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Main Technology Scorecards: Aligning IT Investments with Business Performance
Technology Scorecards: Aligning IT Investments with Business PerformanceSam Bansal
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(continued from front flap) Estimate and eliminate risk in the various phases of the project • Establish and enforce a quality regimen • Conduct ongoing measurement and tracking of the KPIs • Present findings to stakeholders to continue their support Aligning your investment strategy with your high-impact processes and benchmarking a projected return on investment is an effective way to achieve maximum impact in technology spending. Technology Scorecards' strategy-focused plan for your IT investments will help you reap greater financial gains, employee involvement, and sustainable success. Whether you're a CIO, CFO,CEO, IT manager, or a consultant, Technology Scorecards provides you with the tools you need to immediately estimate and establish what value to expect and what technology is required to achieve it. Turn strategy into quantifiable performance — using the blueprint to IT success found in Technology Scorecards. Plan, execute, and sustain a successful IT campaign with Sam Bansal's perfect scorecard approach F irst came the dot.com bust, then the IT squeeze. Despite software being the tail that wags the dog in most corporations, the champions of IT, the CIOs, are constantly under fire to justify and maximize their IT investments—past, present, and future. Learn how to establish Key Performance Indicators and Value Scorecards for IT to ensure maximum value in your corporation with the step-bystep approach found in Sam Bansal's Technology Scorecards. Drawing on Dr. Bansal's over forty years of field experience in the management of large and complex projects, Technology Scorecards shows you how to: • Create Scorecards geared towards your organization's business goals • Make quantum improvements in cost, value, and productivity using KPIs and Scorecards • Increase your company's net by as much as 100% just by improving your supply chain management by 50% • Impact your top line the most through product life-cycle management • Develop a realistic strategy through Scorecards, which can then be used to drive IT investments that maximize your business performance Aligning IT Investments Business Performance Enhance profitability. Streamline strategy execution. Lower costs. Learn how to align your IT plans with your business objectives and optimize your company's overall performance with the perfect scorecard approach found in Technology Scorecards. with DR. SAM BANSAL has years of experience in the enterprise software industry, primarily focused in consulting. He is head of SIS and Partner of Elixir Netcom Solutions, a technology solutions provider. Bansal has worked for large high-tech multinationals and vendors consulting on everything from strategy formulation to detailed blueprinting to execution in the CIO and management consulting and business development realms. His solution architectures are aimed at business value creation through the appropriate use of technology. $49.95 USA/$59.95 CAN BANSAL TECHNOLOGY SCORECARDS • A TECHNOLOGY SCORECARDS Aligning IT Investments with Business Performance D R . SA M BA N SA L re you dissatisfied with your business software? You're not alone. Fully 75% of organizations believe their business software is not meeting expectations. The letdown, or failure, of the technology cannot be pinned on the technology itself. Successful implementation of technology involves the integration of People, Processes, Technologies, and Systems—key factors in the successful implementation of technology. If you miss any one of these critical elements, you are bound to fail. Taking you step by step through the process of establishing Key Performance Indicators (KPIs), Technology Scorecards shows you how to manage your technology investments as part of an overall performance management strategy and invest in the areas that promise maximum impact. Sharing his decades of experience in business value creation through the appropriate use of technology, author Sam Bansal walks you through the process of establishing Business KPIs, benchmarking them, and preparing a scorecard to show you the potential value your company can gain. By helping you establish achievable expectations, he then shows you how to integrate People, Information, Business Processes, and Technology within your framework. After the initial groundwork is laid, Technology Scorecardss delves way beyond project management to show you how to: • Develop IT strategy responsive to business strategy • Calculate the value contribution as derived from the SCOR Card • Translate the business blueprint to the hardware, software, and network structures to create solution architecture • Work with the "champions" of the project and involve them in the project (continued on back flap) ffirs.indd ii 3/4/09 11:33:31 AM P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come Technology Scorecards i P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come ii P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come Technology Scorecards Aligning IT Investments with Business Performance SAM BANSAL John Wiley & Sons, Inc. iii P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 This book is printed on acid-free paper. Copyright C Printer Name: Yet to Come ∞ 2009 by Sam Bansal. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/permissions. Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages. For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002. Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at http://www.wiley.com. Library of Congress Cataloging-in-Publication Data Bansal, Sam, 1940Technology scorecards : aligning it investments with business performance / Sam Bansal. p. cm. Includes bibliographical references and index. ISBN 978-0-470-46456-4 (cloth) 1. Strategic planning. 2. Business logistics. 3. Performance technology. I. Title. HD30.28.B3644 2009 658.4 012–dc22 2008052098 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 iv P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come Disclaimer T his publication contains references to the products of SAP AG. SAP, R/3, xApps, xApp, SAP NetWeaver, Duet, PartnerEdge, ByDesign, SAP Business ByDesign, and other SAP products and services mentioned herein are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. Business Objects and the Business Objects logo, BusinessObjects, Crystal Reports, Crystal Decisions, Web Intelligence, Xcelsius and other Business Objects products and services mentioned herein are trademarks or registered trademarks of Business Objects in the United States and/or other countries. SAP AG is neither the author nor the publisher of this publication and is not responsible for its content, and SAP Group shall not be liable for errors or omissions with respect to the materials. v P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come vi P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come Contents Acknowledgements ix Acronyms and Abbreviations xi PART I INTRODUCTION 1 CHAPTER 1 Why Projects Fail, Scorecards, and How This Book Is Organized 3 PART II PROMISE OF TECHNOLOGY 15 CHAPTER 2 Strategic Enterprise Management 17 CHAPTER 3 Supply Chain Management 31 CHAPTER 4 Product Life Cycle Management 93 PART III SCORECARD METHODOLOGY TO ALIGN IT INVESTMENTS WITH BUSINESS PERFORMANCE (DELIVER ON PROMISE) 147 CHAPTER 5 Strategy 149 CHAPTER 6 Realization Phase 171 CHAPTER 7 Human Factors 185 CHAPTER 8 Umbrella Considerations 235 CHAPTER 9 Performance Management 287 CHAPTER 10 Summary 291 References 293 Index 295 vii P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come viii P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come Acknowledgments T he author is indebted to SAP AG for the knowledge gained on Advance Planner & Optimizer (APO), Supply Chain Management (SCM), and Product Life Cycle Management (PLM) while in tenure over there. Most of the information presented in these areas is based on the author's own practice and knowledge of the SAP domain. To the best of the author's knowledge, nothing discussed is of a confidential nature. I also wish to acknowledge all those friends, relatives, colleagues, and associates without whose help, advice, and encouragement this book would have still remained in my head. Specifically, some people I want to thank for their help are: Amrish Goyal, my friend, for his constant encouragement to complete this work. Sneh Agarwal, my wife, for her continued enthusiasm and for encouraging me when I did not feel up to completing this work. Sahil Bansal, my son, for editing the preface and sowing the seeds of confidence in this effort. Suresh Mehta, my friend; as a CIO and project manager, he critiqued the preface and introduction with a high degree of enthusiasm. Sanjay Jain, my friend and colleague, for his endorsement blurb. Sanjay has always encouraged and advised me on various issues. His review and critique of the entire book has proven invaluable. A professor at George Washington University, Sanjay is a subject matter expert. Ajay Agrawal, my friend and erstwhile colleague, for his implicit faith in my claim that a high percentage of software projects fail the first time. His belief gave me the confidence to begin this project. Mike O'Brien, my friend, mentor, and client, for his kind encouragement and for agreeing to review the book and give me an endorsement. Mike Petrucci, my friend, mentor, and client, for agreeing to give me an endorsement. ix P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come x P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come Acronyms and Abbreviations APO: Avg: BBP: BCD: BPR: CAD: CAE: CAM: CAPE: CAPP: CIM: CIMing: Collabn: Config Mgmt: CPG: CPM: CRM: CSF: DDC: DFA: DFM: EH&S: Env: ERP: fabs: FI: iPPE: IT: KPI: LCM: MES: Advanced planner and optimizer Average Business blue print Business case development Business process reengineering Computer-aided design Computer-aided engineering Computer-aided machining Computer-aided process engineering Computer-aided process planning Computer-integrated manufacturing Usually means tasks related to computer-integrated manufacturing Collaboration Configuration management Consumer packaged goods Collaborative project management Customer relations management Critical success factors Direct digital control Design for assembly Design for manufacturing Environment, health, and safety Environment Enterprise resource planning Fabrication units; usually refers to chip-making plants Finance Integrated product and process engineering Information technology Key performance indicator Life cycle management Manufacturing execution system xi P1: OTA/XYZ P2: ABC fm JWBT078-Bansal March 16, 2009 12:52 Printer Name: Yet to Come xii MM: mySAP: mySAP SCM: OA: PM: Psft: R3: SAP: SCM: SD: SEM: SIS: SKU: SOA: Sr: SRM: SWOT: WBDS: WF: WFM: Acronyms and Abbreviations Materials management SAP's software product begun in 1999 SAP's Supply Chain Management Opportunity assessment Project manager, also program manager Peoplesoft SAP software system Software Application Products (usually refers to SAP Ag of Germany) Supply chain management Sales and distribution Strategic enterprise management Semiconductor integration services; also strategic international services Stock keeping unit Supply chain opportunity assessment Senior Sourcing relations manager Strength, weakness, opportunity, threat Work break-down structures Work flow Work flow modeling P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 12:53 Printer Name: Yet to Come PART Introduction 1 I P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 12:53 Printer Name: Yet to Come 2 P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 12:53 Printer Name: Yet to Come CHAPTER 1 Why Projects Fail, Scorecards, and How This Book Is Organized Today's Environment Since the dot-com bust in the year 2000, information technology (IT) and IT people have been under an unprecedented squeeze. Today's high-tech industry has come close to being a $10 trillion behemoth, of which software is fully more than 25%. There was a time when software was a forgotten appendage to the mighty mainframe, but such is not the case anymore. Now software, even if only 25% of the total content, is the tail that wags the dog. As paradigm after paradigm is changing in the high-tech landscape of our world, software is increasing in importance and is contributing more business benefits than ever before. But this is not enough. It seems the honeymoon days for IT are over. The free rein that chief information officers (CIOs) enjoyed not too long ago are gone. Instead, we find ourselves in the midst of very tight operating conditions. In today's software environment, CIOs must: Reduce total cost of ownership. Increase value to the corporation. Contribute to improve bottom and top line. And the normal things that CIOs were expected to do in addition to the top-level goals continue: Decrease complexity in increasingly heterogeneous environment. Contribute to creating a real, real-time enterprise. Manage resources. Do a lot with the little that is available. Produce miracles without budget growth. 