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S/4HANA supply chain trends: More visibility, complex integration

The need for digital supply chain transformation is clear. SAP has the right platform, but implementation is a challenge for companies, according to some analysts.

Current S/4HANA supply chain trends indicate that few companies have committed themselves to a digital transformation...

involving supply chain technology. However, the opportunity to do so looms in front of SAP customers that want more visibility into how their supplies move, particularly during adverse events.

"Now's the time, and if you want to head off hurricane disruptions, increase collaboration up and down the supply chain, you can do that, but you're going to have to change your way of thinking and become a digital practitioner," said Dana Gardner, president and principal analyst with Interarbor Solutions. "If you don't take advantage, the competition is going to kick your butt."

The digital supply chain is all about total visibility, which requires new technologies and new ways of thinking in order to predict events that may affect supplies, said Hans Thalbauer, SAP senior vice president of digital supply chain and IoT.

Dana GardnerDana Gardner

The digital supply chain can provide companies with information on the types of products they need, the types of customers they have and the capabilities of their suppliers. Further, the technology lets companies see how disruptions, such as weather events or new tariffs, may affect products and customers.

"Total visibility is not only about a 3D view of a plant; it's the analytics around it, the simulations, the predictive possibilities. So, you need machine learning capabilities to support that," Thalbauer said. "You can also automate processes much more and look at demand patterns of the past, then use machine learning algorithms to forecast where it will be in the future."

SAP's four-pillar platform

SAP has certainly put a stake in the ground with S/4HANA as the core of SAP's digital supply chain efforts; however, S/4HANA is only one of four elements that comprise SAP's full platform, according to Thalbauer

S/4HANA provides the system of record for the master data and transactional information of the digital supply chain. The other elements are SAP Integrated Business Planning (IBP), which provides customer-centric demand and supply planning capabilities; SAP Ariba Network, which enables business partners to connect for direct material collaboration; and SAP Leonardo, which provides the ability to implement technologies like machine learning, AI, IoT and blockchain into the digital supply chain, according to Thalbauer.

"It's all integrated, and we're focused on building those end-to-end processes around these capabilities because there are many who demand that data flows in and between those processes in this way," Thalbauer said. "Companies have figured out that supply chain manufacturing helps them to transform their business. If you go to any consumer products company around the world, they will tell you [they're] changing the business model. They're not only delivering to a retail store; they're also delivering to the end consumer. And they're using any and all channels to do that. This means they need to have omnichannel supply chains to support that."

Implementation a difficult piece, supply chain trends show

Maribel LopezMaribel Lopez

Some SAP observers believe S/4HANA and integrated applications have the analytical horsepower to drive supply chain digital transformation initiatives, but questions persist on adoption. It's one thing for the platform and applications to be available, but it's another thing entirely to get companies to implement them, according to Maribel Lopez, founder and principal analyst for Lopez Research, a technology research firm based in Healdsburg, Calif.

"They have rolled out the functionality, but it's taken people a while to embrace it," Lopez said. "There seems to be a tremendous lag between when things are announced and when clients are adopting them" -- and it's not just a problem for SAP.

They have rolled out the functionality, but it's taken people a while to embrace it.
Maribel LopezAnalyst, Lopez Research

However, much of this reluctance to digitize the supply chain may lie with the customers' reluctance to change vital processes that have been running their businesses for years, which is a troubling sign within supply chain trends. SAP customers, for example, wanted more modern applications but, in many cases, are unwilling to modernize their infrastructure to make a full digital transformation possible, Lopez said.

"They wanted [SAP] to act like a mobile app without having to change any of the infrastructure -- they wanted that better interface and easier access to data," Lopez said. "[SAP] Fiori tried to skin a lot of that for them, but in a lot of ways, that's kind of a Band-Aid. What was holding them back was that they didn't have the right sensor data to go into the supply chain; they hadn't thought about how to modernize their analytics to go into the supply chain."

The problem many organizations face is that implementing a digital supply chain is a complex undertaking. For example, companies may have to revamp entire applications to make them available for the requirements of the S/4HANA in-memory database and the new data that supply chain analytics brings into the applications.

"It's expensive, it's time-consuming, you have to rally a lot of troops around it," Lopez said. "Often, you start and have a great POC [proof of concept], but then you have no money to roll it out, or you can only roll out the first iteration of it, and you need to think of how you're going to update it and maintain it. The two biggest issues are moving from POC to scale, and you have to make sure you continue to have the money to support the innovation around it and have the executive sponsor to make sure people do it."

Now's the time, but culture shift is required

As has been the case with SAP S/4HANA supply chain trends and other tech movements, successful digital transformation takes more than software or platforms; it also needs a significant corporate culture change, Gardner explained.

 "The companies that are really differentiating themselves in how they do business are the ones that are chomping at the bit to get into digital culture and make efficiencies in ways that hadn't been there before," he said.

Gardner believes that the ramp-up to supply chain digital transformation has been going on for a few years, and there may be another few years to go before companies go through the process, cultural and organizational changes needed for the transformation. However, as difficult as the process may be, the risks to not undergoing a transformation are significant as well.

"These services and technologies are now here, and if you don't take advantage of them and the other people do, it's not going to be just a nice-to-have because you can be disrupted very rapidly," he said.

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