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Demand-driven replenishment added to SAP IBP

New demand-driven planning methodology in SAP Integrated Business Planning helps organizations create better supply chain forecasts based on real customer sales orders.

The customer-centric economy requires companies to make more personalized products and deliver them on demand. But legacy supply chain management systems are finding it hard to keep up.

SAP's next-gen supply chain management product, SAP Integrated Business Planning (IBP), now includes what the vendor is calling demand-driven replenishment functionality. It is intended to help companies manage today's complex supply chains and more dynamic inventory requirements, according to Franz Hero, senior vice president of SAP supply chain and logistics development.

IBP now incorporates Demand-Driven Material Requirements Planning (DDMRP), a visually oriented approach to helping companies achieve the right service level with the lowest total supply chain cost.

"The way we try to achieve it is by having a stable flow within your supply chain," Hero said. "Overall, DDMRP comprises [supply chain] modeling, planning and execution in a closed, end-to-end loop."

SAP IBP is a HANA-based cloud-first platform that debuted in 2014; it's now positioned as a replacement for SAP Advanced Planning and Optimization (APO), the on-premises demand planning application, according to Hero. IBP offers the same functionality as APO, but it also includes demand-driven features that are more suited for today's complex supply chain needs.

"We are also addressing new business trends with IBP, and it's clear that we are moving into a world that's about more individualized products," Hero said. "You have more SKUs, faster replenishment cycles, more product introductions, and the whole supply chain is becoming so complex that the traditional model of making a demand forecast and then planning the supply doesn't bring additional improvement."

Minimizing the bullwhip effect

Inventory throughout a supply chain is kept at decoupling points, creating a safety buffer that covers unplanned occurrences, such as delivery delays or changes in customer demand. If inventory is lacking at decoupling points, it can create a bullwhip effect in the supply chain, where changes on the supplier side affect customer demand, or changes in customer demand can affect raw materials requirements for suppliers.

The DDMRP approach in SAP IBP enables companies to plan based on the real demand of sales orders, rather than rely on traditional forecasting methods, according to Hero.

"Forecast is still an important element of DDMRP, but when it comes to replenishment itself, it's purely driven by sales orders," he said. "Now, if you combine those buffers absorbing variability from supply and demand, and triggering replenishment based on real orders only, you minimize the bullwhip effect."

The IBP demand-driven replenishment application was co-developed with Camelot ITLab and was certified by the Demand Driven Institute, an organization that helped develop and now promotes the DDMRP methodology in industrial companies.

Dawn of a new era in supply chain forecasting

The type of analytics SAP IBP provides can help companies plan more accurately for demand, according to analyst Dana Gardner, president of Interarbor Solutions

It's the dawn of a new era.
Dana GardnerPresident, Interarbor Solutions

"You now have access to the data and the ability to use a platform that's basically analytics as a service, to get more predictive with what to expect, so that you're not reacting to any interruptions or even price fluctuations when it comes to your supply chain," Gardner said. "It's the dawn of a new era, when we can start to go beyond reacting to the latest news and develop something more like the weather forecasting of what's going to happen."

For example, if an automotive parts company that has suppliers in Mexico hears there may be tariffs placed on goods coming from Mexico, they can run models to measure the potential effects. And they can use the information to change their behavior, choosing to shop with second- or third-tier suppliers, if it makes sense to do so, Gardner said.

"There are all kinds of scenarios that you can run, and the beauty of something like the SAP IBP is that you're not just doing batch reports on a quarterly or monthly basis; you're actually able to start interacting," he said. "That's where the C-suite folks can rethink the way they do business and bring real intelligence to business outcomes."

SAP is in a strong market position, because it has built out HANA capability to handle data from inside and outside the enterprise, making it accessible from the cloud via applications like IBP. But SAP is far from the only option companies will have to take advantage of these analytics, according to Gardner.

"It's an interesting time. It's sort of a buyer's market, and you're going to have much more of a choice with regard to how you go about analytics. And because of cloud deployment, you can get these analytics delivered as services," he said. "You don't have to be locked into a specific platform. You don't have to worry about having the right data center architecture to support the number-crunching required. And, increasingly, there's a democratization of user experience."

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