3 P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal 4 March 16, 2009 12:53 Printer Name: Yet to Come Why Projects Fail, Scorecards, and How This Book Is Organized The champions of IT, the CIOs and their staffs, try to deal with these issues while the project world is delivering the other messages: New technologies are being introduced at a more rapid rate than before. There are too many vendors to choose from. All claim to have practically the same offerings, so it is difficult to differentiate among them. So-called neutral consultants are too eager to take your money without contributing much value. Requirements are not understood. Promises are made to be broken later. And to make matters worse, when projects are finished, chief executive and chief financial officers complain that: Expectations are not met. Too much money was spent for too little return. They want to sue the vendor because it failed to deliver as promised. When a new technology is first implemented by a group of trailblazer companies, success is far from guaranteed. Success and satisfaction are seldom found in this group of companies. However, as the technology gets old and commonplace, the success rate generally goes up. In fact, the larger the company and larger the project, the more likely project failure is. The frank reality is that larger projects (more than $3 million in application spend) routinely need harsh turn-around measures, or they get stalled and eventually killed by the weight of their own bureaucracy. A survey published in 2001 in Chaos News Letter 1 has shed light on companies' success by taking the cumulative cost of failure, estimated by the Standish Group at $145 billion, and by the Meta Group figure at $180 billion. This amount, they believe, is the amount lost each year in the United States due to failed or challenged projects. The Chaos report is full of grim numbers, such as "for every 100 projects, there are 94 restarts" and "only 9% of projects for large companies come in on-time and on-budget." However, the 2004 Chaos report,2 entitled "CHAOS Chronicles," found a total project costs to be $255 billion, of which a total failure cost was estimated to be $110 billion. While this is an improvement over the previous estimates, it is still a large cost of failure. And compare failure or success of a project from the perspective of the stake holders as defined by the chief stakeholders who believe that their IT investments did not give them the desired returns from their perspective. P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 12:53 Printer Name: Yet to Come Why Projects Fail 5 The question is: What are the promises of technology, and how can technology deliver on those promises? Human nature is such that first we create problems, then we search for reasons behind them, and then we try to solve them. So, having seen the current complex and heterogeneous landscape of systems, let us examine briefly the reasons for widespread failures of software projects. A cautionary note about failure is that systems may not necessarily have failed; in the eyes of the stakeholders, however, they may not have fulfilled expectations. Why Projects Fail These are the messages we are getting from the media: Enterprise software at X Company failed to perform. SCM software from Y vendor failed to perform. Company Z is suing the vendor A for noncompliance. Consulting Group A was thrown out of Company B. Here are some basic causes of these problems: Strategic alignment did not match the business goals. There were communication breakdowns. Up-front buy-in was not obtained. User involvement was inadequate. There were poor user inputs. Stakeholder conflicts existed. The requirements were vague. User requirements were not firmly nailed down. User requirements may have changed midway. Poor cost and schedule estimates existed. Skills did not match the job. There were hidden costs of going "lean and mean." There was a failure to plan properly. Poor architecture existed. Failure warning signals came late. Company financials may have changed. Project manager may not have been skilled. The project team may have been unacceptable to management. The champion and executive sponsor was transferred, or left the company, or was not there. P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal 6 March 16, 2009 12:53 Printer Name: Yet to Come Why Projects Fail, Scorecards, and How This Book Is Organized Additional problems encountered in the field include: Value is not understood. Vendors bid without understanding the requirements well. Goals are not clearly and succinctly defined. Key performance indicators (KPIs) are neither defined nor understood. Change management was not practiced. Risk planning was not done properly. Most projects get initiated as automation of as-is without due business process reengineering (BPR) or to-be views. The quality of external consulting was poor. It is not my intention to discuss the causes and cures here. Suffice it to say that the literature provides plentiful basic causes. The additional causes, just enumerated, constitute the main theme of this book. They will form the key factors to unleashing the quantum improvements in cost, value, and productivity. They will form the bulk of the chapters in Part II which will deal with the technologies—their features and benefits—and in Part III the complete step-wise approach to get the projects to succeed will be discussed. Are we investing too much money in information technology and information systems? This is a question many of today's CEOs and boards of directors ponder. Until recently, companies have made major investments in IT, trusting that this measure alone would increase productivity. Now decision makers are increasingly questioning whether IT projects actually create value. Jurgen H. Daum, writing about adding value through IT investments,3 cited statistics from a survey conducted by CFO Magazine: Only 14% of executives state that their companies' IT investments achieved the expected return on investment (ROI), whereas 74% were unsure of whether they had spent too much money on IT in the past three years. Similarly, in June 2007, as I was talking with Ajay Agrawal, a vice president of a financial services company, he mentioned that most IT projects fail the first time they are attempted. Clearly, doubts are being raised about the benefits of IT investments, and managers are becoming more careful about giving the go-ahead to IT budgets. These reservations are apparently warranted. According to a study published by the Gartner Group in October 2008,4 of the $570 billion that flowed into IT investments worldwide, a high percentage was spent in vain. My estimate of this wasted spending is around $246 billion. Figure 1.1 summarizes the basic reasons for the failure. P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 12:53 Printer Name: Yet to Come 7 Harry's Survey Reason for Project Failure % Limited user involvement 15.9 Lack of executive support 13.9 Unclear requirements 13.0 Lack of proper planning 9.6 Unrealistic expectations 8.2 No smaller project milestones 7.7 Incompetent staff 7.2 Lack of ownership 5.3 No clear vision and objectives 2.9 Lack of hardworking, focused staff 2.4 Other 13.9 FIGURE 1.1 Why Projects Fail Numerous studies prove this failure in IT project in particular. One important study, however, set out to understand what the projects that did succeed contribute to business performance. The survey results are discussed in the next section. Harry's Survey I collaborated with Harry Sakamaki of SITA Corporation to conduct a survey of companies in the United States to provide bottom-line KPIs. We selected 16 companies in the manufacturing sector representing a mix of small- to midsize and some large companies. We solicited data from their CEOs, heads of IT, and their staff. Figure 1.2 gives the highlights of this survey. In Figure 1.2, rows 1–14 that are in the smallest type size give the KPIs with respect to systems infrastructure; KPIs in rows 15–25 represent the same of the business performance but specifically of the supply chain; the ones in rows 26–34 are the KPIs of the business performance representing the bottom lines. The improvements shown in the extreme right column are the improvement percentages of each row. Do not add these percentages; they must be looked at as the individual performance improvements. P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 8 12:53 Printer Name: Yet to Come Why Projects Fail, Scorecards, and How This Book Is Organized Row No Key Performance Indicator 1 Systems Infrastructure Rely on enterprise resource planning (ERP) system to provide 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Best practice improvement 3% analytical/business intelligence information Utilize additional applications such as SAP SEM, Oracle OFA, PeopleSoft EPM, Hyperion or Cognos tools Use spreadsheets and manual processes to provide information Utilize balanced Score Card/metrics Utilize daily key measures Enterprise-wide standard management reporting exists Analytics and business intelligence are integrated into the entire enterprise 10% 5% 10% 5% 3% Fully integrated ERP system Limited numbers of ERP/legacy systems with modest integration 3% 10% Disparate information systems with multiple ERP systems and applications Utilize balanced Scorecard and SCOR Card metrics No ERP; use legacy system 10% 5% Business Performance/Supply Chain Performance Increase in customer fill rate Increase in on-time delivery to request Increase in on-time delivery to commit Days Sales Outstanding (DSO) via increasing invoice accuracy etc. 3% 10% 5% 10% Increase in sales via better forecasting and production planning Reduce excessive inventory carrying cost Total days of raw material Total days of work in process Total days of finished goods Bottom Line Business Performance Product margin improvement via increase in yield, better production planning, increase in machine uptime, etc. Production yield improvement by improvement plant scheduling, reducing scrap, etc. Production cost reduction Reduction in head count (full-time equivalent basis) Cost of goods sold (COGS) Cash flow Profit FIGURE 1.2 Harry's Survey Summary 5% 5% 3% 3% 10% 5% 3% 10% 5% 3% 10% 5% 10% P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 Scorecards and SCOR Cards 12:53 Printer Name: Yet to Come 9 Highlights from Figure 1.2 are that bottom-line performance improvements are in the 3% to 10% range. This is a very low number. In fact, it is lower than the earlier number, which said that fully 75% of firms do not fulfill stakeholders' expectations. Whether the figure is 3% to 10% or 25%, it is clear that the success rate as measured by performance improvement is very low. I have tacitly recognized the sad state of affairs of low returns for a long time. My conversations in the field always confirmed that some regular culprits will raise their ugly heads whenever one's guard is down. When I pondered why I often succeeded in delivering values via projects yet sometimes did not, a pattern emerged. This pattern was based on the best practices I employed by design or sheer luck. This is what I want to share with you. The rest of this chapter describes the scorecards and how the major parts of this book are organized. After reading the next section, you will understand