S&OP on HANA is different from previous S&OP solutions

HANA is really changing the way S&OP will be run. The more and more I am working on S&OP on HANA and the more I am convinced that the technological advancement is here to deliver much (unexpected?) benefits on the business side. I am not so sure this is clear to most people, reason why I decided to elaborate on the topic a little bit.

My reasoning is based primarily on the experience with SAP customers, it has to be seen how the situation looks like for companies using other transactional systems. For the SAP customers the main problem in S&OP is that the problem is implicitly constrained by the size of the planning exercise for the existing solutions based on APO (check older posts in this blog). The size of the problem is certainly an issue. Also, many customers tend to still use Excel spreadsheet and collect into their templates the main key figures and information required for their planning exercise.

Particularly for manufacturers in capital intensive industries (Oil and Gas, Chemicals, Mill Industries, Steel etc.) the main goal is here to provide a good PSI view (Production-Sales-Inventory) and a view with reasonable approximation on revenue, margin and other financial KPIs. This is of course already happening today. But nowadays the planners are dealing with S&OP planning performed on a monthly granularity and a tactical/operational level planned typically at a daily (or hourly) level. Just think about considering transportation lead times in your S&OP planning: if you plan at monthly level the lead time can be 0, 1, or any given multiple of the month. So, the supply model will be very much approximated. and this approximation can cause significant differences on the inventory projections. And the deviation of the S&OP plans from the runs of detailed network and production optimization may still be very high, as the S&OP models are typically simpler and work on a different timescale.

S&OP on HANA can bring the problem to the weekly level and improve the S&OP plan quality. There are still limitations with regard to the data view (no ability to view the data in a telescopic way: first 2 months in weeks, then until the end of the year in months and the rest in quarters, i.e.  such as Supply Network Collaboration and other tools can do), but those could be potentially resolved by SAP in a very near future. 

But the most interesting aspect (and I am not really sure how much I can disclose at this point, as this is subject to NDA agreement with SAP) is that SAP has the ability of introducing optimization algorithms that are finding the best solution from a cost/revenue perspective. Currently the tool is supporting the so-called SCM Planning Operator that support various Heuristic models (finite and infinite planning). Heuristic models are propagating demand and supply signals according to fixed rules (sourcing ratios) and fair share distributions. The new generation of operators will support optimization solutions. The development is ongoing and soon you will hear about these new features.

In my view the new optimization features will bring the result of the S&OP exercise closer to the ones resulting from SAP Supply Network Planning (SNP) and Production Planning and Detailed Scheduling (PPDS) and it is to be expected that smaller deviations will occur when the optimization run will take place in the PPDS instances. The challenge is in a smart integration of S&OP and the network and production optimization tools.

But for now let's look at the bright side: S&OP on weekly buckets is possible and cost optimization will soon part of the S&OP on HANA standard. This is certainly to be very beneficial to adopters of this solution.