S/4HANA Materials Management and Operations (Simple Logistics) – What will be the likely ‘business benefits’?

S/4HANA Materials Management and Operations – (the new name for Simple Logistics) is being heavily marketed by SAP at the moment as the revolutionary new ERP system that will enable you to transform your business.

Whilst I believe a lot of these claims are true – especially looking at the new architecture that SAP is working to put in place for S/4HANA, I feel what they failed to do so far is to articulate the actual business benefits of this new system. SAP marketing messages range from very high level, such as,

“you will be able to reduce your inventory holding by X percent”

without giving any details as to why, to the very technical such as,

“you’ll move from X number tables to Y number of tables reducing your database size” This also does no help a business decision maker understand what benefits they will actually get.

In this blog post I thought I would try, based on some research into Materials Management and Operations and the SAP roadmap, to give my opinion of where the benefits may lie and which claims might turn out to be bogus.

Let’s start with the business problem – what do the businesses struggle with, from the supply chain perspective, and where would they like to see an improvement? No matter what company or industry I go to, I recurrently hear the same three themes:

• We want to reduce/optimize our inventory holding
• Our business is moving from B2B to consumers and we are struggling to keep up
• We want to be able to easier accommodate and integrate our supply chain
• And on top of this, of course, everyone wants more operational efficiency.

In this blog I will try to address how Materials Management and Operations can help in these areas.

Let’s start with the easiest one – the operation efficiency requirement. How can Materials Management and Operations help? Three things are true of S/4HANA:

• It runs SAP processes quicker
• It has a much slicker interface that enables you to bring together data that users had to go and search for across different (and often very very cluttered) transactions and systems.
• Most importantly, it enables you to run analytics on the fly from the transactional system ‘without having to run an overnight BW extract to pull a report’.

Whilst these may be small by themselves, combined across the business, they can deliver a very substantial employee efficiency and productivity improvements. No more processes that are delayed due to the need to wait for a report being run overnight – or even a report that takes 30 minutes to run. And everything can be seen on the same screen – no matter the device.

Other items are perhaps not as obvious. How can a quicker system help optimize the inventory holding? I believe several things come into play here. SAP always lacked a “mid-level detailed” planning solution. Both SAP Materials Management Planning(MRP) and Supply Network Planning(SNP) have been around for a very long time. But one is very inaccurate – effectively an engine to very quickly automate creation of planned orders and purchasing requisitions based on static predefined data. The other is far too sophisticated and slow to be able to run on a large volume of Stock Keeping Units (SKUs). What the businesses are really after is something in between - much simpler than Supply Network Planning (APO-SNP) and which users can understand, but at the same time something that is a lot more accurate than SAP MRP. This is, I believe, the gap that SAP will try to fill with S/4HANA.

Firstly, because it can run faster, it will be able to simulate multiple scenarios instead of just running one. Secondly (and nothing really to do with HANA database), I think SAP is bound to implement one of the more “modern” planning methodologies such as Demand Driven MRP as part of its S4HANA suite. These methodologies are a lot more dynamic and produce much more accurate results. These two combined, I believe will provide a much more accurate inventory requirement and thus enable reduction in inventory held and scrapped.

Now let’s have a look at the challenge around consumer interaction. If we broke that up a bit, it really comes down to 2 things:

1) A much higher volume of transactions and

2) Much smaller production lot sizes.

I believe S/4HANA will very easily be able to handle the first one – including the real time analytics that become much more critical in a high transaction volume environment.

The second one, small production lot sizes, is a bit harder to solve. The biggest roadblocks there is actually the lack of real time integration with the shop floor and the length of the planning cycle does not help either. Forecasting is generally run on a weekly basis and the feedback from shop floor is often also far from real time. Both are generally driven by system limitations. From the production side, I believe Manufacturing Integration and Intelligence(MII) will eventually integrate into S/4HANA SAP customer deployments if it has not already. The only real reason for its existence is its ability to process very high transaction volumes. On the forecasting side, this can also become much more real time – the data is available there and then, directly from the source. There will be no need to extract it to only re-upload the result later (and lose a couple of days in between!).

Lastly, let’s have a look at the purchases and acquisitions requirement. This is the area where I feel the key benefit of S4/HANA is not actually the performance but rather the release and hosting strategy that SAP is trying to put in place, if it pays off of course. Most of SAP installations today are on premise, are heavily customized and very rarely upgraded. You will find anything from 4.6 to ECC5 and ECC6 with various support packs. Where SAP is clearly trying to move to is quarterly releases with all instances hosted in the cloud (whether private or public). What this should drive is a significant reduction in customizations – you cannot launch a massive upgrade project every quarter, so it needs to be seamless. This will of course mean that trying to add another entity (on a fairly standard process) should become a more straightforward task. On top of that, data migration should also become much easier with fewer tables to manage.

Conclusion:

So whilst S/4HANA and Materials Management and Operations is still very much a new product, it feels that it has a lot of potential. A lot will depend on where SAP puts focus first and some of their strategy paying off, but definitely something worth looking into and exploring.

I am Gary Phelan, an IT and SAP Global Program manager at Aptiv Global Operations Ltd in Ireland. Thank you for taking the time to read my weekly post. I hope you are leaving knowing a little more than before, about SAP S/4HANA.