the technologies and how to create scorecards that are based on aligning investments and can drive the achievement of business performance. Scorecards and SCOR Cards Scorecarding technology has been around since early 1980s. First there was the Balanced Scorecard methodology, where nonfinancial processes are measured based on their impact on company performance. The term SCOR card is based on the supply chain operations reference model that was introduced in the mid-1990s for measuring, monitoring, and thereby driving the performance of supply chains. In my practice, I used SCOR cards very successfully. However, I grew into SCOR cards using the Balanced Scorecard. The main difference between the two is that the SCOR card is geared more specifically around the KPIs of the supply chain operations whereas regular scorecards can be applied to all enterprise operations. And best of all, I could use either scorecard to impact the development of strategy to align the IT investments with business performance. An example of the potential power of scorecards comes from a conversation I had with the president of a major automotive company in India. I had redesigned his supply chain and presented him with his company's scorecard. It would drive the implementation and huge reduction in his inventory cost. Upon hearing my presentation and reviewing the scorecard, he said, "Sam, I will hang it right behind my chair in my office so that every time any of my staff comes to see me, they see where we are, where our goals are, and who we have to beat to become the best-in-class business." The scorecard had all of that information in it. Part II of this book describes knowledge essential to creating scorecards. Part III presents case examples that show how scorecards can be developed and can drive P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal 10 March 16, 2009 12:53 Printer Name: Yet to Come Why Projects Fail, Scorecards, and How This Book Is Organized the development of a realistic strategy that then can be used to implement the IT investments and exploit the business benefits (i.e., the business performance). Promise of Technology: Functionality, Key Performance Indicators, and Business Benefits Part II explains the concepts behind the value drivers in the value chains from which KPIs can be extracted; they become the basis of functionality required and finally the planning for implementation and development of a business case to benefits exploitation. Thus Part II shows practitioners and stakeholders what is practical to get from the technology. It is divided in three chapters: Chapter 2 Strategic Enterprise Management This chapter examines the functionality of strategic enterprise management (SEM) in detail and discusses its benefits Chapter 3 Supply Chain Management This chapter examines the functionality benefits and KPIs of supply chain management (SCM). SCM impacts the bottom line the most. A 50% improvement in SCM can increase the net before taxes by as much as 100%. Chapter 4 Product Life Cycle Management This chapter examines the functionality, benefits and KPIs of product life cycle management (PLM). This is the application that impacts the top line the most. Deliver on Promises: Scorecard Methodology to Align Investments to Business Performance Part III describes scorecard methodology to align IT investments with business performance. The chapters describe all the areas and activities that have to happen to estimate the benefits and exploit them so that the promises are fulfilled. Note the activities are far more than mere project management. My 44 years of field experience in the management of large and complex projects serves as the basis for this part. Chapter 5 Strategy Enterprise Strategy This chapter is about developing IT strategy that is responsive to business strategy. IT strategy formulation or P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 12:53 Printer Name: Yet to Come Deliver on Promises: Scorecard Methodology to Align Investments to Business Performance 11 synchronizing it with the enterprise strategy is based on business goals and strengths, weaknesses, opportunities, and threats (SWOT) analysis. This chapter is the driver for KPI, benchmarking and SCOR carding, as-is and to-be modeling, and business blueprinting. It drives planning for all the activities in the realization phase, such as solution architecting, gap analysis, roll-out planning and configuring, as well as the planning for change, quality, risk, and test management, training, performance measurement, and performance tracking. Key Performance Indicators Key performance indicators are the measure of a business goal. Unlike most projects, which concentrate on IT-oriented KPIs, these are the business goals as extracted from the key stakeholders of the project. Remember however that there are KPIs that are action/independent variables that impact the business goals or dependent KPIs. Benchmarking Here the comparison is done with the best in class and average in class and the targets the company chooses for KPI (business goal) improvements. Value/Benefits Estimating This section provides a succinct calculation of the value contribution as derived from the SCOR card. Business Process Reengineering Here the workflow modeling of the as-is and to-be views of the enterprise and processes is covered. Chapter 6 Realization Phase Solution Architecting Translating the business blue print to the hardware, software and network structures creates solution architecture. This solution is entirely IT-centric. Gap Analysis This activity pertains to determining whether there is difference between the business requirement and the selected vendors' technology functionality. Roll-Out Planning Various alternatives for rolling out solutions are considered. This planning is very important for a global project. Configuration Planning This section defines the activities of configuring processes and the ways to plan. P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal 12 March 16, 2009 12:53 Printer Name: Yet to Come Why Projects Fail, Scorecards, and How This Book Is Organized Chapter 7 Human Factors Project Management Here various models of project management are presented along with the characteristics of an ideal project manager. Critical success factors and how to do them are given. Also presented are the burning issues of the day in this discipline. Project Champions Project champions are the most essential people, the invisible reasons for a project's success. This section discusses how to work with them and get them interested in the project. Business Case Development. This section discusses all the human and political aspects of taking the business case to the stakeholders and the board to sell the project. Chapter 8 Umbrella Considerations Change Management This section demonstrates how to rigorously manage the change. Most projects fail because they were not done well enough to proactively manage the change that promotes success. Implementation Time Risk Analysis and Mitigation of Risk in Enterprise Systems. This section shows how to estimate and eliminate risk in the various phases of the project. Recovery models are also given. Quality Management This section discusses quality as applied to software and explains how to establish and enforce the quality regimen. Communications Management This section describes how to plan and enforce the proactive communication system. Test Plan and Test Procedures Here we discuss various aspects of the test plan, test procedure, and test methodology through the entire life cycle of the project. This section includes validation and reviews. Training This section explains who to train and how much to train. Without a successful graduation from a training program, the project will not succeed. P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal Bibliography March 16, 2009 12:53 Printer Name: Yet to Come 13 Chapter 9 Performance Measurement This chapter explains how to do ongoing measurement and track the KPIs. It discusses where and when KPIs should be presented to the stakeholders in order to continue to buy their support. Chapter 10 Summary This chapter provides the overall summary of the book. Bibliography "Danger Signs on the Road to Success," Chaos News Letter, August 17, 2001. Daum, Jurgen H. "Strategy—A Holistic Approach: Adding Value Through IT Investments," Sapinfo.net. Gartner Group. "Most Business-Launched Virtual Worlds Fail," May 16, 2008, www.informationweek.com/news/personal tech/virtualworlds/ showArticle.jhtml?articleID=207800. Gartner Group. "90 Per Cent of Corporate Virtual World Projects Fail," May 15, 2008, www.gartner.com/it/page.jsp?id=670507. Gonsalves, Antone. "Gartner Backtracks on Earlier IT Spending Growth," Information Week, October 13, 2008. Krigsman, Michael. "Why IT Projects Fail," August 10, 2007, www. softwaremag.com/L.cfm?doc=newsletter/2004.zdnet.com/projectfailures/? p=329. PM Hut Admin. "Why Do Projects Fail?" August 30, 2008, www.pmhut.com/ why-do-projects-fail. Standish Group. "Project Success Rate," Software Magazine, January 15, 2004. P1: OTA/XYZ P2: ABC c01 JWBT078-Bansal March 16, 2009 12:53 14 Printer Name: Yet to Come P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come PART II Promise of Technology T his part serves as an introduction to three chapters: Chapter 2, Strategic Enterprise Management, Chapter 3, Supply Chain Management, and Chapter 4, Product Life Cycle Management. These chapters cover the promises of technologies and explain the broad functionality of each application. Also included is a description of the key performance indicators (KPIs) of each area, organized as KPIs that act as the value drivers and KPIs that measure the driven values. Taken together, these chapters provide a substantive knowledge base that will give the reader knowledge of how a bottom-line improvement can be achieved and what technology can be used as an enabler. Figure IIA describes the interrelationships between these concepts. Select Dependent and Independent Determine Variables Value Trees/ Corresponding Value Chains KPIs Establish Required Functionality Benefits Drive the Dependent Variable ? Yes Scorecard No Develop the Gaps Develop Strategy to Resolve Gaps and Implement FIGURE IIA Overview of Development of Scorecard and Strategy 15 P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come 16 P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come CHAPTER 2 Strategic Enterprise Management Introduction Chief financial officers and chief information officers have long struggled to satisfy the strategic information requirements associated with managing in an organized, structured, and efficient manner. The promise of integrated enterprise resource planning (ERP) systems to fulfill these requirements has been only partially realized. Companies have reduced cycle times and costs while increasing service and customer satisfaction levels. Yet many fundamental strategic questions about customer, channel, segment, service and product profitability, and the financial and nonfinancial performance of key business segments remain unanswered. Strategic Enterprise Management (SEM) deals with the higher-level tasks to: Measure business performance against simulations, targets, and benchmarks, using a Balanced Scorecard, value drivers, and management. Balanced Scorecard is a performance measurement technique; the SCOR card is similar but applies to the supply chain domain and is based on the supply chain operations reference model. Automate and accelerate the entire business consolidation process. Control and monitor business using value-based management principles. Change static operational planning cycles into continuous, rolling forecasts. Integrate business strategy with operations, planning, and employee goals and incentives. SEM is a suite of tools designed to enable advanced cost management and performance measurement capabilities while allowing managers to focus explicitly on driving increased shareholder value. 