Streamline Processes to Offset Cost Increases in the Aftermath of COVID-19

Discover opportunities for increasing productivity and efficiency by augmenting people and processes with SAP

As the battle against the COVID-19 virus continues, it is no surprise that many in the supply chain field are reexamining supply networks with a new appreciation for what should be considered ‘acceptable risk’. Even before the current crisis we find ourselves in, the argument has been made that the United States is overly reliant on imports of manufactured goods and raw materials. Now more than ever, we are being reminded of the importance of utilizing a domestic sourcing strategy and manufacturing capability.

It is difficult to portend exactly how the market will react, many companies may shrug off the incident, maintaining the status quo to protect established networks, processes, and personnel. However, if the pundits are to be believed, it is likely that we’ll see a shift in sourcing strategy, especially for goods

“Now is the perfect time to leverage the inherent functionality in SAP to reduce waste, increase visibility and ultimately reduce costs”

considered critical to national security. American industry and consumers, perhaps encouraged by government programs like those being enacted in Japan, may reduce the reliance on imports, sourcing a greater percentage of goods and services domestically. The long-term impact can be debated, but in the short term we can almost certainly expect an increase in labor and raw material costs and the potential for a reduction in profit margins for companies that decide to shift some supply lines and production back to the United States. Traditionally these costs would be passed onto the customer, but a competitive advantage exists in keeping sales prices static.

A viable solution for reducing the impact of these various cost increases is to take measures to improve operational efficiency. Now is the perfect time to leverage the inherent functionality in SAP (and other ERP systems) to reduce waste, increase visibility and ultimately reduce costs. Here are a few examples of how to utilize standard SAP functionality to begin this initiative.

Inventory Management

The advantages of properly managed inventory are too numerous to count. Optimized inventory in many cases can translate to increased customer service levels, decreased lead times and an empowered sales force even while reducing inventory levels. Inventory optimization leads to a more organized warehouse, increases in employee productivity and reductions in the frequency of wasteful physical inventory counts, ultimately adding to the bottom line.

SAP includes several capabilities that can assist in managing inventory and optimizing inventory levels, a few examples include:

• IM/WM functionality can be used to set optimal inventory levels increasing MRP’s capability to provide value
• WM/EWM modules can help optimize efficiency with picking/putaway strategies
• Utilizing Shelf Life functionality can reduce waste by ensuring materials are consumed or sold before they expire or spoil in the warehouse
• Accurate material consumption data means historical analysis can be used to develop better forecasts and costing/profitability analysis
• Completion of material movements in real-time increases system accuracy, reduces confusion and the number of COGI errors generated during the production process
• Slow/Non-moving stock analysis can be used to identify and remove dead stock, helping to optimize warehouse space and ensure shelves are stocked with the right product mix

Purchasing Strategy

Optimization of procurement processes is critical for ensuring that an organization is buying the right material, at the right time and in the correct quantity while fully capitalizing on negotiated pricing and terms. SAP processes that should be leveraged to aid in this goal include:

• Properly maintaining source list data can help identify and halt off-contract spend
• Keeping accurate Purchase Info Record pricing and terms data drives substantial increases in productivity, enabling MRP to automatically generate purchase requisitions with the correct pricing, terms, quantity and supplier
• Maintaining high levels of data integrity enables SAP to auto-generate purchase orders for designated suppliers, this functionality is a game changer for those with the discipline to implement it properly!
• Disciplined processes in receiving and quality enable the activation of powerful supplier performance KPIs and metrics
• Standard SAP reports and dashboards can be utilized to track and manage consigned inventory and material provided to subcontractors

Reporting, Analytics and Compliance Monitoring

The ability to identify opportunities and implement effective process enhancements requires visibility. Reports can be utilized to provide information vital to strategic decision making and to ensure compliance of policy and procedure. SAP provides a multitude of standard reports and tools which enable the creation of custom analytics and dashboards, here are a few ways these tools can be employed:

• In many cases, the biggest hurdle in process transformation is achieving buy-in. It is often very effective

  “To continuously improve requires visibility, reports can be used to track the effectiveness of a change and to highlight additional opportunities for improvement”

  to build reports that highlight a problem which can be used to garner senior leadership support for an initiative
• ‘Managing by Exception’ is a powerful concept in SAP. Reports can be extremely effective in identifying breakdowns in process. For example, you can create a report that will flag any purchase order that lists payment terms that do not match the negotiated terms maintained in a PIR or contract
• Compliance reports are an effective way to ensure that business users are following the correct processes and can highlight process adoption levels for leadership
• To continuously improve requires visibility, reports can be used to track the effectiveness of a change and to highlight additional opportunities for improvement
• Not all custom reports in SAP require system customization through ABAP or BW development. Utilize SQ01, SQ02 and SQ03 functionality to quickly construct powerful reports that can be accessed by a custom t-code and have the added advantage of being in real-time
• Reports that can be constructed within ECC/S4HANA without the need for external data warehousing inherently provide real-time insights and can provide employees and decision-makers the opportunity to analyze custom reports while avoiding data latency issues

Conclusion

If sourcing an increased percentage of raw material is considered strategically important and is prioritized accordingly, we can expect American manufacturing companies to see an increase in raw material and labor costs. Companies can develop a distinct advantage over the competition if they are able to maintain sales margins without increasing sales prices. One great option to mitigate the impact of increased costs is to generate savings by optimizing internal processes through increased utilization of SAP functionality. Optimized warehouse operations and inventory management can help reduce labor costs and improve service levels. The functionality in SAP provides every business with many tools for fine-tuning its entire supply chain, empowering organizations to realize competitive advantages in prioritizing North American manufacturing and strategic partnerships.

The team at Trident SCM understands business challenges and the systems and processes needed to support them. Contact us today for your free consultation.