Sales and Operations Planning with SAP IBP

English (original)

1.1 Market Drivers Companies operate in a constantly evolving world. In this first section, we’ll discuss the market trends that drive companies to rethink their supply chain processes. This will provide the foundation for defining the S&OP process as a key tool to manage complex businesses operating in this globalizing and volatile world.

עברית · תרגום מקצועי

**1.1 Market Drivers** חברות פועלות בעולם מתפתח מתמיד. סעיף זה דן במגמות השוק המניעות חברות לחשב מחדש את תהליכי ה-supply chain — הבסיס להגדרת תהליך ה-**S&OP** (Sales and Operations Planning) ככלי מפתח לניהול עסקים מורכבים בעולם מתגלובל ותנודתי.

English (original)

1.1.1 Supply Chain Disruptions One regular trend for the past few years is the business disruptions caused by supply chain issues. Whether stemmed by political differences, inter-country war, extreme weather, or a pandemic, the resulting impacts on supply chains have created issues for billions of people across the world. Supply chain © 29 resilience, as defined by the ability of the supply chains to withstand the disruptions, is getting attention from business leaders for serving customers in the most productive manner. Organizations need to understand their risks and vulnerabilities to make data-driven decisions aimed at creating a resilient supply chain network. SAP IBP, and specifically SAP IBP for sales and operations, play a key role in identifying and executing the strategies focused on creating a resilient supply chain. Digital technology and cloud-based planning tools, such as SAP IBP for sales and operations, can help companies create a robust sales and operations plan with the known disruptors and simulate the unknown incidents for the best possible response. There has been a recognition of the fact that the supply chains developed around the cost optimization with the lean model of minimum inventory levels may not be the most suitable strategy for creating a resilient supply chain. Though, just holding a big amount of inventory is also not an answer. The sweet spot lies in developing a robust planning and execution process, with enabled visibility, automation, and control through a sophisticated tool such as SAP IBP for sales and operations, and associated execution systems. Recent research has proved that organizations with matured planning and execution processes and a connected system with data-driven decision architectures have responded to the disruptions in a much better way.

עברית · תרגום מקצועי

**1.1.1 Supply Chain Disruptions** מגמה קבועה בשנים האחרונות — business disruptions מ-supply chain issues (הבדלים פוליטיים, מלחמה, מזג-אוויר קיצוני, מגפה). **supply chain resilience** (יכולת ה-supply chains לעמוד ב-disruptions) זוכה לתשומת-לב ממנהיגים עסקיים. ארגונים צריכים להבין את הסיכונים לקבלת החלטות data-driven ליצירת supply chain network עמיד. **SAP IBP**, ובפרט **SAP IBP for sales and operations**, ממלא תפקיד מפתח בזיהוי וביצוע אסטרטגיות ליצירת supply chain עמיד. digital technology וכלי תכנון cloud-based מסייעים ליצור sales and operations plan חזק עם disruptors ידועים ולדמות incidents לא-ידועים. supply chains שנבנו סביב cost optimization במודל lean (מלאי מינימלי) אינם בהכרח האסטרטגיה המתאימה ל-resilience; אך גם החזקת מלאי גדול אינה התשובה. ה-sweet spot — תהליך planning ו-execution חזק עם visibility, automation ו-control (SAP IBP for sales and operations).

English (original)

1.1.2 Globalization Over the past decades, the business environment in which companies are operating has continuously become more global. Facilitated by evolutions in communications, technology, and infrastructure, globalization has impacted all aspects of business operations today. Amid this change, supply chain management has been the domain most affected by globalization. While offering opportunities to reach customers in new markets, building relationships with partners and suppliers on a global scale, and diffusing manufacturing operations to new regions, companies need to continuously reinvent their supply chain management processes. Traditional companies often have grown out of a local business model and over the years opened their supply network to yield the benefits of the globalizing economy. In many cases, the processes supporting this global model have 30 evolved little from when the company was very locally oriented. During the globalization process, small changes to the existing local processes reduced the time-to-value to benefit from the opportunities, which often results in a very complex process structure. Compounding those minor changes, companies find themselves with a monstrous process complexity, inadequate for operating within the new business reality. Companies that have seen the light of day only in more recent years, on the other hand, have been growing in this global environment. Yet in many cases, due to benefiting from the opportunities the global economy brought, those companies have grown so quickly that their processes are still aligned to an early start-up instead of a company equipped to face today’s challenges. In both cases, building an integrated S&OP process is the key to sustainable success in this global business environment. Before diving into the process transformation required to thrive in this global business environment, we’ll go deeper into the opportunities and challenges globalization poses. Like most things in life, globalization offers a great number of opportunities but at the same time poses some challenges to companies. First, here are the opportunities globalization brings: Access to new markets A globalized world provides businesses access to previously untapped markets. Customers can source their products globally, opening new markets to companies. This increases the market potential substantially, especially for companies that had a specific regional focus before. Increased sourcing opportunities Just as customers have the ability to procure products anywhere in the world, organizations can expand the search for raw materials globally, allowing them to find the best product at the best price. This gives organizations access to better products at a better price, thus leveraging a globally competitive landscape. Decentralized manufacturing Some countries are more suitable for specific manufacturing processes than others. In a globalizing world, companies can locate their manufacturing processes in proximity to critical production resources. Whether close to a pool of qualified labor, such as locating high-tech companies’ research facilities in Silicon Valley, or proximity to critical resources, such as oil © 31 refineries in the Middle East, globalization allows companies to produce with the best quality resources for the best price. Increased specialization and outsourcing Providing a global reach for output products allows companies to increase their level of specialization. Although specific niche products don’t have a broad enough market on a local scale, opening to a global arena allows companies to specialize deeper. The trend toward deeper specialization fuels the opportunities of outsourced manufacturing, allowing companies to spin off activities that aren’t at the core of their business. A good example is Apple: though leading the world of smart devices such as iPhones and MacBooks, manufacturing those same devices isn’t Apple’s core business. Apple has been incredibly successful, but the news sometimes exposes some of the challenges this global model brings—even for market- leading companies such as Apple. Likewise, here are the challenges that come with globalization: Complexity of supply networks With increasing opportunities to source, manufacture, and distribute globally, the complexity of the supply network increases exponentially. Having to ship raw materials all over the world and consider differences in legislation, tax, and cultures drastically increases the complexity of the supply chain, requiring a solid process for its management. Global competition Opening products to the entire world immediately means companies will be competing with the whole world at once as well. This increased competition puts a lot of pressure on companies to manage their supply chains meticulously. Building a global reputation takes years, but it can be damaged in an instant. For example, the exploding battery problem in the Samsung Note 7 put a dent in the fast-growing Samsung smartphone business. Increased risk Having suppliers, partners, and customers all over the world puts companies at the mercy of global events, from natural disasters to port closures. These global events become a thread contributing to supply disruptions in a global company. Although it’s impossible to know every region as well as your own, uncertainty adds to the challenges to master when aiming to become a successful global player. 32 Legal and cultural implications Every country operates differently, with its own laws, tax regulations, and culture. To successfully do business on a global scale, all intricacies of global trade must be assessed and considered in all aspects of a company’s process. Companies that have proven successful in this global playing field all actively manage these challenges while trying to find new ways of reaping the opportunities globalization brings. At the same time, for companies to remain relevant, they must consider increasing market volatility.

עברית · תרגום מקצועי

**1.1.2 Globalization** סביבת העסקים הפכה גלובלית יותר (evolutions ב-communications, technology, infrastructure). **supply chain management** הוא התחום המושפע ביותר מ-globalization — הזדמנויות (שווקים חדשים, partners גלובליים, manufacturing באזורים חדשים) לצד צורך בהמצאה-מחדש מתמדת של תהליכים. חברות מסורתיות (מודל מקומי שהתרחב) סובלות מ-process complexity אדירה; חברות צעירות צמחו מהר כך שתהליכיהן עדיין ברמת start-up. **הזדמנויות ה-globalization:** **Access to new markets** (שווקים לא-מנוצלים); **Increased sourcing opportunities** (raw materials גלובלי, מחיר טוב); **Decentralized manufacturing** (קרבה ל-critical resources — high-tech ב-Silicon Valley, oil refineries במזרח התיכון); **Increased specialization ו-outsourcing** (דוגמת Apple — iPhones/MacBooks מיוצרים על ידי contract manufacturers). **אתגרים:** **Complexity of supply networks** (הבדלי legislation, tax, cultures); **Global competition** (דוגמת סוללת Samsung Note 7); **Increased risk** (natural disasters, port closures); **Legal ו-cultural implications** (חוקים, tax, culture לכל מדינה).