17 P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come 18 Strategic Enterprise Management SEM affords companies the opportunity to efficiently and systematically measure the performance of key business processes and the value they contribute to the business. SEM unlocks the complex array of data populated within the ERP environments, offering companies an effective way to utilize the full capabilities of these applications. Specific benefits include: Improved strategic decision making Improved tactical decision making Increased organizational alignment At the core of SEM is the principle that whatever is not automated but needs to be automated should follow a rigid discipline consisting of the following rules: Focusing on value propositions and the development of a business case Establishing clear objectives Facilitating return on investment estimates Considering continuous improvements to ensure stabilization and user satisfaction to ensure the most cost-effective approach through onsite/ offshore deployment The goal of Strategic Enterprise Management is the (re)definition and implementation of strategic goals and visions based on economic constraints gearing toward a competitive advantage of the corporation, while constantly improving and questioning strategic decisions. SEM also keeps future developments in mind. Because of the rapidly changing markets, it is very important that strategic decision processes are continuously accelerated and improved. Core Activities with Strategic Enterprise Management Strategy Definition A future strategy cannot be implemented and validated immediately. Therefore, thorough planning is mission critical. Initially, the strategy is created, communicated, and discussed by using easy-to-understand graphical models. Simulation technology can be used for validation. Finally, the clear communication of the strategy is a key success factor for the implementation. This communication can be done by publishing the strategy to all relevant stakeholders and then deriving measurable performance indicators based on the abstract goals and visions. P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come 19 How to Create a Strategy Analysis: Collection Consolidation Past Controlling: Monitoring, Early Warning Strategy: Planning, Simulation Future FIGURE 2.1 Direction of Strategic Enterprise Management Controlling In addition to monitoring performance indicators, one main goal of controlling a process or the entire enterprise is to define and monitor early-warning indicators that look ahead of the current situation. All controlling results play an important role in redefining the corporate strategy. Analysis Data from past business processes are collected and consolidated. In some cases, this is required by law; even if it is not, data collection can help tremendously in evaluating and redefining corporate strategies. (See Figure 2.1.) How to Create a Strategy Initially an external consultant and corporate management carry out a strength, weakness, opportunity, threat (SWOT) analysis. During the analysis, the strengths, weaknesses, opportunities, and threats of the enterprise are identified. Based on the SWOT analysis, the main areas of interest are identified and are further investigated. The analysis results in a redefinition of the areas identified, which are described by means of various models. The models for a process road map show process structures and interfaces as well as organizational units that are involved. In addition, critical performance indicators are identified. The strategic decision process may also be subject to redesign in order to implement faster decision processes and improve the support for strategic decisions. All models created in this stage are communicated between the various stakeholders. P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 20 Printer Name: Yet to Come Strategic Enterprise Management Tools Supporting Strategic Enterprise Management Business Management Tools Business management tools consisting of models embodying cause effect variables along with goals and limits, reports and dissemination methods support by creating meaningful and consistent corporate models. The models are the starting point for ongoing discussion, analysis, simulation, and optimization. In many cases, the tools support the publication of the models. Portal Solutions The best corporate strategy is worthless if no one knows about it and if the enterprise is not aligned with the strategy. Corporate portals can support you in publishing strategies and in delivering user-specific content. These portals also act as a single access point to all relevant corporate information, which helps to reduce the strategic decision life cycle. Analytical Tools Ideally, every strategic decision is based on up-to-date corporate information. Business Intelligence solutions can offer a highly valuable advantage to corporate management during the process of strategy (re)definition. Collaboration Services Especially in larger corporations, strategic decisions are based on complex and labor-intensive decision processes. Collaboration services can help to provide the common ground for these processes. SEM enables companies to execute strategies quickly and successfully and to manage business performance throughout the entire organization. It supports integrated strategic planning, performance monitoring, business consolidation, and effective stakeholder communication, thereby enabling value-based management. The listed business goals and objectives can be achieved through the implementation of these collaboration processes: Improve customer service. Offer 24×7 customer self-service. Personalize customer interaction. Raise competitive barriers to entry. Improve product/service quality. P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come 21 Tools Supporting Strategic Enterprise Management Improve forecast accuracy. Increase revenue. Extend market share. Develop new markets. Improve the sales lead generation and process. Reduce time to market and volume. Provide efficient campaign planning and management. Gain market share. Lower working capital requirements. Improve capacity utilization. Reduce operating costs. Figure 2.2 is an architectural presentation of an SEM. STRATEGIC MANAGEMENT PROCESS Business Guidance and Control Business Problem Analysis Business Learning (Business Intelligence) Business Direction Setting STRATEGIC ENTERPRISE MANAGEMENT CAPABILITY ANALYTICAL APPLICATIONS Activity-Based Management Shareholder Value Management Balanced Scorecard Simulation Planning and Forecasting Workforce Analytics Consolidation Data Warehouse SOURCE SYSTEMS (INTERNAL AND EXTERNAL) FIGURE 2.2 Architecture of an SEM P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 22 Printer Name: Yet to Come Strategic Enterprise Management Essential Support from SEM Application Modules Stakeholder Relationship Management Stakeholder relationship management communicates strategies and investor information to major stakeholders and collects information and feedback via the Internet. Strategy Management Strategy management communicates strategies and objectives throughout the entire organization, using the Balanced Scorecard. It also supports value-based management, management by objective (MBO), and strategic initiatives. Performance Measurement Performance measurement monitors the performance of strategic key success factors and integrates external and internal benchmarks into the Balanced Scorecard and the Management Cockpit. Strategic Planning and Simulation Strategic planning and simulation supports strategic and business performance management through scenario planning, dynamic simulation, and integration of strategic and operational planning.1 Business Consolidation Business consolidation consolidates actual and plan data supporting all aspects of legal and management consolidation. Enterprise Management Enterprise management integrates business processes and provides predefined, closed-loop business scenarios and predefined metrics to measure the effectiveness of business operations and enable immediate corrective action. Analytical applications (analytics) are built on consistent data stored in the data warehouse and are based on a variety of business areas. Business analytics are discussed in the next sections. These business goals and objectives can be achieved through the implementation of these processes: Improve customer service. Offer better service levels. P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come Business Analytics 23 Improve product/service quality. Improved quality and accuracy. Increase revenue. Maximize profitability by customer. Enable cross-sell/up-sell capability. Improve customer retention and loyalty. Improve sales lead generation and process. Gain market share. Provide efficient campaign planning and management. Reduce time to market and volume. Lower working capital requirements. Improve cash management, minimize borrowing. Increase visibility to vendor/supplier inventory. Reduce inventory carrying costs. Improve capacity utilization. Reduce material and component obsolescence. Lower work-in-process inventory. Lead to fewer returns, more efficient process. Lead to lower-cost procured goods and services. Manage fixed assets. Optimize capital equipment and asset utilization. Reduce operating costs. Business Analytics Customer Relationship Analytics Customer relationship analytics measures and optimizes customer relationships and include applications such as profitability analysis, market exploration, and customer-retention analysis. Customer relationship analytics allows you to analyze customer requirements systematically, enabling you to increase customer loyalty or acquire new customers by applying the results of your analysis and executing them in your customer management system. E-Analytics E-analytics analyzes the online customer experience, allowing companies to maximize their return on Web site investments, build one-to-one relationships with customers over the Internet, and improve competitiveness in the e-business and e-market world. P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come 24 Strategic Enterprise Management Supply Chain Analytics Supply chain analytics measures and optimizes the value chain by supporting collaborative planning and forecasting, procurement analytics, and production efficiency analytics. Financial Analytics Financial analytics allows for business planning and forecasting, activitybased cost and profitability management, and working capital as well as investment management. Human Resource Analytics Human resource analytics analyzes and evaluates an organization's workforce by supporting workforce planning and forecasting, benchmarking and reporting, and by aligning the personal scorecard to MBO goals. Product Life Cycle Analytics Product life cycle analytics measures and optimizes the life cycle of a product by supporting product portfolio management and various aspects of life cycle cost management. Business Intelligence and Decision Support Business intelligence integrates all your corporate information so you can turn information into insight, insight into action, and action into improved business operations. Flexible Reporting Flexible reporting provides reporting and analysis scenarios and enables users to evaluate information across company boundaries. It consists of decision support tools, such as query, reporting, and multidimensional analysis for collaborative decision making, including data exploration and data visualization tools. Information Dissemination and Sharing Information dissemination and sharing enable users to organize and share information according to their specific role and information needs within P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Business Analytics Printer Name: Yet to Come 25 the enterprise portal. It combines structured and unstructured information, internal enterprise information with external data, and allows executives, knowledge workers, and business partners to use the Internet, intranet, or mobile devices to browse the enterprise's data warehouse and business intelligence. Performance Monitoring Performance monitoring provides a complete view of all corporate business operations and information needed to make profitable decisions, set strategy, and measure the results of business tactics. Planning and Simulation1 Planning and simulation link strategy with goals and simulate the impact of changes. Ad Hoc Analysis Ad hoc analysis allows users with specific information needs to create ad hoc queries, analyze data via a