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SCM, like many other corporate functions, should not be an end in itself. Why has it only now become clear that supply chain management has to be Demand-Driven? “The main motivating impulse for the development of the Demand-Driven SCM concept is a simple but far-reaching realization: Our legacy SCM approaches – in principle central planning methods from the 1960s – no longer meet the requirements of today’s business conditions in terms of complexity, volatility and uncertainty,” explains Patrick Wolf, partner at Camelot, at the beginning of the discussion.
He further explains, “Almost all ERP or SCM/APS systems in the industry today are still essentially equipped with the MRP processing logic from the 1960s. That only works with very accurate demand forecasts, which is simply impossible in today’s business world. Instead of constantly trying to improve demand forecasts, the Demand-Driven SCM (DDSCM) concept therefore first addresses the cause of the problems in the supply chain – namely the way we process and pass on the variability and volatility in the ERP/APS systems. DDSCM with its core – the Demand-Driven Material Requirements Planning (DDMRP) – is a new approach to better master the variability in today’s digital supply chains”.
Necessary degree of maturity
The development of Demand-Driven SCM is comparable to machine learning: the idea and concept of neural networks has existed for many decades, but only current computer technology makes applications feasible and possible in reality and not only on paper. Demand-Driven SCM also lacked suitable software solutions for a long time. Camelot’s work is a pioneering achievement that now enables the practical application of theoretical knowledge. Agile action involves not only understanding, analyzing and forecasting, but also consciously controlling the supply chain according to actual customer requirements.
The success of Demand-Driven SCM is achieved by clearly turning away from the attempt to control fluctuations in the supply chain through improved demand forecasts. The conscious installation of “shock absorbers” in the form of stock buffers at defined decoupling points in the supply chain ensures that fluctuations in customer requirements are no longer passed on and – what is worse – amplified along the entire supply chain.
“Demand-Driven enables the supply chain to be synchronized according to customer requirements. The result is an optimal flow of information and material across all stages of the supply chain, from purchasing to production and distribution,” explains Christian Kroschl, also a Camelot partner. SCM can cover a broad horizon in terms of time, organization and also physically. How do you synchronize an SCM across many stations, even heterogeneous ones, so that the supply chain is Demand-Driven? “We ensure synchronization by the intelligent definition of decoupling points and an innovative approach that helps us control the inventory level at these decoupling points,” says Christian Kroschl.
Everything flows, everything is in balance – this is the perfect condition for Demand-Driven SCM in theory. How can companies achieve this flow and balance technically and organizationally? “Demand-Driven is a new paradigm in supply chain management. It is therefore important to first anchor the ‘thoughtware’, i.e. the theoretical concepts and philosophy in the company and the organization,” knows Patrick Wolf based on his professional experience. “So what is at stake here is, above all, a business transformation, for which effective change management is required. In our projects, we additionally support change management with training conducted by our certified Demand-Driven coaches”.
Camelot also knows that thoughtware is useless if it cannot be implemented with appropriate IT solutions. Hence, Wolf emphasizes: “What is needed are integrated enhancement solutions that reflect the Demand-Driven SCM principles – something that did not exist for a long time. As a pioneer in SAP-based Demand-Driven SCM solutions, Camelot has been instrumental in making these enhancements available for all SAP platforms today”.
E2E is the new hype in ERP and CRM. Camelot now brings the E2E idea to SCM. “Supply chains and their management are by definition always E2E”, Christian Kroschl describes the Camelot approach. “However, our experience has shown that, in practice, supply chains are often controlled in individual silos due to their complexity, variability and historical organizational development.“
Camelot recognized early on that approaches and solutions are needed to help companies implement integrated supply chain management. Camelot partner Kroschl explains: “We have implemented these concepts in real supply chain integration projects. The approaches and project experience have – already some years ago – led to the development of the Demand-Driven lean supply chain concept”.
For Camelot, the central elements for reducing complexity and variability are the tactical configuration, the active use of inventories in planning and the E2E synchronization of the supply chain. Kroschl adds from his experience: “It was clear to us that forecasts, i.e. predictions of customer requirements, should form the basis for the supply chain configuration, but should not control execution. Because of the convergence of these concepts, we are now working very closely with the Demand Driven Institute, the global authority on Demand-Driven MRP.”
Demand-Driven & SAP
“The currently available solutions can be easily integrated into any SAP system as an add-in”, Frank Arnold, Vice President at Camelot, describes the operational approach. “Whether it is ERP/ECC 6.0, SAP SCM or S/4 Hana is irrelevant. Camelot has also developed a Demand-Driven MRP solution for the modern SAP Integrated Business Platform as a co-innovation with SAP”. But what do existing SAP customers say about Demand-Driven SCM? “Demand-Driven SCM is a central topic for many of our customers, “ Frank Arnold knows from his conversations with SAP customers.
Many companies have recognized that the complexity and variability of today’s global supply chains cannot be managed with the old MRP approaches. Arnold knows that customers have tried to remedy the situation with tools they have developed themselves but have not gotten far with. “Accordingly, a new concept with corresponding IT solutions is being sought that can be flexibly adapted to the respective customer situation”, Vice President Arnold defines the current situation.