English (original)

1.1.3 Market Volatility The phrase “change is the only constant” has long been a cliché when talking about markets. Volatility is the new normal under which supply chains must operate. The traditional approach of looking at a supply chain in a static way, spending weeks or months “optimizing” production processes and stable transportation routes, is over. Today, supply chains need to be dynamic to cope with rising customer expectations, shorter product lifecycles, and supply disruptions. In the following subsections, we’ll look at the key aspects that require companies to become very agile in their supply chain processes. Rising Customer Expectations With increased opportunities to source any product from anywhere, customers have been empowered to be more specific in expressing their desires and to enforce those expectations from their suppliers. Traditionally, it was the standard for organizations to build products and then take them to market; this approach is no longer sufficient to exceed customers’ expectations. To stay ahead of competition, companies need to get ahead of the customer expectations curve. Rising customer expectations can be experienced in various domains. In customer service, companies such as Amazon have not only played a pivotal role in changing customer expectations and behavior, but they also have thrived on it. After starting as an online bookstore, today Amazon can get virtually any product to any customer in any part of the world, with delivery times often expressed in hours instead of days. © 33 Continuing in the product realm, more and more companies are obliged to move toward more configurable materials so that clients can choose the product that matches their preferences exactly. The complexity of configurable materials drastically adds to the complexity of managing supply chains because the number of finished products rises exponentially with the number of configurable features. Shortening Product Lifecycles Along with products becoming more and more configurable, they also have shorter lifecycles. With the pace of technology evolution in the high-tech industry, for example, it becomes hard for companies to bring products to market before they become obsolete. New technologies and global competition force companies to develop solutions faster, bring them to market as quickly as possible, and launch them globally before the products reach end-of-life. Vizio disrupted the US television market in 2002 by bringing low-priced TVs to the market at an incredible pace. Vizio wasn’t organized like other manufacturers: the company had no internal manufacturing capability, and its focus was purely on the design of new products being produced by contract manufacturers. This allowed Vizio to maintain an incredible speed to market, forcing competitors to follow the same model. To deliver on these rising customer expectations, companies must reinvent themselves and their products continuously. Companies such as Apple announce new products multiple times a year and come up with new versions of virtually every product every year. To maintain this speed, leveraging a global market and a global supply model is critical to ensure enough output during the short time the product is relevant. Supply Volatility With the increasing pressure from the customer side and the limited mature lifetime products have, it’s critical for companies to closely manage their supply. The global environment in which companies operate, however, poses a higher risk of supply disruptions. Having suppliers in every corner of the world and manufacturing operations distributed across various countries increases the risk of stock-outs, both in the manufacturing process (raw materials) and in distribution to customers. This requires supply chains to become much more responsive to those supply disruptions and use bigger buffers for safety. 34 The actual availability of products isn’t the only factor that impacts the company’s bottom line; the cost to acquire those products does so as well. Commodity prices have seen a lot of instability for the past few years, requiring clear management and a view into what’s required in the mid- to long-term stages to effectively hedge against the adverse impact of volatile markets. With increasing market volatility in a globalizing economy comes a great array of opportunities; however, to succeed in this highly complex environment, companies need well-established processes to be successful. The next section will introduce the key elements of a strong S&OP process as a tool to manage complexity and drive value. © 35

עברית · תרגום מקצועי

**1.1.3 Market Volatility** "change is the only constant" — volatility הוא ה-normal החדש. הגישה הסטטית (שבועות/חודשים ל-"optimizing") הסתיימה; supply chains חייבים להיות dynamic מול customer expectations עולים, product lifecycles קצרים ו-supply disruptions. **Rising Customer Expectations** — לקוחות מעצימים דרישות (Amazon — משלוח בשעות; materials configurable — מספר finished products עולה אקספוננציאלית). **Shortening Product Lifecycles** — technology מתפתחת מהר (דוגמת Vizio — TVs במחיר נמוך, ללא internal manufacturing, contract manufacturers; Apple — מוצרים חדשים מספר פעמים בשנה). **Supply Volatility** — סיכון גבוה ל-stock-outs (raw materials ו-distribution); commodity prices לא-יציבים דורשים hedging.

English (original)

1.2 Process Drivers Although S&OP is a well-documented process in managing complex supply chains, many companies still don’t use it effectively. Even companies that have been running an established S&OP process for years often don’t reap the full benefits. This section will start with the definition of the S&OP process and provide an overview of the steps typically included. This will serve as a process basis for the remainder of this book, in which we’ll explain the details of how SAP Integrated Business Planning for sales and operations can support every step of the process in detail.

עברית · תרגום מקצועי

**1.2 Process Drivers** S&OP הוא תהליך מתועד היטב, אך חברות רבות אינן מנצלות אותו במלואו. הסעיף מגדיר את תהליך ה-S&OP ומספק סקירת הצעדים — בסיס ליתר הספר, שבו יוסבר כיצד **SAP Integrated Business Planning for sales and operations** תומך בכל צעד.

English (original)

1.2.1 Sales and Operations Planning: Process Definition S&OP processes have always been at the core of companies’ planning processes. APICS Dictionary (14th ed.) defines S&OP as follows: A process to develop tactical plans that provide management the ability to strategically direct its business to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. If we consider profit maximization the core objective of most commercial companies, then the objective of S&OP is to provide the best possible customer service at the lowest cost. Pricing decisions often aren’t considered key decisions in the S&OP process; the immediate focus is on minimizing inventory, transport, and production costs while planning to meet customer demand. During the S&OP cycle, companies focus on answering key questions such as the following: What is the capacity required over the coming months to expand my business to a new region? In case of supply constraints, is producing in an alternate location more beneficial to producing earlier and stocking more products, considering the demand planning uncertainty? What is the impact of new product introductions on my supply chain? 36 What is the impact of an additional distribution center in Central America? Which contract manufacturer would be the best partner based on its specific supply network? Before diving into the details of the S&OP process, it’s important to distinguish the different horizons relevant to the business planning process. This allows us to frame where the S&OP cycle fits in the broader organizational planning processes.

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**1.2.1 Sales and Operations Planning: Process Definition** הגדרת **APICS Dictionary** (מהדורה 14): תהליך לפיתוח tactical plans המאפשר להנהלה לכוון את העסק אסטרטגית להשגת יתרון תחרותי, ע"י שילוב customer-focused marketing plans (מוצרים חדשים וקיימים) עם ניהול ה-supply chain — מאחד את כל התוכניות (sales, marketing, development, manufacturing, sourcing, financial) למערך אחד. אם profit maximization הוא היעד המרכזי, מטרת ה-S&OP היא שירות לקוחות מיטבי בעלות נמוכה (מיקוד ב-minimizing inventory/transport/production costs; pricing בדרך כלל אינו החלטת מפתח). שאלות מפתח: capacity נדרש להרחבה לאזור; production במיקום חלופי מול מלאי; השפעת מוצרים חדשים; distribution center נוסף; contract manufacturer מיטבי.

English (original)

1.2.2 Planning Horizons It’s important to understand S&OP in the context of various planning functions in the organization, as depicted in Figure 1.1. Traditionally, planning processes in an organization are organized into three planning horizons: Strategic planning Long-range planning, often related to financial objectives, at a very high level in the organization (e.g., yearly plan for 10 years on the product group level). Tactical planning Medium-range planning, mostly in volumes and values, typically made up out of an annual operating plan (AOP) that provides the budget for the year and a monthly refreshed sales and operations plan for the next 18 to 24 months rolling. Operational planning Short-term planning, on a detailed product mix level (e.g., day-to-day planning for three months at the SKU level). © 37 Figure 1.1 Planning Horizons Although S&OP is defined as a tactical planning capability, it has ties to strategic planning via incorporating strategic objectives into sales and operations plans. It ties into operational planning because to become executable, the agreed-on sales and operations plans need to transfer to the shop floor to become effective.

עברית · תרגום מקצועי

**1.2.2 Planning Horizons** S&OP בהקשר שלושת ה-horizons: **Strategic planning** (long-range, יעדים פיננסיים, רמה גבוהה — תוכנית שנתית ל-10 שנים ברמת product group); **Tactical planning** (medium-range, volumes ו-values — **annual operating plan (AOP)** + sales and operations plan מרוענן חודשית ל-18–24 חודשים rolling); **Operational planning** (short-term, product mix — תכנון יומי ל-3 חודשים ברמת **SKU**). S&OP מוגדר כ-tactical אך קשור ל-strategic (שילוב יעדים) ול-operational (ביצוע ב-shop floor).

English (original)