standard Web browser, and adjust strategy to meet changing markets and make immediate decisions. Collaborative Decision Support Collaborative decision support allows decision makers to collaborate, add comments to reports and key figures, and automate approval processes so that they can participate in decision making within the wider context of the enterprise. Data Collection and Integration Companies need to collect, organize, and analyze data quickly and efficiently to meet changing market needs. Data collection and integration enable the integration of data from multiple sources used to support the decision-making process based on a unified data model. Content Management and Collaboration Content management and collaboration help companies identify, manage, and share information. P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 26 8:31 Printer Name: Yet to Come Strategic Enterprise Management Key Performance Indicators Detailed key performance indicators (KPIs) given in Chapters 3 and 4 form the universe of KPIs applicable for SEM. The subset of these KPIs should be chosen based on the wishes and direction of management with respect to what they want to monitor and what they want to modulate for the desired result. Case Example Some time ago, in my work as a chief information officer, I oversaw the implementation of a full suite of enterprise software. Once the implementation was finished, I went to the executive team and requested a role related directly to the product and management of business processes. I was assigned an interesting task. It was not what I had requested, but it evolved precisely into product definition and product management, based on modeling and simulation. Before describing this role and how it evolved, a little bit of information about the company and product is useful. This semiconductor company manufactured electronic packages, which are used as chip carriers. Its customers were the likes of Intel and Motorola. My boss told me to study the requirements of the end users—in other words, the requirements of our customers' customers (e.g., Intel's customers, such as Dell or HP). In that context, the requirements were driven not only by Dell or HP but by those of their end users. Our company would have to furnish the packages to meet these new requirements in the future. Based on a review of some published literature, I could determine impending requirements that we would have to be responsive to. However, the translation from one stage to the next was very much a guessing game, and this did not satisfy me. So I began toying with the idea of building a model that could predict the impact of end user requirements on the product characteristics of packages that we would have to manufacture. After I completed, tested, and verified the predictability and accuracy of this model, I was asked to include the impact of design features on manufacturing cost. With this model we could simulate the effect of design assumptions on product characteristics and product cost. Ultimately this cost performance study could be used with various input (customer requirements) scenarios to start new product initiatives or stop some that were already underway. P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come 27 Key Performance Indicators I call this model SLAM, for System Level Architectural Model. It includes detailed items such as concept, scope, concept chaining, physical model, model architecture, simplifying assumptions, model statistics, salient features, range of usage, and implementation. SLAM was developed as a software tool. It is comprised of 76 highly complex mathematical equations derived from the fields of device physics, material science, very large scale integration technology (VLSI), and design sciences. It has 76 independent variables (design rules, design requirements) and 76 dependent variables (product characteristics) in the performance domain alone. It can be categorized in the general domains of computer-aided design, computer-aided engineering, concurrent engineering design for manufacturing, predictive engineering, or computer aided product engineering (CAPE). This tool is a system-level, earlystage architectural design aid. Its area of application lies in electronic systems. It can be applied in the design of chips, their packages, printed circuit boards, and entire systems such as personal computers, work stations (WSs), servers, and all the way up to the supercomputers. SLAM was used to develop a new paradigm of cost performance studies, described in Figure 2A. Feedback Update (if required) Design Requirements/Parameters Performance Models Devise New Design Requirements for Product Optimization with Cost and Performance Data Product Performance Parameters Product Descriptions with Available Design Parameters and Performance Parameters Inputs to Cost Models Manufacturing capacity Material Other resources Usage of equipment Defect + other yield factors A Priori assumptions Model, based assumptions Experience and estimate based goals, design rules, etc. Cost Models Product Cost Costing Based Learned Feedback (Also Recorded in Permanent Database) Feedback Update (if required) FIGURE 2A Virtual Reality, Model, and Assumption-Based Simulations (Continued ) P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 28 8:31 Printer Name: Yet to Come Strategic Enterprise Management (Continued ) In Figure 2A, the needs (input requirements) are fed to the performance models (SLAM). These models use design rules (input requirements) and produce performance parameters (output variables). Performance parameters are then input to the cost models along with the manufacturing rules and the like, and cost is in turn computed. The result is cost and performance information available simultaneously for a set of design rules (input requirements). Cost or performance can be optimized iteratively, in a closed-loop feedback manner. The interesting thing is that this can happen long before detailed design of the product or even the physical manufacturing process to produce electronic packages has been accomplished. It is done at an early architectural stage and with few details on hand. This model was used extensively2 in the management of the business with high predictability and accuracy, as testing by outside agencies confirmed. Specifically, this tool set has been used in these areas: ■ ■ ■ ■ ■ ■ ■ Printed circuit board manufacturing Product line management Electronic forecasting Business plan and marketing management Business development New materials invention Research and development strategy formulation In each of these cases, there was a need to know certain facts without the detailed knowledge. These details usually come from having done a detailed design of the product, material, process or the technology, depending on the case in hand. The needed predesign stage knowledge—both design rules (input variables) and product characteristics (output variables)—to iterate successfully included: ■ ■ ■ ■ ■ ■ ■ Product footprint Number of planes Delay Wirability Power Trade-off of cost with performance parameters Cost/performance comparison of competing technologies This effort was well received. It seemed to fulfill a long-felt need of various personnel who needed to know cost performance of new P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come Bibliography 29 products, processes, technologies, and materials. People need this kind of information at very early stages in the life of new products. If they have it, fact-based decision making can take place, saving time, money, and costly mistakes. Working on SLAM was very fulfilling to me personally. The encouraging results reconfirmed my belief that model-based industrial virtual realities can be created successfully and be commercially useful. Bibliography Fahey, Liam. Competitors. New York: John Wiley & Sons, 1993. Bansal, Sam. "Cost Estimation of Electronic Systems-Technical Cost Modeling," Paper presented at Pemas 94 conference, Penang, Malaysia, May 1994. Bansal, Sam. "Practical Applications of Models and Their Benefits, Evolution of a New Paradigm," Journal of International Federation of Automatic Controls (October 1994). Bansal, Sam. Simulation in the Life Cycle of Manufacturing Systems. Paris, France: Inria, 1995. Bansal, Sam. "Trends and Methodologies in Business Consulting—KPI-based Performance Improvement," Paper presented at the International Federation of Automatic Controls, Barcelona, Spain, July 2002. Strategic Enterprise Management—Unlocking the Potential of ERP. CSC India, May 2006. P1: OTA/XYZ P2: ABC c02 JWBT078-Bansal March 19, 2009 8:31 Printer Name: Yet to Come 30 P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 13:28 Printer Name: Yet to Come CHAPTER 3 Supply Chain Management Introduction Advanced planning and scheduling (APS) is a new technology, a revolutionary breakthrough, and the greatest innovation since the assembly line. It aims to do optimized planning and scheduling of all the manufacturing resources and personnel, keeping in view the constraints (i.e., man, machine, material, and time). It may surprise you to learn that companies have benefited from APS techniques for over 30 years. APS is a collection of well-established solution methods made more accessible and effective by incremental improvements in a wide range of technologies. Thus, an experience base exists that companies trying to implement APS can draw on. In the 1990s, the APS market boomed and products proliferated. Consumer packaged goods companies like Procter & Gamble, Colgate, and Gillette started to use more APS at that time. Although there were some early adopters in this market segment, this industry as a whole was slower in using APS techniques. This is true of the paper industry as well, despite its sophisticated approaches for trimming paper and leftover materials. A number of companies that had been able to implement relatively simple tools for manufacturing scheduling discovered they needed a more sophisticated approach to the number of SKU (stock keeping unit) and location combinations in their distribution networks and for their forecasting capabilities. The simple tools used to generate revenue forecasts choked on the number of SKU and location combinations needed to provide the level of detail required for operational decisions. The early 1990s also saw the introduction of new programming languages, such as embedded SQL capabilities, which allowed APS tools to interact more dynamically with relational databases. The availability of increased amounts of computer horsepower at decreasing costs led to new solution methods and expanded the size and complexity of the problems being addressed. Genetic algorithms became available that enabled multiple solutions to be finalized at once, combining the best features of 31 P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 32 13:28 Printer Name: Yet to Come Supply Chain Management existing solutions to create new ones. People started using simulated annealing, which lets a solution get worse in the hope that this will create pathways to even better solutions. Production tools with millions of decisions variables were developed (although if you create an application of this size, you probably are making your life more difficult than it has to be). The 1990s also saw a proliferation of APS vendors across a wide range of industries. I2 and Fastman (Premier's previous name) made inroads with electronic assembly, metals, and discrete manufacturing. I2's most dramatic impact on the APS space was the introduction of brand-oriented marketing and sales strategies to what had previously been a technology-driven niche market, and soon the company was in a race with Manugistics for revenue growth. The reaction of the marketplace to I2, Manugistics, and others caught the attention of the large consulting firms. They started allocating resources to products based on market success and client preferences, kicking off a slew of relationships. APS has presented two major challenges to the larger consulting firms: the need for application and domain expertise. APS requires depth of application expertise. The personnel development policies at many of these firms were traditionally focused on producing information technology generalists who could manage