Which SAP architecture and components are required in detail to implement Demand-Driven SCM for an existing SAP customer? Frank Arnold explains that Camelot’s understanding of a holistic SCM solution includes the following: In addition to the main components – Demand-Driven MRP and Demand-Driven Rhythm Wheel Planning (an approach for smooth production planning, also called production leveling) – there have to be extensions for Demand-Driven sales and operations planning (S&OP), strategic AI-based segmentation and configuration, and machine learning algorithms in production leveling.
“In terms of SAP solutions, Demand-Driven MRP is now available on the platforms SAP S/4 Hana, SAP SCM and SAP Integrated Business Planning through standard solutions or enhancements from SAP and Camelot. Production leveling is exclusively available from Camelot as enhancement for SAP APO PP/DS and S/4 Hana Advanced Planning”, says Arnold. Camelot is developing these extensions on the SAP Cloud Platform (SCP) and SAP Leonardo.
“DDSCM is the enabler for getting a grip on the variability that causes excessive stocks and long delivery times,” explains Patrick Wolf in the E-3 interview. The control of variability in turn leads to immense economic and financial advantages. For companies that have implemented Demand-Driven SCM, Camelot has achieved performance improvements – across industries – of 31 percent less inventory on average, 22 percent shorter delivery times, significant service level improvements and double-digit percentage increases in efficiency.
Is there a connection between Demand-Driven MRP and Demand-Driven SCM? “Demand-Driven MRP is an approach specific to material requirements planning and the core of Demand-Driven SCM. From Camelot’s point of view, Demand-Driven Supply Chain Management also needs to include corresponding concepts for production planning, Demand-Driven Rhythm Wheel Planning, as well as additional extensions, especially for sales and operations planning,” adds Patrick Wolf.
Put together, these interlinked concepts form the Demand-Driven Adaptive Enterprise Model (DDAE), which aims at bringing together strategic, tactical and operational tasks of companies operating under the Demand-Driven paradigm. DDAE combines market demand with market-driven innovations to create an enterprise that is able to continuously and successfully adapt to the complex and volatile supply chains we see today. A model like this does not only focus on generating ROI through a one-off investment in Demand-Driven SCM technology but aims to incrementally transform organizations for continuous ROI-generation and -improvement.
At this year’s Sapphire, SAP CEO Bill McDermott presented the new CRM product C/4 Hana. In this CRM initiative, SAP speaks of E2E and sees CRM as the starting point and ERP as the end point. Where do you find Demand-Driven SCM and MRP in that context? Christian Kroschl: “In this definition, CRM is used synonymously for the demand generation and ERP for fulfillment and execution. Demand-Driven SCM is therefore to be understood as a link that takes up the demand and transfers realistic, demand-based planning to the ERP system for execution. Of course, a seamless real-time comparison between the systems is the foundation for optimal planning and execution. With its highly integrated solution portfolio, SAP is ideally positioned here, of course.”
And to what extent does Camelot work with SAP on Demand-Driven SCM? “As a pioneer in SAP-based Demand-Driven SCM solutions, Camelot works very closely with SAP in this area. One example of this cooperation is the co-innovation of Demand-Driven MRP for SAP Integrated Business Planning, the first enhancement solution for SAP Integrated Business Planning ever,” confirms Frank Arnold.
Will a “DD” be set for Demand-Driven before every SAP three-letter term in the future? “In theory, yes,” says Frank Arnold in the interview with E-3 editor-in-chief Peter Färbinger and specifies: “However, the Demand-Driven concept was explicitly created to express the shift away from forecast-based planning of value creation in favor of an absolute orientation towards tangible customer and market requirements.
This implies a paradigm shift in SCM that we do not see in the areas of CRM or marketing. Here the customer and the demand generation are in the foreground by definition.” Since ERP systems have developed from the classic, MRP-based PPS systems and the MRP planning approach still is the foundation of every ERP system today, the term Demand-Driven ERP or DDERP could of course also be coined here, says Arnold. “An example of this would be S/4 Hana with Demand-Driven MRP functionality. But we believe that the number of new abbreviations will cause enough confusion,” he admits to a linguistic challenge in the new SCM world.
Stability and efficiency
Where did the highest ROI result in the operational implementation? “It always depends on the client’s situation to what extent – and in what timeframe – a return on the investment is achieved,” explains Christian Kroschl: “Our experience is that in all organizations, the ROI is achieved in less than two years!“ What are most noticeable changes for SAP users? “The tension in the entire system is almost completely gone. All variability in the supply chain is managed efficiently. The most significant change is the effect on the everyday work of planners,” says Patrick Wolf, who is aware of many satisfied customer statements.
Instead of “firefighting missions” and the permanent rescheduling of orders, existing SAP customers can now focus on their actual task of planning exceptions and difficult products. “In addition to the ‘hard facts’ in the form of business and financial benefits already described, customers are also feeling the following additional positive changes: simplified business processes, fewer target conflicts and friction losses within the company and, of course, more satisfied customers,” Wolf explains and adds: “We have experienced that all divisions involved in Demand-Driven SCM projects, including the CFO, are enthusiastic about this intuitive and easy to grasp concept.