1.2.3 Sales and Operations Planning: Process Decomposition A typical S&OP process follows the steps depicted in Figure 1.2. The remainder of this section will provide more background on each of these steps. Figure 1.2 S&OP Process Product Review The S&OP process, though interdependent, typically starts with a product review in which the magnitude and impact of new products are assessed. New products can’t be planned in the same way as mature products due to the lack of historical information. The impact of new products on supply chain operations can be significant, however, so this step shouldn’t be omitted. During the product review, the performance of the current product portfolio and its strategic alignment will be confirmed. The output of the product review step is 38 an initial forecast for new products to be launched during the 6- to 18-month S&OP horizon. Demand Review Complementing new product planning, the demand review step will complete the unconstrained demand plan for the S&OP horizon. The objective is to provide an unconstrained demand picture agreed on by various functions in the organization, including sales, marketing, and finance. The consensus demand plan resulting from the demand review step is unconstrained in nature. It represents the volume the organization can realistically sell in the market without considering any capacity or supply constraints. The unconstrained consensus demand is an unsourced plan; it’s considered based on a combination of product and customer. From a product perspective, demand planning can be performed at various levels of the product hierarchy. The objective is to provide input to the supply review process on the level relevant for the S&OP decisions to be made. For example, for packaged goods manufacturers, the individual unpackaged product might be the right level; for pharmaceutical companies, it might be the level of the active ingredient that’s critical for S&OP. A consensus demand plan typically involves a customer dimension, which could be individual customers on the ship-to level or sold-to level, regions, or global accounts. The key is to allow the right level of granularity to make optimal S&OP decisions. The demand review process starts with demand history management. The sales history often is used to forecast the future statistically. Based on the statistics, sales representatives will get an opportunity to enrich the forecast with customer-specific information. The marketing department will provide insights with respect to planned promotions and marketing initiatives. Finally, all forecasts will be provided to the demand planner, who often has a facilitating role in the demand review meeting, during which all stakeholders sign off on the unconstrained consensus demand plan that will serve as input to the supply review. © 39 Supply Review Based on the consensus demand plan, the supply review requires a propagated supply plan. Propagation of the consensus demand plan can be performed using various calculation techniques, from simple, rule-based heuristics (covered in Chapter 4) to advanced supply network optimization algorithms (covered in Chapter 5). The supply propagation step results in the following: Sourced demand plans, determining the facing location for all customer demand High-level production plans, depicting where specific finished products and subassemblies will be produced Component requirement plans typically focused on requirements for critical components Capacity utilization plans typically focused on critical resource loads Transport plans Although detailed production processes are very complex in most organizations, the S&OP process can abstract some of the complexity by focusing on critical components and resources, depending on the industry and the approaches a company wants to take to meet its S&OP objectives. For example, for a PC manufacturer, critical components could include the processors, memory, and hard drives, but not cabling and fixings. This approach makes sense when there’s a likelihood of supply constraints on the critical components but an abundance or low risk of constraint for noncritical components. Focusing planning activities on those high-risk factors will help an organization pay more attention to those components that will impact S&OP decisions without cluttering its view by focusing on too broad a collection of products. Operational S&OP Review After the supply review step provides the propagated demand, high-level production and transport plans, and (critical) component requirements and capacity loads, the operational S&OP review aims to resolve the issues introduced by the constraints in terms of capacity or supply. In the operational S&OP review, representatives from sales, marketing, demand planning, supply and operations, and finance will evaluate and analyze constraints and resolve them by considering various scenarios. For example, if 40 there is a capacity constraint in one of the production facilities, options such as producing in a different facility or producing earlier in time to overcome the overload might be viable. The cross-functional team will assess the risks and impacts, often determined as financial measures, and suggest a plan for going forward. To ensure efficient decision-making, the plans that have been in volume until this step of the S&OP process are translated to values. In the S&OP cycle, cost and revenue values are only considered relevant if they allow stakeholders to make better decisions. For example, variable manufacturing costs, transportation costs, and inventory carrying costs mostly are deemed relevant costs. However, the fixed cost related to the production capacity available in the organization for tactical decisions isn’t considered a relevant S&OP cost because it doesn’t differ with the different decision options at hand. The operational S&OP review participants will conclude the meeting by determining one or more viable options, which might require executive decision-making. Executive Sales and Operations Review The executive S&OP meeting ensures executive buy-in to the agreed-on operating plan. In stable business scenarios, this decision-making might consist merely of a sign-off on the plans agreed on during the operational S&OP meeting. However, sometimes various options can be proposed for executive decision-making. This can be the case if the S&OP decisions to be made are more in the strategic realm or incur a higher risk. For example, if capacity overload is dependent on an uncertain situation, like a big sales opportunity that hasn’t yet materialized, an option such as producing earlier in time would expose the organization to a bigger risk. Producing in an alternate location might be less financially viable, but might not incur the risk of producing prior to winning the sales opportunity. Although the concepts and objectives of the S&OP process aren’t new, there is still a lot of room for improvement in a lot of companies to run a best-in-class supply chain. In this section, we covered the main steps of the S&OP process. In the next section, we’ll look at the impact technological changes have on the S&OP process. © 41

עברית · תרגום מקצועי

**1.2.3 Sales and Operations Planning: Process Decomposition** הצעדים: **Product Review** (הערכת מוצרים חדשים — ללא historical information; פלט: forecast ראשוני ל-6–18 חודשים). **Demand Review** (השלמת ה-unconstrained demand plan — consensus demand plan מוסכם על sales/marketing/finance; unsourced, שילוב product+customer; מתחיל ב-demand history management, statistical forecast, העשרה, ה-demand planner מנחה את ה-demand review). **Supply Review** (propagated supply plan מ-consensus demand — rule-based heuristics [פרק 4] עד supply network optimization [פרק 5]; פלט: sourced demand plans, production plans, component requirement plans, capacity utilization plans, transport plans; מיקוד ב-critical components/resources). **Operational S&OP Review** (פתרון constraints של capacity/supply — sales/marketing/demand planning/supply/finance; תרגום volume ל-values; relevant costs — variable manufacturing/transportation/inventory carrying; לא fixed cost). **Executive Sales and Operations Review** (executive buy-in — sign-off או החלטה בין options).

English (original)

1.3 Technology Drivers Traditionally, companies have managed their S&OP processes by manually combining information from various sources. Data from the various domains involved in the S&OP process—demand, supply, finance, sales—typically is stored in separate systems. As such, S&OP planners have been forced to consolidate the information manually by extracting data from the various systems and combining it in offline spreadsheets and databases. This is a very time-consuming process, resulting in a S&OP process that often takes the whole month. To significantly speed up the process, S&OP tools have taken a more prominent place in the supply chain planning technology portfolio. The key purpose of these solutions is to provide S&OP users with consolidated information to build one shared version of the truth, that is, one operating plan. In recent years, advancements in technology have allowed S&OP platforms to become more suited to performing a wide array of tasks in the supply chain planning process, resulting in completely integrated business planning platforms. In this section, we’ll cover some of those improvements that are pivotal in the context of S&OP solutions, setting the stage for introducing the SAP IBP solution in the next section.

עברית · תרגום מקצועי

**1.3 Technology Drivers** מסורתית, S&OP נוהל בשילוב ידני של מידע ממערכות נפרדות (demand, supply, finance, sales) ב-spreadsheets — תהליך איטי (חודש שלם). כלי S&OP נעשו בולטים יותר — מטרתם מידע מאוחד ל-**one shared version of the truth** (one operating plan). התקדמות ה-technology הפכה פלטפורמות S&OP ל-integrated business planning platforms מלאות.

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1.3.1 Interactive Planning with In-Memory Computing The latest generation of supply chain planning solutions has been characterized by improvements in advanced planning algorithms. Planning solutions have always had planning algorithms, such as statistical forecasting and supply planning heuristics and optimizers. However, in most cases, those algorithms weren’t fast enough so planners couldn’t use them interactively. Planners mostly had to rely on nightly batch jobs to create forecasts or supply plans in case of changes. Although the rise of in-memory computing can hardly be called a recent trend, it has taken a certain amount of time for big supply chain planning packages to be able to fully adopt this method of processing. Even in the time of SAP Advanced Planning and Optimization (SAP APO), actual planning operations were typically executed in an in-memory database called liveCache. The big change is that the 42 size of the memory that can be used has increased drastically, making it possible to perform full planning in memory. In the SAP realm, the in-memory computing revolution has been driven by SAP HANA database technology. SAP HANA is an in-memory, column-oriented relational database. As shown in Figure 1.3, an in-memory database keeps the complete application data in memory at any time. This cuts down on the time spent reading and writing from the (traditionally external) relational database, thus speeding processing up significantly. Discussing the exact details of why in-memory databases outperform traditional ones isn’t in the scope of this book; here, we’re mainly interested in what value this can bring in the context of S&OP solutions. Figure 1.3 In-Memory Computing The first and perhaps biggest impact of the increased processing speed of algorithms is the opportunity to start planning interactively. Running planning algorithms over an in-memory database typically reduces the runtime of those operations from hours to minutes. This allows planners to start planning interactively, rather than relying on long batch jobs. In the S&OP world, this could go as far as starting to use the S&OP platform during operational S&OP meetings to validate impacts on the plan from possible changes. Interactive planning brings the capability to perform scenario planning. Scenario planning in older planning systems, though often a technical possibility (e.g., planning versions in SAP APO), wasn’t practical to use because running the baseline plan would probably take up the complete nightly batch window. If it’s possible to plan a supply network in a couple of minutes, that frees up time for planners to add more value to the planning process by considering different scenarios. To address typical S&OP questions (like those raised in previous © 43 sections), the planner now can model them in the system as scenarios and assess the implications of the different scenarios to make a more educated decision about which one to pursue. For example, when planners are faced with capacity constraints in their manufacturing environments, there are typically various solution options. Planners could consider producing in a different plant, thereby increasing the transportation costs but still delivering to the customer. If the capacity constraint presents itself in the future, production could be performed earlier in time, therefore increasing the cost of holding inventory but perhaps not incurring the transportation cost of alternative production locations. Finally, planners could opt to fulfill customer demand late, which might come at a cost. Without the opportunity to model these scenarios in the solution, it would be a very time-intensive exercise to make the right choice and thus only viable for big decisions. Allowing these options to be modeled in the system opens this capability to most decisions, improving the overall value of S&OP decision- making.

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**1.3.1 Interactive Planning with In-Memory Computing** הדור האחרון מאופיין בשיפורי advanced planning algorithms (statistical forecasting, supply planning heuristics ו-optimizers) — בעבר לא מהירים מספיק (nightly batch jobs). **in-memory computing** — גם ב-**SAP APO** (SAP Advanced Planning and Optimization) התכנון בוצע ב-in-memory database **liveCache**, אך כעת גודל הזיכרון גדל דרמטית. ב-SAP — מונע על ידי **SAP HANA** (in-memory, column-oriented relational database — כל הנתונים בזיכרון). ההשפעה הגדולה: **interactive planning** (runtime משעות לדקות; שימוש בפלטפורמה במהלך operational S&OP meetings) ו-**scenario planning** (בעבר planning versions ב-APO לא-מעשי; כעת מידול scenarios — production במפעל אחר [transportation cost], מוקדם יותר [inventory cost], או מאוחר [cost]).