and bring in major engagements. Annual staff turnover of 25% or more also hindered development of technical depth. In addition, rigid application of standard project methodologies can be a very ineffective way to implement APS. Domain expertise still is needed to determine how to use the project methodology effectively. The mid-1990s also saw vendors move user interfaces to a Microsoft Windows environment via client-server architecture or move entire applications to a Windows NT environment. In addition to providing more intuitive user interfaces and reporting capabilities, this moved APS applications into an environment where low-cost computer horsepower was increasing at an amazing rate. At this time, semiconductor companies also began to use APS. These companies are extremely aggressive in changing production technology and have products with extremely short life cycles. Changing production technologies and short product life raise challenges to provide the knowledge base required for APS applications, particularly at the scheduling level. Initial use of APS techniques paralleled that in the process industry, as such companies as Harris Semiconductor, IBM, Intel, and Texas Instruments started by developing internal solutions, with mixed results. APS also captured the attention of the enterprise resource planning (ERP) vendors. Among the majors, first came Peoplesoft, then SAP, soon to be followed by Oracle and others. SCM Domain The supply chain management technology of many vendors has become a comprehensive tool set that provides solution not only for supply chain P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 13:28 Printer Name: Yet to Come 33 SCM Domain planning but also for supply chain execution, coordination, and collaboration. This chapter is based on my own practice at SAP, papers I published during my tenure on the subject and SAP Solution Maps. Hence there are heavy references of SAP APO & SAP SCM functionality. All products are SAP's and where applicable the trademarks of SAP are owned by them all over the world. Figure 3.1 shows the support provided by each of these technologies. Figure 3.2 depicts how this functionality is placed in a full-service systems landscape. These acronyms are used in Figure 3.2: APO: Advanced Planner and Optimizer ERP: Enterprise resource planning MES: Manufacturing Execution System Figure 3.3 shows all the support available from the Advanced Planner and Optimizer (APO) technology. Limited details of Supply Chain Execution, Supply Chain Coordination, and Supply Chain Collaboration will be provided in this chapter. However, Figure 3.3 presents the pertinent details of advanced planning, scheduling, and optimization, forming the basis of the simulation technology as applied to this domain. Supply Chain Planning Supply Chain Design Demand Planning Supply Planning Distribution Planning Supply Order Materials Warehouse Manufacturing Promising Chain Management Management and Delivery Execution Supply Chain Coordination Supply Chain Collaboration Supply Chain Event Management Supply Chain Portal Supply Chain Performance Management Collaboration Processes FIGURE 3.1 Supply Chain Management Architecture Production Planning Transportation Execution Transportation Planning Foreign Trade/Legal Services Fulfillment Coordination Supply Chain Integration P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 13:28 Printer Name: Yet to Come 34 Supply Chain Management Customer Access Web Enabled ERP APO Data Warehouse MES Starfire Yield Impr Cell Controller Equipment Equipment Cell Controller Equipment Cell Controller Equipment Equipment FIGURE 3.2 Systems Landscape Architecture Advanced Planner and Optimizer The APO technology, most of whose functionality is given in Figure 3.3, is architecturally given in Figure 3.4. These acronyms are used in Figures 3.3 and 3.4: BW: Business warehouse OLTP: Online transaction processing R/3TM : SAP's enterprise resource planning (ERP) SC: supply chain The supply chain planning layer of Figure 3.4 is shown by the top right-hand block of Figure 3.3. However, APO's Solvers (algorithms) contain Business Warehouse FIGURE 3.3 APO Functionality C Copyright (2009). SAP AG. All rights reserved. Source: P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 13:28 Printer Name: Yet to Come 35 Advanced Planner and Optimizer Business Warehouse FIGURE 3.4 SCM and APO Architecture C Copyright (2009). SAP AG. All rights reserved. Source: the optimization models whereas live Cache contains the data sets for the Solvers to work on. The live Cache communicates with BW as well as other OLTP systems to get up-to-date data to operate on. The BW provides the data sets for results and reports. More on these aspects is given in the section entitled Solvers, Algorithms, and Simulation. Figures 3.4 and 3.5 show the relationship of all the SCM modules. In Figure 3.4, the detailed top right-hand side of the block of Figure 3.3 is replaced by three blocks of SCM modules, called Supply Chain Planning, Supply Chain Coordination, and Supply Chain Collaboration. These are more advanced functionalities. Notice that the Supply Chain Execution block is given in the bottom left-hand side in Figure 3.4. This block replaces one of the R/3s that previously had a copy of ERP, illustrating the fact that this functionality is of a legacy nature. Figure 3.6 presents the process flow for the full SCM functionality. Materials Manufacturing Enterprise Production Planning Distribution Enterprise Distribution Planning Demand Enterprise Demand Planning Enterprise/ Strategic Enterprise Material Planning Plant/ Tactical Plant Material Planning Plant Master Production Scheduling Distribution Requirement Planning Demand Forecasting Material Releasing Scheduling Dispatching Commodity Deployment Order Promising Shop Floor/ Operational FIGURE 3.5 Basics of SCM Functionality P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 13:28 Printer Name: Yet to Come 36 Supply Chain Management Set updata master and supply Set up master anddata supply chain model chain model Buildfor loads for unassigned Build loads unassigned transport orders transport orders Create Create unconstrained unconstrained demandplan plan demand Release Release demand demand planplan to to SNP SNP Run TLB Run TLB Perform SNP Perform SNP heuristics, optimization Heuristics, Optimization Run Run Deployment Deployment Review plan/resolve Review plan/resolve problems problems Perform Perform PP/DS Optimization PP/DS Optimization Finalize SNP Finalize SNP and make available to plan &plan make available to PP/DS PP/DS Release constrained Release constrained to DP SNPSNP planplan to DP FIGURE 3.6 Workflow in SCM C Copyright (2009). SAP AG. All rights reserved. Source: These acronyms are used in Figure 3.6: DP: Demand planning PP/DS: Production planning and detailed scheduling SNP: Supply network planning TLB: Transport load builder In the field of SCM, the battle cry is for "adaptive and collaborative supply chain management." Figure 3.7 illustrates a natural gap between the plans and actual situations as they exist at every step of the process. This gap is what needs to be controlled and driven to zero. Solvers, Algorithms, and Simulation Figure 3.3 shows APO functionality. It is supported heavily by Solvers, which are shown in Figure 3.8. Solvers are advanced algorithms based on optimization models that are built mostly with deterministic simulations. Procurement Plan Required Material Skewness of Demand and Supply = Inventory Buildup = Buffer Cover Production Plan Planned Products Demanded Products Material Delivered Material Vendor Issues FIGURE 3.7 Supply Chain Paradox Produced Products Plant Issues Delivered Products Demand Estimation Market/Customers Vendors Info P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 13:28 Printer Name: Yet to Come 37 Supply Chain Management Detailed A wide variety of computational solvers applied to specific planning functions with industry-specific variations Linear Programming/ Mixed Integer Linear Programming* Flow Algorithms Branch and Bound Algorithm* Exponential Smoothing Holt Winters Multiple Linear Regression Demand Planning Genetic Algorithms,* Simulation Annealing Heuristic Methods* FIGURE 3.8 Solvers and Algorithms C Copyright (2009). SAP AG. All rights reserved. Source: The entire suite of Supply Chain Planning modules provides support for deterministic simulation technology in optimization, scheduling forecasting, and scenario analysis. Transactional simulations are done for scenario analyses. Figure 3.8 presents various algorithms that have gone to support the Solvers. Discrete event-based simulation is not used explicitly in APO, but the concepts are applied in deterministic framework for development of schedules in some of the algorithms. Perhaps that is why APO delivers more deterministic results. It is worth mentioning that: Distribution planning is based on flow algorithms. Deployment functionality is based on branch and bound algorithms. Demand planning sub-modules use exponential smoothing, heuristics, Holt winters and multiple regression analysis methodologies. Production planning modules use linear programming and mixed integer linear programming. Detailed scheduling modules are based on genetic algorithm and simulated annealing-based optimization technology. So many Solvers are used because no one algorithm performs equally well for all classes of problems. Thus, the use of simulated annealing, which provides a better quality of solution, is computer memory intensive. To solve this problem, genetic algorithms are used. Supply Chain Management Detailed Supply Chain Planning Supply chain planning technology is based on Solvers, algorithms, and simulation. However, it must be mentioned up front that the optimization P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 38 13:28 Printer Name: Yet to Come Supply Chain Management models used here focus primarily on deterministic simulation themes. Scenario planning and scenario analyses are used extensively, and all the tools and facilities are available if discrete event simulation modeling needs to be done at some point in the project life cycle. Supply Chain Design SUPPLY CHAIN COCKPIT Supply Chain Cockpit (SCC), an SAP Advanced Planning and Optimization application, consists of a highly intuitive, graphical interface that acts as the top enterprise planning layer covering all planning areas, such as manufacturing, demand, distribution, and transportation. All employees in the Plan→, Source→, Make→, Deliver cycle of supply chain management can use it to their advantage. As the gateway to APO, the SCC makes dealing with a vast supply chain easier and more manageable. SCC allows you to: Create individual work areas so several planners can work simultaneously on different parts of a supply chain. View the supply chain from all angles, down to the smallest detail, to minimize the complexity of the relationships among supply chain components. Retrieve information from the APO system through queries. Measure supply chain performance with key performance indicators that are stored in the Business Information Warehouse. Respond immediately and accurately to new developments by tracking alert situations. Retain flexibility in your decision-making process. Provide access to a rich collection of data for doing discrete event simulation. The SCC can be configured to suit conditions within a wide variety of industries and business situations STRATEGIC PLANNING Strategic planning is the key element in a company's long-term success, and it has a critical impact on its future. Fast-changing market demands and short product life cycles force enterprises to continuously evaluate and optimize their supply chains. Companies have to use marketing and financial plans as a basis for deciding on the sourcing, production, and distribution of products to meet customer requirements at competitive costs. As strategic decisions are linked to costs, it is difficult to change them at short notice. It is, therefore, vital that companies make P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 Supply Chain Management Detailed 13:28 Printer Name: Yet to Come 39 their long-term decisions carefully, achieving a cost-effective and profitable solution to guarantee the company's effectiveness. These features