Building a case for an SAP APO upgrade or implementation

SAP released a new version of APO in Business Suite 7. Learn its benefits and drawbacks.

APO is quickly becoming one of the most popular SAP products among customers, according to interviews with ana

lysts.

SAP Advanced Planner and Optimizer (APO) is one of the key pieces of SAP SCM. APO consists of a suite of supply chain planner components that support forecasting and planning within and along the supply chain. The modules within APO include: Supply Chain Cockpit, Demand Planning, Supply Network Planning (SNP), Global Available to Promise, Transportation Planning/Vehicle Scheduling, Service Parts Planning, and Production Planning/Detailed Scheduling (PPDS).

Because of competition from Oracle and vendors in the transportation and warehousing space, SAP has done a lot of work to transform APO into a bigger and more robust product, said Valerian Harris, vice president for enterprise solutions at Patni, a global consulting firm.

The latest version of SAP APO, 7.0, went into “ramp up” in the fourth quarter of 2008 and became generally available in 2009, according to Stephan Kreipl, head of line of business for supply chain collaboration at SAP.

Customers planning to upgrade to 7.0 from a previous version must have at least version 4.1, which just went out of mainstream support and into extended support, Kreipl said. If you have an earlier release such as 3.1, you will need to upgrade it to at least 4.1 before moving to 7.0, he said.

Amongst the improvements in APO 7.0 is the addition of demand planning functionality that uses a forecasting algorithm -- developed with the University of Arkansas and a U.S. consumer product company that SAP wouldn’t name -- which allows the module to better interpret short-term changes in demand.

“We leverage recentpoint of sale (POS) data through our new forecasting algorithm, not with the more traditional goal of predicting demand 12 or 18 months in the future but with the goal of predicting demand over the next two to three weeks, based directly on data from stores,” Kreipl said.

This allows APO’s POS connection to enable real-time decisions. For example, as data in the POS system indicates a drop in demand, the integration with APO allows organizations to adjust -- either to ship more goods or even stop shipments if necessary, Harris said.

“As your planners are planning, the POS data can now come to them in near real time, and they can make appropriate changes,” he said. “That more current POS data allows you to make changes to short-term forecasts.”

Although a lot of the APO capabilities are used by consumer goods companies, organizations that handle bulk products like chemicals also have demand planning challenges.

Most SAP customers still use APO Demand Planning to do forecasting based on historical information. It has multiple statistics forecasting methods that work really well, Harris said. But in APO 7.0, SAP made small changes in the planning engine that allow for more granular and exact planning of bulk shipments, providing a fine-tuning that is similar to that provided by the POS-APO connection.

Gartner’s Paul Lord agreed. He warned, however, that the very flexibility of the system forces organizations to make high-stakes decisions about simplicity versus value. Users should be clear about their requirements, “including gaps from standard SAP code,” before attempting an implementation.

Successful APO projects hinge on this clear definition of requirements.

“Companies are more successful implementing SAP APO when they’re clear on objectives, mature in their processes, and effective with governance to drive decisions,” Lord wrote in a recent Gartner report.  

He cited the experience of two SAP customers. One had mature and sophisticated processes but made a business decision to limit the scope of its APO implementation to the replication of existing processes and functionality. “[It] prevented the project from leveraging enhanced APO functionality to deliver value,” Lord said.

In contrast, he said, another company used the APO Production Planning and Detailed Scheduling (PP/DS) module to streamline the planning process, which reduced planning overhead by 40%, improved forecast accuracy, and eventually helped reduce inventories.

According to SAP, APO can also help organizations to share information with customers in real time. In particular, SAP APO supports intercompany collaborative processes, such as vendor-managed inventory (VMI) and the voluntary inter-industry commerce standards collaborative planning, forecasting, and replenishment process.In turn, in APO 7.0, SAP has improved characteristics-based cross-location planning.

“When you look at APO, we had a lot of characteristics-based planning. We also had cross-location planning in the SNP module,” Lord said. In the last few years, as more and more industries began to operate based on cross-location planning, they often used characteristics planning. Now, according to Kreipl, industries such as high tech, with its increasingly global focus, want cross-location planning that closely supports characteristics-based planning. With APO 7.0, SAP has brought both planning processes together. “We are now able to transfer or propagate demands with characteristics, such as a sales order for a paper with a certain quality and color, throughout the network,” Kreipl said.

APO is already on the short list of “next steps” for Direct Relief International, a Santa Barbara, Calif.-based nonprofit that provides medical supplies globally. Ross Comstock, IT director at Direct Relief International, already uses SAP ERP, SAP SCM, SAP for Public Sector, SAP CRM, and SAP Inventory Control Manager to control operations, track inventories, and help sustain a rapid expansion in the scale of the organization’s work.

Comstock said: “We will definitely be looking at the capabilities provided by SAP APO in the future as we consider further upgrades.”

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