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1.3.2 Data Visualization The S&OP process involves users across various levels in the organization. Different users, however, use reporting capabilities slightly differently. We can distinguish between operational reporting, which is used by planners in their day-to-day planning activities, and executive reporting, used by executives during S&OP reviews. Operational Dashboards With the rise of in-memory databases, one of the first domains impacted is the analytics and data visualization space. Historically, technology platforms would have a dedicated reporting database used to store the data and visualize it in custom reports. The main driver for having a separate system for reporting was the speed of aggregation and slicing and dicing the information. When running dashboards, users would like to see the data rendered immediately and have the option to interactively change the level they’re looking at—drilling up and down through hierarchies, for example. To allow acceptable response times, most planning environments had to store the data at an aggregate level to ensure it could be visualized quickly. 44 Using in-memory databases removes the need to store this data in a separate system, making it possible to report on the planning data from the planning system directly. This totally revolutionizes how data can be visualized during the planning process: it’s no longer required to wait for batch replication jobs to send data from the advanced planning system to the reporting system. This allows users to report in real time on their planning data, visualize the impact of their actions immediately, and then put that information to use. For operational reporting, not only is the speed of reporting important but also flexibility. Planners, while visualizing data, generate reports as a means of analysis. This requires almost infinite flexibility to drill into data, starting at higher levels and moving to details where problems might arise. Executive Dashboards Just like operational dashboards, effectively using executive dashboarding during the S&OP process is predicated on having real-time access to the planning data. However, with executives spending less time in the technology solution, executive dashboarding adds extra expectations from a usability perspective. For executives to be able to interact with them easily, dashboards need to be concise, use the correct visualization techniques, and be accessible from any device. Executives don’t often log in to backend SAP systems and instead use tablets and phones to connect. This requires reports to be available in web browsers and provide real-time information in easy-to-understand visualizations. The rise of better visualizations also drastically changes the application of the technology platform during the S&OP cycle. Having executive dashboards visualizing real-time planning data in a way that’s easy to interpret makes it possible to use the dashboards during operational and executive S&OP meetings. This takes away a lot of time-consuming manual work creating PowerPoint presentations based on manually generated Excel charts, thus allowing the planners to use their time to perform value-adding planning activities instead.

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**1.3.2 Data Visualization** משתמשים ברמות שונות: **operational reporting** (planners יומיומי) ו-**executive reporting** (executives ב-S&OP reviews). **Operational Dashboards** — in-memory מסיר את הצורך ב-reporting database נפרד; דיווח על נתוני התכנון ישירות, בזמן-אמת (drilling up/down); דורש speed ו-flexibility. **Executive Dashboards** — גישה בזמן-אמת; concise, correct visualization, accessible מכל device (tablets/phones, web browsers); מחליף PowerPoint/Excel ידני, שימוש ב-meetings.

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1.3.3 Collaboration Collaboration is a central component of the sales and operations process. Both internal collaboration (having the different functions involved in the S&OP cycle © 45 communicate effectively) and external collaboration (working with suppliers and customers to build an integrated plan) are crucial for an effective S&OP cycle. Therefore, the S&OP process requires a technology platform that’s capable of much more than just providing the functionality of an advanced calculation model. We’ll cover the exact requirements for internal and external collaboration in the next two sections. Internal Collaboration The S&OP process is cross-functional, involving stakeholders from almost every domain in the organization. To facilitate an efficient S&OP process, a platform for collaboration has become a critical component. Although cross-functional collaboration takes a lot of different forms, some key elements are as follows: Have a common view on the phase in the S&OP process. For example, in a multinational manufacturing organization, there are various demand planners per region per business line. To effectively plan supply, planners often start without necessarily having all demand plans signed off. Having good visibility into the completeness and status of all demand streams is important to provide better coordination. During the S&OP process, a lot of documents can support the different steps of the process. The ability to store this information in a common repository can be beneficial to ensure everyone has access to the information at the right time. Typical S&OP processes involve a series of meetings and sign-offs. Although some of those meetings provide a true value addition to the process, some are more routine in nature. The ability to virtualize nonvalue-adding meetings might speed the process and leave more time for the value-added activities. In Section 1.4.3, we’ll cover how the SAP IBP solution can support the internal collaboration processes by leveraging process modeling, SAP Jam, and SAP Build Work Zone. External Collaboration Performing S&OP requires an organization to look beyond its own borders, looking both upstream to suppliers and partners and downstream to clients: 46 Upstream collaboration This often refers to sharing plans with your partners and suppliers to increase the reliability of their supply. Opening the planning process to suppliers implies that you share your unconstrained requirements plan with your suppliers. This allows your suppliers to use this extra intelligence in their planning efforts, increasing the commitment they can give and therefore reducing the supply disruptions your company might suffer. Suppliers, in turn, can communicate their constraints, allowing you to consider those constraints in time in your planning process, therefore further increasing the predictability of those disruptions. Downstream collaboration This refers to the reverse side of this process: you behave as the supplier, receiving unconstrained requirements plans from your customers. These plans can be used to compare against your own forecast for your customers and feed into the consensus demand process. Typically, there is a certain horizon at which those plans from your customers become firmer, giving you more visibility into the near-term demand. Both processes can drive organizations toward expanding how they look at planning by starting to plan for an “extended organization.” More and more business-to-business solutions support this process with technology platform planning for networks. In the SAP realm, the Ariba Network is the solution that supports this process. © 47

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**1.3.3 Collaboration** רכיב מרכזי — **internal collaboration** (functions ב-S&OP) ו-**external collaboration** (suppliers, customers). **Internal Collaboration** — cross-functional (common view על ה-phase; visibility ל-completeness/status של demand streams; common repository ל-documents; virtualization של nonvalue-adding meetings; SAP IBP תומך דרך process modeling, **SAP Jam**, **SAP Build Work Zone**). **External Collaboration** — **Upstream** (שיתוף unconstrained requirements plan עם suppliers — הם מתחייבים ומתקשרים constraints) ו-**Downstream** (קבלת requirements plans מ-customers ל-consensus demand). ב-SAP — **Ariba Network**.

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1.4 SAP Integrated Business Planning SAP IBP provides tools that give S&OP a technology foundation and help companies be successful. In this section, we’ll show how SAP IBP delivers an innovative technology platform for companies to respond to market, process, and technology trends. We’ll focus on the broader context of what SAP IBP enables, above and beyond pure S&OP. Although the S&OP process is the focus of this book, this section will provide a broader introduction to the SAP IBP solution. The approach will be process and functionality driven in the first sections, showing the integrated nature of the solution. In the last section, we’ll tie back to the modules available in the SAP IBP licensing model.

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**1.4 SAP Integrated Business Planning** SAP IBP מספק בסיס טכנולוגי ל-S&OP. הסעיף מציג את הפלטפורמה בהקשר רחב — מעבר ל-S&OP טהור — עם גישה process ו-functionality driven, וקישור בסוף ל-modules של מודל ה-licensing.