support strategic planning problems: Network definition. Networks used in Demand Planning, as well as in Supply Network Planning, reflect a company's supply chain. A network can be used for feeding into simulation models. Planning can be executed based on this network. Every part of the supply chain (such as locations, transportation lanes, resources, products, and production process models) can be modeled using the Supply Chain Engineer, which allows you to place locations on a map and link them with the corresponding transportation lanes. The direction of the lanes determines the product flow. Using the Supply Chain Engineer, you can drill down to all elements belonging to the supply network. Further, you can request information about single or combined elements in the network. For example, you can see which products belong to a particular location. Products can also be added to this location or to modify the location's master data. Alerts. The Alert Monitor is a stand-alone component of APO that enables a unified approach to monitor planning situations. It notifies you of any critical situation occurring in one of the APO applications, such as Demand Planning and Supply Planning, Production Planning, and Detailed Scheduling, or Transportation Planning and Vehicle Scheduling. Alerts are displayed in various ways, either directly in the Supply Chain Cockpit, in the cockpits control panel, in the application, or through e-mail. Using a series of event triggers and alarm conditions, the Alert Monitor can automatically identify problems in the supply chain. It can also monitor material, capacity, transportation, and storage constraints. In addition, it can handle metrics such as delivery performance, cost flow, and throughput. It reports exceptions, including orders that exceed forecasts or orders that fall short of forecast, and therefore may lead to excess inventory if production is not adjusted accordingly. Based on this monitoring process, you can readjust plans whenever needed. Demand Planning STATISTICAL FORECASTING Statistical or univariate forecasting predicts future demand based on historical data. As opposed to causal forecasting, in statistical forecasting other factors are not taken into account. Univariate forecasting provides methods that recognize the time series patterns that follow as a basis for the forecast. Constant demand varies very little from a P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal 40 March 19, 2009 13:28 Printer Name: Yet to Come Supply Chain Management stable mean value. Trend demand falls or rises constantly over a long period of time with only occasional deviations. Seasonal demand has periodically recurring peaks that differ significantly from a stable mean value. Seasonal trends have periodically recurring peaks and troughs, but with a continual increase or decrease in the mean value. Intermittent demand is sporadic. If there is no change from previous years, no forecast is carried out; instead, the system copies the actual data from the previous year. CAUSAL FORECASTING Multiple linear regression (MLR) enables you to include causal variables (e.g., climatic conditions, price, advertising) in the forecasting process. MLR investigates the historical influence of these variables on demand to produce a forecast. Simulation scenarios can be set up for causal variables to show possible developments, taking possible risks and opportunities into account. COMPOSITE FORECASTING This function combines forecasts from different individual forecasts (statistical or causal forecasts) for a particular brand, product family, or product. Each individual forecast is based on the same historical data but uses a different technique. The underlying objective is to take advantage of the strengths of each method to create a single onenumber forecast. You can average the forecasts, giving each one equal weight, weigh each one differently, or vary the weightings of each forecast over time. Business analysts can combine forecasts to develop the best forecast possible. The composite forecasts of several methods have been proven to outperform the individual forecasts of any of those methods used to generate the composite. PROMOTION PLANNING In APO Demand Planning, you can plan promotions or other special events separately from the rest of the forecast. Use promotion planning to record either one-time events, such as the millennium, or repeated events, such as quarterly advertising campaigns. Other examples of promotions are trade fairs, trade discounts, dealer allowances, product displays, coupons, contests, freestanding inserts, as well as non–sales-related events, such as competitors' activities, market intelligence, upward/downward economic trends, hurricanes, and tornados. The effect of a promotion is calculated using causal techniques to measure past promotional impact and is projected into designated periods in the future. Manual adjustments to a promotion are made in future periods for planning purposes to reflect new merchandising strategies. LIFE CYCLE PLANNING A product's life cycle consists of different phases: launch, growth, maturity, and discontinuation. In this process, you model P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 Supply Chain Management Detailed 13:28 Printer Name: Yet to Come 41 the launch, growth, and discontinuation phases. You can define a phase-in profile or a phase-out profile for a product, or other characteristics. A similar function is "like" modeling, which allows you to use the historical data from one product to forecast the demand of another product. COLLABORATIVE DEMAND PLANNING Collaborative demand planning between manufacturers and their distributors allows both partners to streamline their work processes and ultimately benefit from a more accurate forecast, better market transparency, greater stability, reduced inventory, and better communication. Starting from one forecast, all the partners collaborate to produce a final forecast, which becomes the basis for all further planning in the partner companies. The APO solution implements the Collaborative Planning Forecasting and Replenishment (CPFR) process, which is a cross-company and crossindustry scenario developed by the Voluntary Interindustry Commerce Standards (VICS) association. CHARACTERISTIC-BASED FORECASTING In SAP APO Demand Planning, you can create a forecast based on the characteristics of configurable end products; for example, the forecast can be based on the characteristics: color, engine, and air conditioning of the end product—a car. Moreover, you can forecast the demand for a combination of several characteristics, thus taking into account the mutual interdependency of the demand for these characteristics. SAP's Characteristics-Based Forecasting allows you to forecast many different variants of the same product and react swiftly to changes in market demand. You can also place orders with your suppliers for assemblies and components in a timely fashion. KIT PLANNING Besides planning demand for a product, you can also forecast dependent demand at different planning levels by exploding bills of materials. You can use this method for a kit that consists of several finished products (which can also be sold separately). Planning demand for the kit generates dependent demand, which you can combine with the independent demand for single products. Then you can use the overall demand by product for supply, production, and procurement planning. Supply Planning SUPPLY NETWORK PLANNING SAP APO's Supply Network Planning integrates purchasing, manufacturing, distribution, and transportation, so you can simulate and implement comprehensive tactical planning and sourcing P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal 42 March 19, 2009 13:28 Printer Name: Yet to Come Supply Chain Management decisions on the basis of a single, global consistent model. Supply Network Planning uses advanced optimization techniques, based on constraints and penalties, to plan product flow along the supply chain. The results are optimal purchasing, production, and distribution decisions; reduced order fulfillment times and inventory levels; and improved customer service. Starting from a demand plan, Supply Network Planning determines a permissible short- to medium-term plan for fulfilling the estimated sales volumes. This plan covers both the quantities that must be transported between two locations (e.g., distribution center to customer or production plant to distribution center), and the quantities to be produced and procured. When making a recommendation, Supply Network Planning compares all logistical activities to the available capacity. The Deployment function determines how and when inventory should be deployed to distribution centers, customers, and vendor-managed inventory accounts. It produces optimized distribution plans based on constraints (such as transportation capacities) and business rules (such as minimum cost approach, or replenishment strategies). The Transport Load Builder (TLB) function maximizes transport capacities by optimizing load building. In addition, the seamless integration with APO Demand Planning supports an efficient SOP process. In Supply Network Planning, you are provided with standard planning books (and views) for each of the various types of planning available (i.e., interactive SNP, Sales and Operations Planning, Distribution Resource Planning, Transport Load Builder, Vendor Managed Inventory, and Scheduling Agreement Processing). You can, however, create your own planning books, using standard ones as templates. SAFETY STOCK PLANNING Safety stock is the quantity of additional stock procured and/or held to satisfy unexpectedly high demand. Safety Stock Planning within Supply Network Planning allows you to meet a service level while creating a minimum amount of safety stock throughout your entire supply chain for all intermediate and finished products at their respective locations. HEURISTIC The heuristic (experience-based learned rules) is a part of a repair-based planning process consisting of the heuristic, capacity leveling, and deployment. The heuristic process considers each planning location sequentially and determines sourcing requirements. It lumps all requirements for a given material in the location into one requirement for the period. The heuristic determines the valid sources and quantity based on predefined percentages for each source (quota arrangements) or procurement priorities for transportation lanes. Requirements are then passed through P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 Supply Chain Management Detailed 13:28 Printer Name: Yet to Come 43 the supply chain to calculate a plan; however, this plan is not necessarily feasible. The planner must use capacity leveling to formulate a feasible plan. The next process flow is typical: Perform a heuristic run. Level capacity. Run deployment. Run TLB. CAPACITY LEVELING The Supply Network Planning run produces a plan that meets all the demand requirements (e.g., sales orders and dependent demand); however, the resulting plan is not necessarily feasible. Capacity leveling, a function within Interactive Planning, enables you to smooth your production schedule, either manually or using a methods-based approach, based on how the available resource capacity in your supply chain is able to meet demand. With capacity leveling, you have the opportunity to build up inventory or increase capacity to ensure that you can meet demand without overstocking and to avoid periods of resource overload or underuse. You can easily analyze alternatives and replan, even reforecast, before putting the plan into production. You can adjust the plan by modifying supply or consumption or by changing the production and transportation orders manually. You can modify supply by changing the resource master data. You also can modify consumption by leveling the capacity on the active resource or by using an alternate resource (shifting the order from one resource to another manually). In addition, you can manually edit production and transportation orders. OPTIMIZATION The Supply Network Planner's (SNP) optimizer offers costbased planning. This means that it searches through all feasible plans to try to find the most cost-effective one. Total costs refer to: