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Which supply chain optimization techniques can SAP ECC support?

Connecting scientific approaches to supply chain management with the technology tool of SAP ECC can help ensure a smoother flow of information and material.

Material and resource planners can easily overlook how SAP ERP Central Component can be used to better enable supply chain optimization techniques. Connecting technology tools with scientific approaches requires a shift in thinking but is well worth the potential of smoother and more timely information and material flows.

Here are four supply chain optimization techniques to use with SAP ECC.

Value stream mapping

Value stream mapping is the process of mapping the material and information flows and results in maps to visualize areas of improvements. In these maps, the customer is placed at the right side of the map, while the vendor is placed on the left side of the map. When the customer places an order, information flows from right to left. The procurement, production and delivery of product (the material flow) are captured from left to right on the map against the customer order. At the bottom, the lead time and the cycle time are placed to enable easier understanding.

In different manufacturing scenarios, such as make to stock (MTS) or make to order (MTO), value stream maps help with placing relevant information in SAP ECC. For example, in SAP ECC, the Strategy Group field for MTS is maintained at 40, while that of MTO is 20. The latter can be maintained in the MRP-3 view of Material Master. A combination of MTS and MTO will have Strategy Group 50. All the details can be maintained in value stream maps and reflect the direct connection in SAP ECC.

Operations management

Material planning is a discipline within operations management (OM) that deals with the design and management of products, processes, services and supply chains. OM covers strategic (long-term, such as annual), tactical (medium-term, such as quarterly or monthly) and operational (short-term, such as weekly or daily) ranges of a business, including material and resource planning.

To map OM within the realm of SAP ECC, material and resource planning tools, such as Forecasting, Sales and Operations Planning, Flexible Planning and Long-Term Planning, are available for strategic planning. The Demand Management, Master Production Scheduling, Material Requirements Planning and Capacity Requirements Planning tools serve the tactical range. The production order management wherein actual production and inventory movements take place serves the operational range in OM.

Systems thinking

Systems thinking is a holistic approach to evaluation -- which, in this case, is material and information flows -- in a cause-and-effect way so as to find the root causes of an issue in the supply chain and address it. Doing so enables a more holistic approach to solving complex problems and is an approach that can be used as an effective supply chain optimization technique. For example, without using systems thinking, a shortsighted solution to inventory reduction could be placing fewer purchase orders to vendors without taking into account how doing so will negatively affect the production due to material unavailability.

Using causal loop diagrams that connect various supply chain elements together, stock and flow diagrams that depict stock levels versus their inward and outward flows and behavior-over-time diagrams that show the relationship between actions of one or more variables over time are some of the practical approaches that a material planner can use to connect the material and information flows. SAP ECC has several inventory reports and analyses that can map with the above three diagrams for an informed decision-making process.

Factory Physics

Another one of the supply chain optimization techniques that works well with SAP ECC is Factory Physics theory, which involves attending to three types of buffers in manufacturing management. These buffers are capacity, inventory and response time, which are placed at strategic points in the supply chain to absorb demand and supply variabilities. In SAP ECC, the Planned Delivery Time field available in the MRP-2 view of the Material Master provides the option to maintain a time buffer. Similarly, the Coverage Profile functionality, also available on the same screen of Material Master, takes care of the inventory buffer.

Another important logic from Factory Physics uses Little's law:

WIP (work in process) = TH (throughput) * CT (cycle time)

WIP is the inventory that remains in the inventory from start to finish of a manufacturing process, throughput is the average output per unit of time (e.g., 40 automobiles assembled in one hour) and cycle time is the average time a material spends as WIP. Since it is difficult to calculate cycle time, the above formula helps with cycle time calculation. In flow benchmarking from Factory Physics, the above formula helps with ensuring minimum WIP, maximum throughput and minimum cycle time.

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