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1.4.1 An Integrated Approach The key to a successful S&OP process is to deliver an integrated platform. In the previous section, we touched on the need to deliver a solution that brings together information from various domains in an organization. In the following subsections, we’ll look at the evolution of integrated business planning over time in SAP solutions before moving on to how SAP IBP’s integrated approach helps optimize different elements of your supply chain. Aligned with traditional S&OP methods, the first versions of the SAP solution focus on propagating a supply plan from the consensus demand throughout the supply network, leading to a production and raw materials plan. History of SAP Integrated Business Planning The SAP IBP solution facilitates integrated planning by operating on a single data model. From product review to demand and supply planning to the S&OP meetings, all information is available in that single data model. This is a key differentiator compared to traditional supply chain planning tools, both in the SAP realm (e.g., SAP APO didn’t share a data model between demand planning and supply network planning) and in best-of-breed environments in which different applications are supported mostly by separate systems. That integrated data model applies inside of the S&OP process steps, but even more importantly, it applies to all the processes adjacent to those traditional 48 S&OP steps. Although the focus of this book is on the traditional steps in the S&OP process, in this section, we’ll take the time to describe the different functionalities SAP IBP brings beyond S&OP. SAP IBP provides a platform that enables a company to mature its S&OP process into a true integrated business planning process. We’ll use the evolution of the SAP solution to describe the path from an S&OP tool into a true integrated business planning solution (see Table 1.1). Year Solution Capability 2012 SAP S&OP 2.0 SAP IBP for sales and operations New cloud-based SAP HANA platform for advanced planning New Excel and HTML UX Unified architecture Comprehensive data model Support for internal collaboration 2013– 2016 SAP S&OP 3.0, 4.0, 5.0, 6.1 New SAP Cloud Integration model Integration content for SAP APO and SAP Enterprise Inventory and Service-Level Optimization S&OP optimizer Extended S&OP functionality: modeling, planning, analytics Planning area templates SAP Supply Chain Control Tower SAP IBP for inventory SAP IBP for supply SAP IBP for demand SAP IBP for response and supply © 49 Year Solution Capability Order-based data model, order prioritization, constraint planning, and gating factor analysis 2016– 2020 SAP IBP Solutions enhancements for supply and response Paving the way to SAP ERP integration Native SAP IBP/SAP Ariba integration Demand sensing (SAP IBP for demand) Enhancement to the unified planning area Product lifecycle management Make-to-order (MTO) and assemble-to-order (ATO) modeling for inventory optimization Demand-driven material requirements planning (DDMRP) solutions with inventory optimization Deployment planning in response management Supply collaboration with data sharing app Forecast automation—time-series analysis 2020– present SAP IBP Intelligent Visibility app Planner workspace Synchronized planning Product substitution in order-based planning Product and location visualization Greenhouse gas emission footprint analysis Freeze horizon for S&OP source of supply 50 Year Solution Capability Integrated financial planning with SAP Analytics Cloud Table 1.1 History of SAP IBP When SAP’s integrated business planning solution was released in 2012, it was called SAP Sales and Operations Planning powered by SAP HANA, with version 2 the first commercial version based on the SAP HANA in-memory database. The functionality of the solution in 2012 to 2013 was specifically focused on the S&OP process, providing basic demand planning capabilities such as statistical forecasting and consensus building. The first versions provided supply planning functionality by leveraging a rule-based S&OP heuristic, which was complemented in 2014 with the S&OP optimizer functionality. With the upgrade to version 4 in 2014, SAP released SAP Integrated Business Planning, which coincided with the extension of the solution beyond traditional S&OP capabilities. At that time, the SAP Integrated Business Planning for inventory module was born, which allowed companies to leverage the SmartOps multi-echelon inventory optimization engine in their integrated business planning processes. Version 5, released the next year, deepened the demand planning capabilities for demand sensing. The next major release followed in 2016 with version 6, in which the first version of SAP Integrated Business Planning for response and supply was launched, completing the planning capabilities by integrating more operational planning into the environment. Currently, SAP delivers quarterly releases with rapidly evolving new functionality. Since 2016, the naming conventions for releases have changed to adopt the naming conventions of other SAP solutions: two digits for the year (e.g., 18 for 2018) followed by two digits for the month (e.g., 01 for January). This book was completed using the 2208 system as a reference. Aligned with the evolution of the SAP solution itself, integrated business planning can be looked on as the next phase in the S&OP maturation. This book will focus on the S&OP capabilities, but we want to use this opportunity to explain some of the more advanced capabilities of SAP IBP, which facilitates more than just S&OP. We’ll briefly cover the different supply chain optimization engines available in SAP IBP, and then discuss the demand sensing and response management capabilities. We’ll spend a little bit of time on the © 51 supplier collaboration capabilities available via the connection to SAP Ariba. The rest of this book will then focus on elements within the traditional S&OP scope. Supply Network Optimization Supply network optimization optimizes the flow of products throughout the network. This function was released in SAP Sales and Operations Planning powered by SAP HANA version 3 in 2013 and has received a lot of attention ever since. Chapter 5 will explore all the details of S&OP optimization, but first this section will highlight how optimization fits into integrated business planning processes. S&OP optimization is a profit-optimization-based technique in which revenue and costs drive the objective function. The algorithm will use variable costs only, as depicted in Figure 1.4. Figure 1.4 Financial Model for Optimization The following elements are included: Raw material costs The cost of (critical) components used in the production process. Transportation costs Both finished goods and components, from a supplier to an internal location, between internal locations, and to a customer. Inventory carrying costs Cost impact of storing inventory. Production costs For producing a finished product or intermediate product at a specific location. 52 The objective of supply network optimization techniques is to determine the most appropriate good flows, minimizing costs while trying to achieve maximal demand fulfillment. Besides leveraging the costs, various hard constraints can be introduced in supply network planning, such as the following: Resource capacity constraints The maximum volumes of finished products or subassemblies a resource can produce in the set time granularity. Supply constraints The maximum amount of product that can be procured externally. Transportation constraints The maximum amount of product that can be pushed through a specific leg of the network. The S&OP optimization engine aims for the highest fulfillment of customer demand possible, at the lowest cost, maximizing profit margins. Inventory Optimization Inventory optimization, on the other hand, determines the optimal safety stock to be carried to meet customer demand, while understanding that customer demand forecasts are inaccurate and transportation duration is variable. It calculates the amount of inventory required to meet a target service level for groups of customers. If the supply network has multiple levels, then multi- echelon inventory optimization identifies the most advantageous node in the network to store the inventory in. The key elements are depicted in Figure 1.5. The following inputs are required to perform multi-echelon inventory optimization: Supply network and sourcing rules depicting the physical flow of goods throughout the organization Target service levels defining what the intended level of service to customers should be © 53 Figure 1.5 Inputs for Inventory Optimization Demand and demand variability, which often translate into a forecast accuracy indicator; the higher forecast accuracy, the lower the required safety stock to impact the service level Lead times and their variability, accounting for the uncertain nature of real life, which can be divided into two categories: Production lead time: The time it takes to produce products. Transportation lead time: The time it takes to transport goods; applies to raw materials, finished products moved between internal locations, and finished products moved to the customer. Periods between review, as the ordering process typically isn’t a continuous process (e.g., a weekly ordering pattern would require inventory to cover the full week on top of lead time) Although inventory optimization often focuses primarily on determining the optimal inventory of finished products to carry, advanced inventory optimization algorithms also calculate the right amount of raw materials to keep to build an end-to-end inventory picture. In the SAP IBP platform, the multi-echelon inventory optimization algorithms received a jump start when SAP acquired SmartOps in 2013. This opened more than a decade of experience in building supply chain optimization engines to 54 SAP, allowing it to incorporate this experience in its new environment and putting SAP directly at the top of the league in inventory optimization. Global Optimization Although supply network optimization and inventory optimization are carried out individually for the most part, there is a dependency between the types of optimization. With supply network optimization, changing the sourcing logic inside the supply network is an input to inventory optimization. Inventory optimization might change the level of inventory, which implies an inventory carrying cost, impacting the profit optimization in supply network optimization in turn. This implies there is some thought required when trying to implement optimization in supply chain planning, considering the dependencies of various calculations. This can be further complicated by minimum order quantities, optimized (economic) order quantities, and the step functions often introduced in raw material pricing. This is where SAP IBP delivers its biggest leap in effectiveness. Traditionally, companies have adopted distinct technology platforms to carry out S&OP optimization and inventory optimization. This makes it tremendously more difficult to reap the benefit of a combined optimization. In every iteration, data needs to be transferred from one environment to another, making it practically impossible to reach a global optimum. Demand Sensing Demand sensing is a forecasting method that leverages new mathematical techniques and near real-time information to create an accurate forecast of demand based on the current realities of the supply chain. As opposed to traditional statistical forecasting techniques that leverage time series, analyzing past sales to create a forecast of future sales, demand sensing uses various demand signals to better predict the very near future. Gartner defines demand sensing as “a capability used to gain real-time visibility and insights from consumption and order data to improve short-term statistical forecasts and drive short-term supply chain operations.” This focus on the very near term makes demand sensing one of the techniques that goes well beyond the tactical nature of the traditional S&OP cycle, typically considered in months. It is, however, a key technique that allows organizations to become more demand-driven. In the integrated business planning processes, demand sensing © 55 can play a key role in operationalizing S&OP results and making them available for downstream consumption in detailed planning and scheduling. Understanding that the S&OP process doesn’t exist in a vacuum often raises questions about operationalizing the results. Demand sensing can play a critical role in that link, acting as an advanced consumption approach to provide consumed information that’s directly usable for operational planning while considering the S&OP decisions that have been made. Just as in inventory optimization, SAP has had the opportunity to leverage the SmartOps demand sensing algorithms to deliver an impressive starting version of demand sensing. Response Management Another technique gaining increasing attention in the context of SAP IBP is response management. Response management takes place after the S&OP process. Even with the best processes in planning, the future can never be predicted perfectly. Response management aims to limit the adverse impacts of disruptions in the supply chain by quickly and effectively assessing real-life events and their impacts and generating options for mitigation. As an example, an organization can use supply network optimization and inventory optimization in a mature integrated business planning process but still be faced with a delayed vessel at a port. This delayed vessel might carry critical components that have been carefully planned for, putting the organization in a reactive mode. Response management allows you to determine the impact of this event on the current state of the supply chain and provide various options both for direct execution (e.g., ordering products from a nearby supplier) and for the longer term by adjusting the sales and operations plans with this new information. Just like demand sensing, response management plays mainly in the shorter time horizon, bridging the gap between tactical supply chain planning processes and day-to-day operations. Response management is the only module in the SAP IBP solution that works on an order-level data model. This is a substantial change from the traditional period-based data model on which the other modules in SAP IBP are based. This also calls for a separate integration model. 56 Supplier Collaboration In Section 1.3, we touched on the need to take planning beyond company borders. To facilitate collaboration in supply chain planning with partners and suppliers, SAP IBP connects natively with the SAP Ariba Supply Chain Collaboration solution. Since SAP IBP release 1705, it’s possible to connect SAP IBP to SAP Ariba without any middleware. This provides a giant leap forward in the ability to deploy supplier forecast collaboration solutions. Traditionally, to collaborate with suppliers, companies had to build a unique technological pipeline for their data from their advanced planning system to their supplier, often via Electronic Data Interchange (EDI) protocols. This was a very cumbersome and expensive IT endeavor requiring a substantial investment. The Ariba Network has grown out of the SAP acquisition of Ariba (now SAP Ariba). It was originally a sourcing and procurement platform focused on indirect procurement, and it has now completely revolutionized supplier collaboration. The Ariba Network allows companies to publish their entire unconstrained requirements plan in one go and count on the Ariba Network to distribute it to the right suppliers. In this section, we provided an overview of SAP IBP as an extension of the traditional S&OP process thinking and introduced how SAP Integrated Business Planning for sales and operations can be a great starting point for more advanced supply chain planning in the long run.