Production, procurement, storage, and transportation costs Costs for increasing the production capacity, storage capacity, transportation capacity, and handling capacity Costs for falling below the safety stock level Costs for delayed delivery Stock out (or shortfall quantity) costs In the optimizer view, a plan is feasible when it satisfies all the Supply Chain Model constraints that you activated in a special profile called SNP Optimizer Profile. The feasibility of a solution can involve due date P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 44 13:28 Printer Name: Yet to Come Supply Chain Management constraint violations or safety stock constraint violations. Due dates and safety stocks are soft constraints; in other words, they are constraints to which you assign violation costs. The optimizer proposes a plan that will violate soft constraints only if, according to the costs specified in the system, it is the most cost-effective plan. As part of optimization-based planning, the optimizer makes sourcing decisions. This means that costs are used as a basis to decide: Which products are to be produced, transported, procured, stored, and delivered (product mix) and their quantities Which resources and which production process models are to be used (technology mix) The dates on which products are to be produced, transported, procured, stored, and delivered The locations at which, or to which, products are to be produced, transported, procured, stored, and delivered Alternate resources Demand violation penalty costs Safety stock violation penalty costs Procurement costs Shelf life Cost multipliers Location-specific products DEMAND AND SUPPLY MATCH This function is based on Capable-to-Match, (CTM), engine which is described later in the chapter but is mentioned here for the sake of completeness. Distribution Planning DISTRIBUTION RESOURCE PLANNING In Supply Network Planning, you are provided with standard planning books (and views) for each of the various types of planning available. The planning books are practically identical with interactive Supply Network Planning; however, here you can also view the distribution receipts and distribution issues. You can create your own planning books, using the standard planning books as templates. DEPLOYMENT After production is complete, deployment determines which demand can be fulfilled by the existing supply. If the produced quantities match actual quantities planned in SNP planning, the result of deployment is a confirmation of the supply network plan. If the available quantities are insufficient to fulfill the demand or exceed the demand, the system P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 13:28 Printer Name: Yet to Come Supply Chain Management Detailed 45 makes adjustments accordingly, depending on whether you are running the deployment heuristic or the deployment optimization. The deployment run generates deployment stock transfers. The Transport Load Builder then uses these stock transfers to generate transportation plans and build transport loads. TRANSPORT LOAD BUILDER The primary purpose of the Transport Load Builder is to use the results of the deployment run (deployment stock transfers) to create multiproduct TLB shipments while ensuring that: Means of transport are filled to maximum capacity Means of transport are not filled to below minimum capacity Minimum and maximum values for capacity (cubic volume and weight) and pallets to build a load are defined in a profile called TLB Profile. The system generates as many valid TLB shipments as possible (with regard to the minimum and maximum values). The TLB also checks whether the manually altered TLB shipments respect the minimum and maximum values; if not, it generates alerts. The TLB combines deployment stock transfers to form feasible transport units. If the deployment stock transfer is for a Vendor Managed Inventory (VMI) customer, the results are processed as sales orders in the transactional system. If not, it processes the results as a company-internal TLB shipment. Additional conditions for VMI customers can be specified. There is no tracking of resource usage and no consideration of productspecific constraints (e.g., flavor migration) or special transport requirements (e.g., package orientation or refrigeration). REPLENISHMENT There are several possible scenarios for replenishment. One of them is VMI. In general, the scenarios differ by industry. Basic components of a replenishment process are deployment and the TLB. VENDOR MANAGED INVENTORY Because it is necessary to combine forecasts from sales, or customers or partners with historical information in order to develop inventory targets, VMI is well suited to a collaborative scenario. The classic VMI process, in which vendors plan replenishments for their customers, can be extended to a collaborative replenishment process with more scope for interaction. COLLABORATIVE SUPPLY AND DISTRIBUTION PLANNING The starting point of collaborative Supply and Distribution Planning is Safety Stock Planning. It P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal 46 March 19, 2009 13:28 Printer Name: Yet to Come Supply Chain Management combines the pure demands with the company's strategy to guarantee customer satisfaction. Supply Planning tries to satisfy the demand in an optimal way, spreads production to the resources, explodes the bill of materials, and organizes the procurement of semi-finished goods or raw materials. Distribution Planning considers the available products and satisfies the real demands due to flexible rules. It includes an optimal loading of the transport vehicles. PRODUCTION PLANNING Production Planning enables the planner to create feasible production plans across the different production locations (also with subcontractors) to fulfill the customer demand on time and to the standard expected by the customer. For the long- and medium-term time horizon, rough-cut planning is based on time buckets and determines resource requirements (machines, humans, production resource tools) and materials. Solvers, real-time data, and high supply chain visibility (key performance indicators, alerts) support the planner's decision-making process. DETAILED SCHEDULING Detailed Scheduling delivers optimized order sequences that can be released for production. Solvers simultaneously take into account constraints and costs to schedule the optimized order sequence. Dynamic alerts and order-pegging structures improve visibility. Due to the seamless integration with the execution and inventory management system, material shortages or critical resource situations can be seen immediately, and the schedules can be manually or automatically adjusted. Detailed Scheduling fulfills requirements from the process and discrete industries that are takt-based1 and job scheduling for configurable and non-configurable products in a make-to-stock (MTS) and/or make-toorder (MTO) environment; block planning, campaign planning and push production for process industries The APO Optimization Extension Workbench (APX) provides a new means of making optimization strategies more flexible. Transactional simulation capability is provided for scenario analysis, and if certain cases are found to be acceptable, they are made executable. The primary purpose of the workbench is to extend the standard planning tools in APO to include user-specific optimization components. These individual optimizers are launched directly from APO. Together with the standard optimizers and heuristics, they form one planning system. This system provides the right degree of flexibility to be adapted to the precise needs of the user. In addition to the functional integration of the external optimizer in the standard APO component environment, the optimizer is to be incorporated closely so that it can freely use the APO data stock (from the live Cache and P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 Supply Chain Management Detailed 13:28 Printer Name: Yet to Come 47 the database server). The optimization results can then be returned to the APO data set. CAPABLE TO MATCH Capable-to-Match (CTM) Planning uses constraint-based heuristics to conduct multisite checks of production capacities and transportation capabilities based on predefined supply categories and demand priorities. The aim of the CTM Planning run is to propose a feasible solution for fulfilling demands. The CTM Planning run is powered by the CTM engine, which matches the prioritized demands to the available supplies in two stages. First, it builds the CTM application model based on the master data that you have entered. Then it matches supply to demand on a first-come, first-served basis, taking production capacities and transportation capabilities into account. MATERIALS REQUIREMENTS PLANNING Materials Requirements Planning (MRP) is part of the production planning process and generates replenishment schedules for all manufactured components, intermediates, purchased parts, and raw materials. MRP sets due dates for production orders and purchase requisitions through lead-time scheduling, depending on buffers, operation times, lot-sizing rules, and so on. The planning run is supported by optimization tools when resource situations can be taken into account simultaneously. Transportation Planning COLLABORATIVE SHIPMENT FORECASTING Based on Internet-enabled planning books, you can exchange and adjust forecast information between your customers (which will be based on product forecast) and your carriers (who will give you data about the expected number of resources or vehicles they will provide in a specified time frame). This function is supported in APO Demand Planning. LOAD CONSOLIDATION SCM provides different possibilities to consolidate deliveries and orders to shipments. It is possible to combine orders based on rules and strategies, based on APO optimization logic. You also can do this interactively and manually in R/3 as well as in APO, and through collaboration over the Internet. If you decide to rely on your carrier's abilities to consolidate orders to shipments, you can give the carrier access to deliveries over the Internet, where it can consolidate shipments. During load consolidation, SCM considers multidimensional capacity constraints of the resources. This function is provided by APO. P1: OTA/XYZ P2: ABC c03 JWBT078-Bansal March 19, 2009 48 13:28 Printer Name: Yet to Come Supply Chain Management MODE AND ROUTE OPTIMIZATION Mode and route optimization is at the heart of Transportation Planning. The goal is to create the lowest cost transportation plan while guaranteeing customer service. The system assigns inbound and outbound orders to modes (truck, ship) and creates the needed shipments. The optimization algorithm used to do these assignments is controlled by cost profiles, delivery dates, and constraints of the ship-to and ship-from sites. CARRIER SELECTION After you have created optimized routes (shipments), you must assign carriers to these routes. You can do this manually in the execution system (R/3) or in APO. APO offers four options to do so: 1. Priority. Certain carriers have different priorities on certain lanes. 2. Freight cost. The least-cost carrier for this shipment will be selected. 3. Business share. APO assigns shipments in order to ensure that specified carriers receive a defined volume of business. 4. Freight exchange. The shipment data are communicated to a freight exchange that ensures the assignment. COLLABORATIVE SHIPMENT TENDERING The assignment of a carrier to a shipment needs to be confirmed by the carrier (tendering). Tendering can be done via Internet dialog or communication via Electronic Data Interchange (EDI) or Extensible Markup Language (XML) files. The carrier can accept the tender, reject it, or accept the tender with modifications. Tendering can be done in R/3 or APO. Supply Chain Execution Materials Management INVENTORY MANAGEMENT The Inventory Management program manages the stocks of a company in quantities and values. It is integrated with supply chain accounting and is responsible for goods receipts, goods issues, and managing different stock categories (available, blocked stock, in quality assurance, etc.) and special stocks (including consignment stock, project stock, etc.). Inventory Management enables a summarized visibility of stocks in t