirement.

This type of system will complete the supply chain from the customer to the supplier giving the customer the benefit of complete visibility throughout the supply chain. In addition to the above thing one great advantage that ICH can provide is with respect to the scalability factor and data storage factor. SAP ICH has own data storage model via ABAP and DB only. It involves TSDM (Time Series Data Management) and ODM (Order Data Management).It does not require LiveCache just like other tools (SAP APO) do require. As a result it has got the flexibility to get scaled up .This gives it added benefits in some of the fields like retail, consumer products, and other industries effectively.

For example in the Retail industry it’s often necessary to plan and model a very large number of saleable products that are stored in a large number of distribution centers (DCs) and retail stores. The number of “product-location combinations,” i.e., the number of retail products multiplied by the sum of the number of DCs and stores, can exceed the tens of millions. Prior to ICH, retail companies had to consider implementing non optimal solution designs, including interfacing legacy non-SAP tools with an R/3 execution backbone to handle such sizing challenges handle such sizing challenges. SAP ICH is tailored for the significant sizing requirements of retail and other industries with large product-location combination environments.

In addition to the above, SAP ICH can provide the characteristics of an advanced APS system. It provides flexible and adaptive advanced planning capabilities that support the full spectrum of planning requirements. It provides the following functionalities:

• Forecasting and Replenishment.
• Promotion planning.
• Transport Load builder.

It gives the SME a better visibility across the supply chain making it more efficient and responsive. SAP ICH gives you visibility into your customers’ inventory levels and demands, thus helping you to enhance your planning and scheduling of shipments. You can more easily delegate the responsibility for your inventory to a business partner and thus profit from the business partner’s greater planning expertise. It provides them a common platform wherein the common and real time data can be accessed and shared by their own existing system.

It will help to an extent in the reduction of error during the manual intervention in transfer of data.
Though it will be slightly costly from a small industries point if view it will provide them the advantages of advanced planning systems at relatively low price reducing their overall total cost of ownership. It will provide them an option for increased flexibility in their system with respect to the data amount transacted as it doesn’t depends upon live cache.

Since most of the SME are into markets which are highly volatile in nature it provides them an efficient means of capturing the real time data. This can lead to shorter inventory cycle and more inventory turnarounds.