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**1.4.1 An Integrated Approach** המפתח — פלטפורמה משולבת. SAP IBP פועל על **single data model** (מ-product review דרך demand/supply planning עד ה-S&OP meetings) — מבדל מרכזי מכלים מסורתיים (**SAP APO** לא שיתף data model בין demand planning ל-supply network planning). **History of SAP IBP (Table 1.1):** **2012** — SAP S&OP 2.0 (SAP IBP for sales and operations; cloud-based SAP HANA; Excel/HTML UX; unified architecture; comprehensive data model; internal collaboration). **2013–2016** — SAP S&OP 3.0/4.0/5.0/6.1 (SAP Cloud Integration; S&OP optimizer; planning area templates; SAP Supply Chain Control Tower; SAP IBP for inventory/supply/demand/response and supply; order-based data model, constraint planning, gating factor analysis). **2016–2020** — SAP ERP integration; native SAP IBP/SAP Ariba integration; demand sensing; MTO ו-ATO modeling; DDMRP; deployment planning; forecast automation. **2020–present** — Intelligent Visibility app; planner workspace; synchronized planning; product substitution; greenhouse gas emission footprint; integrated financial planning עם SAP Analytics Cloud. שוחרר 2012 כ-SAP Sales and Operations Planning powered by SAP HANA. הספר מתייחס למערכת **2208**. **Supply Network Optimization** — ממטב את זרימת המוצרים; profit-optimization (revenue ו-variable costs — Raw material costs, Transportation costs, Inventory carrying costs, Production costs); hard constraints (Resource capacity, Supply, Transportation). **Inventory Optimization** — safety stock מיטבי ל-target service level; **multi-echelon inventory optimization** (node מיטבי; inputs: supply network/sourcing rules, target service levels, demand variability [forecast accuracy], lead times [production/transportation], periods between review). **Global Optimization** — תלות בין supply network ל-inventory optimization; SAP IBP מאפשר combined optimization (מול פלטפורמות נפרדות מסורתיות). **Demand Sensing** — forecasting method עם near real-time information (demand signals; הגדרת Gartner); מעבר ל-tactical של S&OP. **Response Management** — לאחר S&OP; מגביל disruptions (vessel מעוכב); ה-module היחיד על **order-level data model** (מול period-based). **Supplier Collaboration** — חיבור native ל-**SAP Ariba Supply Chain Collaboration** (מ-release **1705** ללא middleware; **EDI** בעבר; **Ariba Network** — פרסום unconstrained requirements plan).

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1.4.2 Better Algorithms In Section 1.3, we touched on how in-memory computing makes it possible to start planning in real time, leverage scenarios, and speed the S&OP cycle. In this subsection, we’ll give an overview of the different algorithms SAP IBP brings to perform better planning: Demand planning algorithms Demand planning algorithms in SAP IBP are mainly on the statistical forecasting side. Statistical forecasting models in SAP IBP are split into three main components: Preprocessing algorithms allow you to manage the transactional data that feeds into the statistical forecasting engine. Outlier correction and missing value substation algorithms are available. © 57 Forecasting algorithms calculate a statistical forecast from the demand history (possibly corrected by preprocessing algorithms). Postprocessing algorithms calculate the forecast accuracy based on the ex post forecast. The combination of these algorithms produces a statistical forecast that feeds into the consensus demand process. Chapter 3 will provide an in-depth overview of the demand planning capabilities in the SAP IBP solution. Supply planning algorithms Based on the consensus demand, which is typically on the customer product level, supply planning algorithms calculate all the internal demand flows in the supply network. SAP IBP offers two main algorithms, and each has a variety of settings to fine-tune its behavior: The S&OP heuristic is an unconstrained, rule-based, decision-supporting algorithm with a sourcing rule as its basis. The heuristic will calculate the flows in the network in an unconstrained fashion, representing the loads on resources and suppliers without cutting back when overloads are observed. This makes it a true decision-support algorithm, leaving making the decision of how to constrain the demand to the manual intervention of the planner. The S&OP optimizer, on the other hand, is a profit-maximization decision- making algorithm. It will use a financial model as the basis of a profit optimization and will make decisions for the planners about which demands to pursue and what flows to utilize in the supply network. Both the heuristic and the optimizer will be covered in depth in Chapter 4 and Chapter 5 of this book. Inventory optimization algorithms Calculating the optimal safety stock levels can be done by leveraging the inventory optimization engine. SAP IBP comes with two essential inventory optimization algorithms: Single-echelon inventory optimization calculates the safety stock for every location independently Multi-echelon inventory optimization is where the true power comes into play, calculating the inventory for all the locations in the supply network. Considering strategic placements and inventory-pooling opportunities, it’s 58 the multi-echelon inventory optimization techniques that drive substantial value and prove the strength of SAP IBP as a completely integrated planning solution. Response management algorithms When moving more toward the operational planning space, response management delivers order-based algorithms that allow SAP IBP to complete the planning cycle with a completely operational plan. Response management can be considered an operational planning engine itself, generating supply elements on an order level, such as planned orders, purchase requisitions, and stock transfer requisitions. On the other hand, response management algorithms also can be used to rapidly respond to supply disruptions via replanning the network and leveraging a prioritized demand. In that way, response management will help improve a company’s margins by allocating the available constrained supply to the prioritized products and customers. There are various response management algorithms: Constrained planning will use the open forecast, combine it with open supply elements to build a constrained operational plan, and generate purchase requisitions, planned orders, and stock transfer requisitions. Order confirmation will consider the open sales orders and the forecast in a prioritized fashion and generate the same supply elements. The order confirmation run will also support a recalculation of the order confirmation date, ensuring that on supply disruption, a new order confirmation date can be communicated to customers. The deployment algorithms will generate deployment stock transfer requisitions to improve the internal distribution of stock aligned with the prioritized demands. Note Both inventory optimization and the details of the response management algorithms are outside the scope of this book.

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**1.4.2 Better Algorithms** סקירת האלגוריתמים: **Demand planning algorithms** (statistical forecasting — **Preprocessing** [outlier correction, missing value substitution], **Forecasting**, **Postprocessing** [forecast accuracy מ-ex post forecast]). **Supply planning algorithms**: **S&OP heuristic** (unconstrained, rule-based, decision-supporting; sourcing rule; מציג loads ללא cutting; פרק 4) ו-**S&OP optimizer** (profit-maximization decision-making; financial model; פרק 5). **Inventory optimization algorithms**: **Single-echelon** (safety stock לכל location בנפרד) ו-**Multi-echelon** (כל ה-locations; strategic placements, inventory-pooling). **Response management algorithms** (order-based — planned orders, purchase requisitions, stock transfer requisitions): **Constrained planning** (open forecast + open supply elements); **Order confirmation** (open sales orders + forecast, prioritized; recalculation של order confirmation date); **Deployment** (deployment stock transfer requisitions).

