What began as a way to communicate with its suppliers, Sauer-Danfoss's use of SAP’s Supply Network Collaboration (SNC) portal has since evolved and allowed the hydraulic pump manufacturer to shave inventory levels and lead times and lock out shipping errors before products hit the receiving dock.
Three years ago, the Ames, Iowa-based company evaluated SNC in order to collaborate with suppliers that weren’t using EDI (electronic data interchange).
“We had many different locations communicating with our suppliers," said Tami Loughren, the SNC project manager for the company’s global business process improvement division. "But they were communicating differently. In North America, we had a website. In Europe, we were emailing out forecasts and purchase orders, and in some cases we were faxing. It really started as a smaller-scale project, to communicate with our suppliers globally and look like one Sauer-Danfoss.”
SNC is a Web-based portal that allows Sauer-Danfoss to share information regarding forecasts, advanced shipping notices, purchase orders, schedules and payment status with its suppliers. It's a big operation. Sauer-Danfoss consists of 17 engineering and manufacturing facilities, approximately 280 distributors and service centers and more than 20 sales companies, according to the company’s website.
With SAP SNC, suppliers can log on to the portal anytime, day or night.
“They’re not waiting for paper delivery, even emails, saying when the next order is due,” Loughren said.
Inventory is now at leaner levels because the company can get demand signals to its suppliers faster, and because SNC is integrated with the company’s SAP Advanced Planner and Optimizer (APO) software, forecasts are run daily and shared with its suppliers.
“Before we went to SNC, we were only getting a forecast maybe once a month. Somebody would send them an Excel spreadsheet,” Loughren said. “So now with the SNC website, they can log on and see the most up-to-date forecasts and start planning what their deliveries are going to be against that forecast.”
And because all of that communication happens up-front with the supplier, discrepancies over price and quantity are typically caught before they reach the dock. That’s been one of the biggest benefits of using SCN, according to Loughren.
“Once the product arrives, we’ve eliminated potential discrepancies, because we handled them up-front before the product even came,” she said. “That allows the invoice to flow through the system much faster. There’s less potential for errors.”
Sauer-Danfoss now sees errors in price or quantity just like it does defective parts.
“Instead of reacting to a discrepancy, [we’re] preventing it from happening from the first place,” she said.
What do the suppliers think?
Using SNC required a higher level of cooperation from its suppliers than in the past, Loughren said.
“We were requiring our suppliers to truly begin to collaborate with us. We wanted them to give us advance shipping notices in response. In some cases, we wanted them to do order confirmation,” she said.
While some suppliers embraced the change, others viewed SNC as a way for Sauer-Danfoss to extract more information, which meant more work from them.
“We were told they’d have to hire additional employees, they’d have to raise prices,” Loughren said.
Sauer-Danfoss decided that instead of a big-bang deployment, it wanted to introduce the SNC portal supplier by supplier. That would address the concerns about additional work, ease software training and ensure suppliers understood what the company was requiring of them. Sauer-Danfoss also made sure their suppliers understood what they were getting out of the new arrangement.
“Making that accounts payable information available to the suppliers was very interesting to a lot of our supply base,” Loughren said. “They didn’t have to pick up the phone and ask us, ‘Hey, are you going to pay my invoice? or ‘Did you get my invoice’? They could see it all right there on the website.”
Succeeding with SNC didn’t happen in a vacuum, Loughren said. Sauer-Danfoss had to get its master data in order. When it began implementing SNC, the company had to straighten out pricing errors in its system, she said.
While there’s always a temptation for Sauer-Danfoss buyers to go outside the system when they need product as quickly as possible, using SNC in conjunction with its SAP ERP has yielded positive results overall.
By using evaluated receipt settlements (ERS) process within SCN, the company has seen a 100% drop in payment discrepancies. That process also means they’ve been able to go to an entirely paperless invoicing system, which has also reduced overhead in its accounts payable department.
“Nobody touches them anymore,” Loughren said.