The benefits of SAP supply chain management (SCM)

The supply chain is a highly complex area. As a result, it can be a source of great efficiency and cost-savings gains. But how do you compare purchasing dollars vs. efficiency gains, or marginally decreased transport errors vs. global training costs for the new software? This checklist by ROI guru Tom Pisello helps set the record straight.

The supply chain is a highly complex area. As a result, it can be a source of great efficiency and cost-savings...

gains. Companies are realizing that more than ever, supply chain excellence drives competitive advantage, customer relationships and shareholder value.

The business case for better SAP supply chain management mandates a deep examination of myriad sources of potential benefits, including:

Improved SAP SCM staff and task productivity – automate various SCM tasks – from plan-to-produce, source-to-settle and order-to-cash processes – and improve business processes, leading to increased productivity benefits. Typical productivity improvements include savings in sourcing, supplier management, production planning and analysis, production management, production staff, change order processing and management, quality control and analysis, sales order entry and processing, promotions management, fulfillment, and transportation and logistics.

Increased inventory turns/reduced days in inventory (inventory and inventory carry cost) – more accurately forecast and source the amount of inventory needed, leading to an increase in inventory turns and reduction in days in inventory. This leads to a one time inventory reduction and ongoing carry cost reduction on the saved inventory.

Reduced days sales outstanding (days in accounts receivable reduction) – reduce accounts receivable collections with better visibility into the AR process, aging and extension of credit, helping to reduce days sales outstanding.

Reduced inventory scrap – reduce scrap write-downs with better quality control and planning/forecasting.

Improved net fixed asset (NFA) utilization, avoiding net fixed asset additions – more effectively utilize current net fixed assets such as plants and equipment, and potentially avoid planned investments to handle growth.

Reduced cost of goods sold (COGS) – reduce cost of goods sold with various improvements such as more effective sourcing of raw materials, tracking of work-in-process, reductions in production quality, issues and planning, increases in production efficiency and reduction in production overhead.

Improved strategic sourcing – strategically source direct and indirect materials and better manage vendors, leading to material cost savings.

Improved purchase order, invoice and payment productivity – automate purchase order forms and processing, improving the process and productivity of contract and vendor managers, purchasing agents, employees and managers on purchase order requests and approvals.

Reduced maverick spending – manage purchase order requests and approvals more effectively to help reduce maverick spending, while increasing strategic sourcing and resultant discounts.

Improved production exception handling – better plan and manage production, helping to reduce exceptions and the associated resolution costs.

Reduced accounts receivable, bad debt write-downs and disputes – better manage accounts receivables to eliminate extending credit in error, recognize collection issues sooner and managing them more effectively, and reducing disputes and related costs.

Reduced transportation duties and taxes and increase rebates and incentives – optimize production and shipping to reduce transportation duties and taxes, and increase rebates and incentives.

Reduced transportation error costs – reduce transportation errors, eliminating error-related costs to resend or reroute shipments,

Improved customer retention and increase customer loyalty – improve customer satisfaction via improvements like streamlining and reducing errors in the invoicing process, eliminating backorders, reducing errors, improving quality, reducing time to receipt.

Consolidated current SCM solutions – avoid current spending on systems, support and maintenance contracts, application development and integration, systems administration and support via consolidation to a newer consolidated platform.

More on SAP supply chain management:

  • 10 best practices in SAP supply chain management
  • SAP SCM software and RFID FAQs and trends
  • Effective supply chain management is all about visibility


    Tom Pisello
    Tom is the president and CEO of Orlando-based Alinean, the ROI consultancy helping CIOs, consultants and vendors assess and articulate the business value of IT investments. He can be reached at [email protected].
    Copyright 2005 TechTarget

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