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1.4.3 User Experience Although SAP IBP offers an integrated approach and an impressive array of algorithms, perhaps the biggest plus is its UX. Traditional SAP advanced © 59 planning solutions have focused strongly on power and performance in the planning cycle, sometimes at the cost of the UX. With SAP IBP, those days are over. The UX has been revolutionized completely, giving planners the tools and experience they know best. Most S&OP is performed in Microsoft Excel, leveraging the SAP Integrated Business Planning, add-in for Microsoft Excel. Other activities, such as reporting and alerting, are performed in a web browser via SAP Fiori. Excel-Based User Interface Planners have always relied on Excel as their planning solution of preference. Advanced planning solutions in package software have always fought an uphill battle against the ease of use of a “simple” spreadsheet. Even today, many planners will still extract data from their advanced planning solution, load it into Excel, manipulate the data, and load it back into the advanced planning solution. The biggest downside of this approach, of course, is the emergence of various versions of the plan throughout the organization. With SAP IBP, Excel and the advanced planning solution have become one, merging the UX of Excel with the backend consolidation of one plan of record in the organization. This is achieved via SAP Integrated Business Planning, add-in for Microsoft Excel, a small piece of software installed as an add-in to Excel to allow the planner’s personal computer to connect to the SAP IBP database. Figure 1.6 shows an example of an Excel planning view in SAP IBP. You can see that it looks like a standard Excel sheet, but with an extra tab added in the ribbon in Excel. Figure 1.6 SAP IBP Excel Planning View 60 This SAP IBP tab allows you to interact with the SAP IBP application. Upon connecting to the system, the add-in receives the data from the SAP IBP solution and renders it in a tabular format. From that table, all standard Excel functions can be used. This means that the chart shown in Figure 1.6 and the formatting performed leverage all the standard Excel capabilities. Chapter 2 will provide a deeper overview of the navigation in the SAP IBP solution, and Chapter 11 will talk more about building planning views. SAP Fiori Applications A lot of the actual S&OP activities are performed using the SAP IBP Excel planning views, but other activities are rendered in a web browser via SAP Fiori apps. This makes it possible to access SAP IBP from almost any device by using HTML5 web pages. The SAP Fiori launchpad is the main landing page for users (see Figure 1.7). The launchpad contains active tiles, which themselves can display information. You also can click any tile to open its application. Figure 1.7 SAP Fiori Launchpad for SAP IBP Types of SAP Fiori apps include the following: Dashboards (see Figure 1.8) Custom alerting monitors and case management apps Forecast model maintenance and assignment apps © 61 Demand prioritization, gating factor analysis, and project stock apps Figure 1.8 SAP IBP Advanced Dashboard App SAP Fiori apps have all been designed in SAPUI5 with a focus on simplification and usability. Web-Based Planning View The web-based planning view enables users to access and work on the planning view on a web page without enabling the SAP Integrated Business Planning, add-in for Microsoft Excel. This feature allows users to create, copy, edit, and delete planning views. In addition, version and scenario functionalities for performing what-if simulation are also supported through web-based planning views. Figure 1.9 shows an example of a web-based planning view. This view can be accessed by a tablet device too, along with a desktop or laptop computer. You can edit key figure values, comment and share options, and access rich functionalities for planning, simulation, and cross-team collaboration. Figure 1.9 SAP IBP Web-Based Planning View 62 Planner Workspaces The planner workspace provides users with a configurable work environment in which the important planning components are available together on a single page. Through an easy drag-and-drop functionality (no configuration or code required), a planner can create a unique view by using components such as key figures, custom alerts, analytics, and batch jobs. Figure 1.10 shows an example of a planner workspace in which the planner has organized the workspace with relevant alerts, analytics, and key figures. The key figure values can be changed through this view, and the view can be shared with a different group for work collaboration with the applicable data filters. Figure 1.10 SAP IBP Planner Workspace Intelligent Visibility The Intelligent Visibility app is an added functionality (available from SAP IBP 2005) with the SAP Supply Chain Control Tower license. Intelligent Visibility is aimed to provide visibility and insight into the entire supply chain network. This app also supports the integration of related systems for the resolution of any alerts. In addition to providing real-time visibility by capturing data from different sources, the Intelligent Visibility app highlights any unwanted situation through alerts and allows the resolution through a procedure playbook application and connected planning, execution, and legacy systems. The Intelligent Visibility app can be utilized for multiple business scenarios where visibility and preemptive actions can enhance process efficiency. For example, in manufacturing execution, Intelligent Visibility is used to make sure © 63 the components from suppliers will be available as planned, or, in the order fulfillment process, it’s used to make sure that the required inventory will be available at the replenishment center on the identified order fulfillment date. Intelligent Visibility can also provide tools to planners for taking action by helping them with a prebuilt procedure playbook. A procedure playbook helps you solve supply chain issues by documenting best practices and standardizing processes between different teams. Planners can navigate to connected systems (e.g., SAP S/4HANA, SAP IBP, or legacy systems) for resolving the exceptional scenario identified through an alert. For example, if a manufacturing order is in a stressed situation due to parts shortage, the planner can navigate to the connected procurement system and generate a purchase order for an alternate supplier while considering the required delivery date. Because the data in SAP IBP works in a dynamic nature, the alerts will go away dynamically with the resolution step. In a logistics example, planners can see the status of an order planned with SAP Transportation Management directly in the Intelligent Visibility app in SAP IBP. SAP Jam The third UX innovation comes with the SAP Jam platform, which is integrated into the SAP IBP solution. The new collaboration platform of SAP IBP is called SAP Build Work Zone (from SAP IBP 2108, explained in the next subsection), though SAP Jam is also supported for older installed versions. For the most recent version, SAP IBP 2208, both SAP Jam and SAP Build Work Zone are supported as collaboration platforms. Any new customer needs to use SAP Build Work Zone, though there is no immediate requirement for existing customers to move from SAP Jam to SAP Build Work Zone. Therefore, we’re providing information about SAP Jam in this chapter as well. SAP Jam is based on the performance management software SAP acquired with SuccessFactors. In the context of integrated business planning, SAP Jam adds a social media–like experience to facilitate internal collaboration during the S&OP cycle. SAP Jam comes with a browser-based user interface (UI), accessed via an SAP Fiori tile or with an Apple or Android app. The browser-based version is shown in Figure 1.11, and the iOS-based version is shown in Figure 1.12. 64 The UX of SAP Jam is comparable to that of modern-day social media apps like Facebook. It provides a stream of updates people have made, either to the plan in Excel, via cases and tasks, or via direct updates. SAP Jam also adds document management capability and delivered content for virtual decision-making, such as pro and con tables, decision sign-offs, and the like. Figure 1.11 SAP Jam Web UI Figure 1.12 SAP Jam iPhone App © 65 SAP Build Work Zone Since the 2108 release, SAP IBP can be integrated with SAP Build Work Zone for social collaboration. SAP Build Work Zone offers similar functionalities to SAP Jam and is provided to all new organizations buying SAP IBP licenses. Organizations with older implementations can continue with SAP Jam for collaboration. Team members can communicate with members of the communication group, share information and objects, and manage their teams in a collaborative environment by using the features of SAP Build Work Zone. Figure 1.13 and Figure 1.14 show examples of SAP Build Work Zone. Centralized access of business information and communication help with performing the planning functions, especially the S&OP cycle with the required level of collaboration. Figure 1.13 Planning Collaboration through a Workspace: Notifications 66 Figure 1.14 Planning Collaboration through a Workspace: My Workspace

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**1.4.3 User Experience** היתרון הגדול — ה-**UX**. רוב ה-S&OP מבוצע ב-Microsoft Excel (**SAP Integrated Business Planning, add-in for Microsoft Excel**); reporting/alerting ב-web browser דרך **SAP Fiori**. **Excel-Based User Interface** — Excel וה-advanced planning solution הפכו לאחד (UX של Excel + one plan of record); ה-add-in מחבר את המחשב ל-SAP IBP database; לשונית SAP IBP נוספת ב-ribbon (כל פונקציות Excel זמינות). **SAP Fiori Applications** — HTML5, מכל device; **SAP Fiori launchpad** (active tiles); סוגים — Dashboards, custom alerting monitors, case management, forecast model maintenance, demand prioritization, gating factor analysis, project stock; מעוצבות ב-**SAPUI5**. **Web-Based Planning View** — ללא ה-Excel add-in (create/copy/edit/delete; versions/scenarios ל-what-if; גם ב-tablet). **Planner Workspaces** — סביבה ניתנת-להגדרה (drag-and-drop; key figures, custom alerts, analytics, batch jobs). **Intelligent Visibility** (מ-**SAP IBP 2005**, עם license **SAP Supply Chain Control Tower**) — visibility לרשת ה-supply chain; alerts, procedure playbook, ניווט למערכות מחוברות (SAP S/4HANA, SAP IBP, legacy; SAP Transportation Management). **SAP Jam** (מבוסס SuccessFactors) — social media-like ל-internal collaboration (browser/Apple/Android); ו-**SAP Build Work Zone** (מ-**SAP IBP 2108**; ללקוחות חדשים; SAP Jam נתמך לקיימים; ב-**2208** שניהם נתמכים).

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1.4.4 More Agility To lighten implementation complexity and make advanced planning solutions more accessible, more and more solutions have been deployed by leveraging a cloud-based infrastructure. SAP IBP has been offered via a cloud-based subscription model since 2013 with the introduction of SAP Sales and Operations Planning powered by SAP HANA version 3, and today it’s only available in the cloud. In this section, we’ll look at what the cloud model means and how it helps to provide better planning capabilities. Using a cloud-based solution means that the hardware server running the software isn’t maintained in the IT department of your own company but is hosted by the cloud provider (e.g., SAP in the case of SAP IBP) and provided to you as a service. This means that the maintenance of the physical hardware, upgrades to the core operating system and core application, and the network via which the application connects to the internet are managed by SAP as a service. When connecting to the application, users don’t connect to a local solution but rather connect over the internet to the SAP data center that hosts SAP IBP. For SAP IBP, solutions are single-tenancy, which means that one SAP IBP solution operates for one customer only. © 67 One of the biggest advantages of operating a cloud-based solution is that the burden of upgrades is performed by SAP on a regular basis. For SAP IBP, which is aligned with the release schedule of other SAP solutions such as SAP S/4HANA, there is a quarterly upgrade process. Upgrades are backward-compatible, ensuring that functionality deployed in prior releases will continue to work seamlessly while every new release gives planners the opportunity to start leveraging new functionality faster. Having SAP IBP available as a cloud-based solution, combined with the fact that the solution comes with a set of predefined planning models (see Chapter 2 for more on sample planning areas), makes SAP IBP uniquely fit for more agile implementation methodologies. Agile implementation methodologies try to provide an answer to the common thread in IT projects that there is a gap between business requirements, understanding of solution engineers, and the delivery of the solution; they do so by providing users an early view into the solution. Rather than waiting months after delivering business requirements for a solution, end users follow the journey of building the solution in a very interactive way. Combining the quarterly upgrade cadence with the move to more agile implementation methodologies drives SAP IBP solutions to be considered for continuous improvement. Every upgrade exposes new functionalities that can contribute to improvements in integrated business planning processes. With the sample planning models, it’s possible to test the impact of the new functionality directly, which drives companies to keep the SAP IBP solution much more up to date than was possible with more traditional advanced planning solutions.

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**1.4.4 More Agility** solutions נפרסים ב-**cloud-based infrastructure**. SAP IBP מוצע במודל cloud-based subscription מ-2013 (SAP Sales and Operations Planning powered by SAP HANA version 3), וכיום בענן בלבד. ה-hardware מתארח אצל ה-cloud provider (SAP); SAP מנהלת maintenance, upgrades, network. **single-tenancy** (פתרון אחד ללקוח אחד). יתרון — **quarterly upgrade process** (backward-compatible; מיושר ל-SAP S/4HANA). בשילוב predefined planning models (sample planning areas; פרק 2), מתאים ל-agile implementation methodologies ו-continuous improvement.

