In today’s VUCA-laden (volatility, uncertainty, complexity, ambiguity) environment, every executive must focus on common sense solutions that cut through the sludge to deliver increased productivity, profitability, and performance. Only those companies that are prepared to pivot and enhance customer value while delivering bottom line results will thrive in the next decade while the rest deteriorate as risks come to fruition, the competition passes them by, or their ability to respond to changing conditions is simply not sufficient. A key strategy to ensure you are ready to take advantage of the opportunities and deliver profitable growth is to optimize your ERP system and advanced supply chain technologies.

Case Study: Building & Construction Products Manufacturer

A building and construction products manufacturer wanted to resurrect their service levels to their customer and upgrade their business systems processes to drive profitable growth. Although they had one of the best ERP systems on the market (SAP), they did not leverage it across-the-board to drive results. In fact, many processes were in spreadsheets and different (in type and use of SAP) among their manufacturing facilities and across their distribution network. A key resource left the company that understood the complex design and setup to their sales forecasting (advanced planning), production planning (MRP), capacity planning (CRP), and replenishment planning (DRP) business systems. To add fuel to the fire, the pandemic drove spikes in demand that caused stockouts and extended lead times throughout their network, a cyber-attack limited their visibility to standard reporting, and customers were uncertain of changing demand patterns.

Business Systems Assessment

We started with a rapid assessment of their end-to-end supply chain and order cycle and use of SAP and related systems (advanced planning, manufacturing execution, CRM). It was quickly apparent that the design was extensive with a thought process of setting up the most complex aspects of advanced planning, but resulted in a horrifying spaghetti diagram that required planners to go into Excel to do the best they could to serve customers needs. Unfortunately, that resulted in service levels around 40% with a hard-working, frustrated team. The trick was to figure out how to juggle multiple priorities simultaneously -simplify the process while not letting balls fall to the ground, upgrade the already-existing SIOP process, and further leverage SAP and related supply chain technologies in a smart way that would drive visibility, productivity, profitability, and customer performance.

Path Forward Design: Planning, MRP & APS

Sales forecasting was at the heart of the spaghetti diagram and utilized SAP’s advanced forecasting and planning system (APS) yet was not driving results. In fact, no one knew how to get a reasonable forecast out of APS. Thus, we chose to leave the complex base setup intact as it would take too long to completely overhaul the process, and customers could not wait for improved service levels. Instead, we did a deep dive into the setups and tweaked a few to make sure that the resulting forecast added up and made sense by geography, product grouping, and for key customers. In essence, we made sure it would drive directionally correct results to fuel SAP’s MRP (material requirements planning) and DRP (distribution requirements planning) and instead focused on the collaboration and inputs from Sales with the SIOP process to improve forecast accuracy.

From the production planning perspective, the flagship facility utilized an MRP download report that provided alerts for the items to focus attention on in developing a production schedule. They took sequencing and operational performance drivers into account with their experience and incorporated it into the plans manually. Although there was an opportunity to better leverage SAP and the manufacturing execution system (MES) down-the-line, it wasn’t the key driver to performance. Thus, we turned our attention to the key bottlenecks:

  • Off-line spreadsheets: A secondary plant that solely supported a key product grouping that could not keep up with customer demands and was done in off-line spreadsheets.
  • Capacity visibility: Providing visibility to capacity bottlenecks so that the team could address proactively
  • Order backlog management: Getting arms around the order backlog management process so that the team knew the priorities to focus on to serve customers.

Rollout of Tailored Best Practice Business System Improvements

We leveraged internal production planning best practices and use of SAP in the secondary plant and tailored them to the unique needs of the product and facility. After deep diving into the process improvements with the current planner, she left and we gained an upgrade with a long-term knowledgeable resource. The new resource had the capabilities and just required the hands-on support and education to level up the process and use of SAP. Since planning and capacity/ staffing go hand-in-hand, we worked with the production team to gain insights into key bottlenecks, how to optimize changeovers, and maximize output and incorporated these insights into the planning process.

This led to tweaks to the setup for capacity planning across sites which enabled regular SAP screens and reporting to “work”. We downloaded the results into Excel, created a simple macro to group work centers and create graphs that provided quick visibility to capacity bottlenecks and opportunities to better serve customers. And we worked with the team to incorporate insights and recommendations into the slide deck for SIOP to proactively address staffing and equipment needs. The leadership team was proactive in proactively working across functions to align demand with supply in the SIOP meetings. These strategies drove substantial improvements; however, the production and replenishment planners simply didn’t have enough time to address every issue. They needed alerts and flags to prioritize their efforts.

Thus, we worked with the Finance and I.T. teams to pull the appropriate reports related to order backlog, inventory availability, and schedules. Of course, it is never that easy or it would already be done, and so we worked across functions to set common definitions for dates, separated out key product lines and figured out how to segregate key geographies (since they related to a different subset of people) to make the information more meaningful. Although the data now reflected reality, it was still too much work for the planners to sift through the data to address their reasons for past due and to look forward to projected past due.

Resurrected Service Levels

Therefore, we found SAP functionality to better target items, developed a cross reference to assign items and customers, and designed an automation tool that could be developed in business intelligence (BI) when ready to highlight key priorities to proactively address potential past due and to track reason codes. An S&OE (sales and operations execution) type meeting was established to manage backlog in support of the SIOP process. Service levels climbed back to the 90%’s.

Upgrade for Sustainability & Scalability

Once service levels were intact, we took advantage of the opportunity to upgrade the production planning processes to maximize output (breaking records in the supporting facility) and automate the use of SAP for sequencing (product wheel concept) to increase efficiencies and minimize waste. We also upgraded the use of SAP for replenishment planning to minimize freight costs while keeping service levels intact. We also brought a cross-functional team together to optimize service policies in a way that would support customers, better utilize SAP and increase productivity and profitability. As productivity improved, we leveraged the opportunity to upgrade the inventory management processes and use of SAP to reduce inventory while maintaining customer and business performance.

ERP Optimization: Path Forward

Since the majority of companies utilize 20-30% of their ERP system, there is always vast opportunity in further leveraging and optimizing the use of ERP. To read more insights into how to optimize your ERP system, read “Better Utilize Your ERP System (3 Strategies for CEOs)“. However, it is also key not to fall into the trap of thinking whatever the ERP experts say are “best practices” should be followed in every situation. Adding complexity can sacrifice productivity, profitability, and performance in some situations. On the other hand, adding just the right functionality can drive exponential results. Perform a rapid, cradle to grave supply chain ERP utilization assessment and develop a series of improvements that will drive a return on investment (ROI) at each juncture to fuel enhanced customer value and profitable growth.

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Digitization of the Supply Chain Drives Profitable Growth