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1.4.5 SAP Integrated Business Planning Modules Until now, we haven’t talked about SAP IBP modules, which make up the licensing of SAP IBP. We explicitly chose to focus on the business processes facilitated by the solution rather than starting from a licensing perspective. However, to complete the introduction to the solution, it’s useful to look at how the different functionalities fit into the SAP modules and what this means for potentially investing in an SAP IBP license. The boxes in Figure 1.15 list the different modules available in SAP IBP. The solution typically is licensed by buying one or more modules, which each provide specific capabilities. With functionality being added on a quarterly basis to the solution, the SAP Help web pages (go to https://help.sap.com/ibp-ref and 68 navigate to What’s in the SAP IBP Applications) are the best source of information to find exact licensing information. Moreover, your SAP account representative definitely will be happy to help you with the details. In this section, we’ll give a short functional overview of the content and function of each module. Figure 1.15 SAP IBP Modules SAP Integrated Business Planning for Sales and Operations As we described earlier in this section, SAP IBP really matured out of SAP Sales and Operations Planning powered by SAP HANA. To date, SAP Integrated Business Planning for sales and operations is still the most adopted and central component of most SAP IBP deployments. SAP Integrated Business Planning for sales and operations contains the basics to perform an end-to-end S&OP cycle, from demand planning to baseline statistical forecasting capabilities to supply planning to the rule-based heuristic we’ll cover in detail in Chapter 4. Building a financial model on top of the demand and supply processes is enabled via the flexible key figure model, which will be covered in detail in Chapter 2. SAP Integrated Business Planning for sales and operations also includes the process management capabilities that are core to the internal collaboration process, which will be covered in Chapter 9. Having capabilities to support the entire S&OP process means that SAP Integrated Business Planning for sales and operations is often looked on as the best starting point for companies looking to invest in SAP IBP. © 69 SAP Supply Chain Control Tower SAP Supply Chain Control Tower complements SAP IBP for sales and operations by delivering some critical management-by-exception capabilities. The most notable capabilities in this module begin with the custom alerting capability, which delivers users an excellent dashboard to manage flexible, user-defined alerts. In SAP Supply Chain Control Tower, you can select any key figure and perform any comparison, either relative or to an absolute number. You can also define if a user should be alerted of an anomaly, what the priority is, and the like. These alerts then can be managed as cases using the case management apps, allowing you to start a functional workflow from an alert. Next, for alerting and case management capabilities, SAP Supply Chain Control Tower gives you access to a predefined supply chain operations reference (SCOR) model with metrics and analytics aligned to industry best practices scorecards. This can be valuable, helping to bring your reporting capabilities to the next level with an out-of-the-box repository of leading best practice key performance indicators (KPIs). Chapter 12 will go deeper into creating KPIs in SAP IBP. Finally, as a new capability introduced in SAP IBP 1705, SAP Supply Chain Control Tower contains business network collaboration capabilities required to connect SAP IBP to SAP Ariba without the use of middleware. SAP Integrated Business Planning for Demand SAP Integrated Business Planning for demand deepens SAP IBP’s demand planning capabilities by adding to the preprocessing and postprocessing algorithms available in SAP Integrated Business Planning for sales and operations. SAP Integrated Business Planning for demand extends the number of statistical forecasting techniques from the four available in SAP Integrated Business Planning for sales and operations to over a dozen in SAP Integrated Business Planning for demand. The most important addition, made available via the extension of statistical forecasting techniques, is the demand sensing algorithms, which allow you to “sense” demand and thus improve the very near- term forecast accuracy. Finally, SAP Integrated Business Planning for demand delivers a promotion analysis capability that can be connected to a trade promotion environment. This gives SAP IBP users the ability to assess the base and lift forecasts based on 70 the promotion information available in the SAP IBP solution. Chapter 3 will provide the details of the demand planning capabilities that are part of SAP IBP. SAP Integrated Business Planning for Inventory SAP Integrated Business Planning for inventory adds multi-echelon inventory optimization algorithms that make it possible to calculate the optimal safety stock levels to meet customer demand while minimizing inventory investment. In addition to calculating the optimal inventory level, SAP Integrated Business Planning for inventory also adds algorithms to classify the projected inventory in different buckets, such as cycle stock, stock in transit, safety stock, and the like. SAP Integrated Business Planning for Response and Supply The SAP Integrated Business Planning for response and supply module essentially is composed of two distinctly different capabilities. On the one hand, this module delivers the S&OP optimizer, which will be covered in more detail in Chapter 5. On the other hand, response management refers to the operational planning engine, which operates on an order-based data store. This latter model is out of the scope of this book. SAP IBP, Edge Edition SAP Integrated Business Planning, Edge edition is aimed at mid-market companies and delivers a combination of some key capabilities of the SAP Integrated Business Planning for sales and operations module (basic statistical forecasting, the S&OP heuristic, and process modeling) with some features out of SAP Supply Chain Control Tower (custom alerting and the SCOR-based KPI model). This allows medium-sized companies to leverage key capabilities to successfully perform their S&OP processes with management-by-exception capabilities while offering an attractive licensing model. Intelligent Visibility Application The Intelligent Visibility app is available through the launch screen as displayed in Figure 1.16. © 71 Figure 1.16 Intelligent Visibility Tiles on the Launch Page This can show data through geographical as well as tabular views as represented in Figure 1.17 and Figure 1.18, respectively. Bubble charts on the geographical map with green and red colors can be used for easy visualization of expected and unwanted scenarios. Alerts related to a particular geographical location on the geographical map are displayed on the same page, as shown in Figure 1.17. The connected SAP IBP system allows reviewing the details of alerts by navigating to connected planning, execution, or legacy systems. In essence, the Intelligent Visibility app fulfills the long-sought-after capability for planners to see the potential problem, identify the impact, review the solution options, and solve the problem preemptively. Figure 1.17 Geographical Map View of the Intelligent Visibility App 72 Figure 1.18 Tabular View of the Intelligent Visibility App © 73

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**1.4.5 SAP Integrated Business Planning Modules** ה-modules מרכיבים את ה-licensing (מידע מעודכן: https://help.sap.com/ibp-ref). ▪ **SAP Integrated Business Planning for Sales and Operations** — הרכיב המרכזי; end-to-end S&OP cycle (demand planning, baseline statistical forecasting, supply planning, rule-based heuristic [פרק 4]); financial model דרך flexible key figure model [פרק 2]; process management [פרק 9]. נקודת התחלה מיטבית. ▪ **SAP Supply Chain Control Tower** — management-by-exception; custom alerting (כל key figure, comparison; priority); case management; מודל **SCOR** (supply chain operations reference) עם metrics ו-**KPIs** [פרק 12]; business network collaboration ל-SAP Ariba (מ-**1705**). ▪ **SAP Integrated Business Planning for Demand** — מעמיק demand planning (preprocessing/postprocessing; מ-4 טכניקות ל-מעל תריסר); **demand sensing**; promotion analysis (base ו-lift forecasts). [פרק 3]. ▪ **SAP Integrated Business Planning for Inventory** — multi-echelon inventory optimization; סיווג מלאי (cycle stock, stock in transit, safety stock). ▪ **SAP Integrated Business Planning for Response and Supply** — S&OP optimizer [פרק 5] + response management (operational planning engine, order-based; מחוץ להיקף הספר). ▪ **SAP IBP, Edge Edition** — למגזר mid-market; שילוב יכולות מפתח (basic statistical forecasting, S&OP heuristic, process modeling) עם Supply Chain Control Tower (custom alerting, SCOR-based KPI model). ▪ **Intelligent Visibility Application** — תצוגות geographical/tabular (bubble charts ירוק/אדום); alerts; ניווט למערכות מחוברות (planning/execution/legacy).

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1.5 Summary In this ever-changing world, in which market volatility and globalization dominate the organizational agenda, the need for an integrated S&OP process has never been more important. In this chapter, we covered the market, process, and technology drivers that point to the need for an integrated business planning platform. With in-memory computing, planning functionalities have become available that could not be imagined a decade ago, especially in the domain of interactive planning and scenario capabilities. The remainder of this book will go into detail about how SAP IBP can bring the S&OP process to the next level. In this chapter, we went a little bit beyond the traditional S&OP scope, showing how the SAP IBP solution seamlessly integrates recent supply chain trends such as demand sensing and response management. We’ve shown how the different modules in the solution relate to building the foundation for a best-in-class S&OP process and how the new generation of UIs supports adoption across a broad array of stakeholders. In the next chapter, we’ll introduce the key elements of the SAP IBP model and basic navigation, setting the stage for a deep dive into the functional domains in the remainder of the book.

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**1.5 סיכום** בעולם של market volatility ו-globalization, הצורך בתהליך S&OP משולב חשוב מתמיד. הפרק כיסה את ה-market/process/technology drivers המצביעים על הצורך ב-integrated business planning platform. עם **in-memory computing** נוצרו יכולות תכנון חדשות (interactive planning, scenarios). הספר יפרט כיצד SAP IBP מקדם את ה-S&OP; הפרק חרג מעט מהיקף ה-S&OP המסורתי (demand sensing, response management), הראה כיצד ה-modules בונים את היסוד ל-S&OP best-in-class וכיצד דור ה-UIs החדש תומך באימוץ. הפרק הבא יציג את מודל ה-SAP IBP והניווט הבסיסי.