Using APO for Inventory Optimization

[Former Member]

Hi Friends,

I am checking the possibility of using APO for Organization wide materials planning and inventory optimization for electricity transmission and distribution industry. Mostly the spare parts and stock materials for project execution and new asset creation will be under the scope of planning. Demand will be generated mostly from project execution and maintenance activities. There will be centralised purchasing to cater to the requirements of all the other plant requirements. No production activity is involved in the whole process.

Can you pls guide me whether we can use APO for providing solution to this sore of business requirement?

If yes then how and which functionality of APO will be used for that.

Any input will be greatly appreciated.

Thanks and warm regards

Purnendu

[kenneth_snyder · Accepted solution]

I implemented APO for just this purpose at FPL, Florida Power and Light. We used the SNP Optimizer for "A" items and SNP Heuristics for "B" and "C" items.

One major issue is the number of parts and the frequency of the solve.

I was also curious why other utilities did not pursue this?

Ken Snyder

[Former Member · Accepted solution]

Ken,

Thanks a lot for your reply. Nice to know that some of the utility companies are using APO for this. APO offers robust functionalities in terms of planning and optimization, but I am still apprehensive how much additional value it will add in terms of reducing the inventory cost and increasing the inventory turnover over its R/3 or ECC counter part that is MRP in MM.

Also how much more effective it will be in increasing the service level so that there is almost no material shortage at any point of time for project execution or maintenance activities.

The effort needed to setup and configure the APO suystem will also have to be taken in consideration.

One more concern is how much user friendly it will be so that the system is used to its full potential instead of being an occasionally used software as happens in most cases.

Ken can you pls provide any insight on the above issues?

Thanks again

Warm regards

Purnendu

[srinivas_krishnamoorthy · Accepted solution]

I am not sure if APO Optimizer fits your need. It does do supply planning optimization but not true inventory optimization. I would recommend exploring using bolt-on solutions like Smartops (it is a SAP endorsed solution in certain Industry Value networks) or use Optiant. These bolt-ons offer very powerful features to be able to look at multiple echelons and can propose the exact inventory that should be at different nodes in the network for specific SLAs. (you may want to google Smartops and Optiant) I know that these companies dont have specific solution towards utility companies - but there could be some reusable components from other industry solutions. These ae xAPPS endorsed by SAP to fill certain gaps in their solutions.

[Former Member · Accepted solution]

Hi Srinivas,

Thanks a lot for your information. I was never aware of these softwares. Nice to know about these.

I have checked the solution offerings from these companies and as you have said there is no Utility Industry specific solution in their portfolio. But definitely some of the components from the other industry solutions can be cherry picked for the specific requirement.

Most interestingly as per the published documentation these solutions are supplementing the SAP APO or SAP MRP. My understanding from these inforation is that these softwares are doing the job what SAP APO or MRP should be doing.

Based on the above understanding I have few questions

1. Both SmartOps and Optiant are SAP Netweaver certified. But I suppose Smartops is given the SAP xAPPs status. Does that mean that Smartops will come as an Add-On software package with SAP? Or we will have to purchase these softwares separately and integrate with SAP as a Bolt-on? Only the SAP Netweaver will be the user interface for both the softwares.

2. Is there any standard Interface/Intergation solution/tool available for integrating these softwares with SAP? If yes, who provides this? And in case we need any additional customization in the interface who will do that?

3. Is there any possbility that SAP will catch up with its limitations on these fields and provide a robust solution in future so that these specialised softwares will be facing a stiff challenge even though SAP is supporting these softwares? In such scenario the Customers of these softwares will be left holding the baby. What do you think?

Waiting for your reply.

Thanks in advance and warm regards

Purnendu

[Former Member · Accepted solution]

Ken - I would like to request you to provide your input on the last two posting I have made on this thread.

Any sort of information will be greatly appreciated.

Thanks in advance and warm regards

Purnendu

[srinivas_krishnamoorthy · Accepted solution]

1. SmartOps is SAP endorsed and hence will be available as a Bolt-On application. This means SAP will commit to development resources to make it integrated with SAP. (Adapters etc) Same cannot be said for Optiant. The software needs to be purchased seperately from SmartOps company. It does not come part of package.

2. I dont think any customization is required. Both SAP and SmartOps are commited as I said to make the integration happen. You have to speak with SmartOps for specifics.

3. Since SmartOps is SAP endorsed, I dont think SAP will end up rediscovering the wheel or in other words it will not develop equivalent functionality that it endorses. Morever it does not make strategic and financial sense to develop these niche softwares for SAP. (You can read general articles on the web on SAP product strategy on such areas that echoes these views) Since SAP backs up, I dont think you will be left high and dry. One would have explicitly though ask all these questions to SAP and SmartOps.

[Former Member · Accepted solution]

Hi Srinivas,

Nice to have your objective to the point reply.

I have few more questions

1. By going through some of the reviews i found out it is saying that SmartOps will supplement SAP APO. But if I don't use APO even then I should be able to use SmartOps with standard SAP R/3 without APO say version 4.6C or 4.7. Am I right?

2. Do you have any idea on How much time it will take for SmartOps to implement its solution and with how many resources working on it keeping in mind our requirement? I suppose SmartOps will implement it themselves or do they also have Implementation partners?

3. Any wild guess on the software cost for SmartOps and royalty charges if applicable?

Thanks again and warm regards

Purnendu

[srinivas_krishnamoorthy · Accepted solution]

1. Absolutely correct. Smartops can work on top of R/3 without APO as well.

2. Depends on complexity of the implementation. Hence can take from 3 to 6 months to my knowledge. It is better to get in touch with SmartOps on the Q of implementation partner. The area of Inv Optimization is unfortunately not wide enough for system integrators to become established in that area to partner and reduce TCI. (Total Cost of Implementation)

3. I will not even attempt answering this, since let me be honest about this - I dont know, what I say here will be a mere conjecture. Will be better to have a talk with the SmartOps vendors.

Make note that APO is grossly minsundertood to do true Inventory Optimization. Sounds counterintuitive, but is true. APO can only do Supply network optimization. It only comes up with supply proposals to meet objectives such as costs, a certain fill rate, SLA requirements, capacity utilization, bit of leadtime optimzation etc. Tools such as SmartOps do true IO, as they propose inventory levels at multiple echelons in your network based on supply demand variability all across your network. They (SNO and IO) are entirely different concepts, and this needs to be understood by decision making folks in your org. Hope that helps.

[Former Member · Accepted solution]

Srinivas - Thanks a lot for your thoughtful reply. It clarifies a lot about the APO and its possible use in Inventory Optimization.

I really appreciate your last comment on use of APO as IO solution.

It provides direction to whoever looking at APO for this purpose. Sometimes it is really difficult from Management point of view to decide what to ask for and whatever we are getting as a proposed solution whether that is a suitable solution or not. Only after a lot of discussion and deliberation we come to know about these details. By the time it becomes clear we lose a lot of time.

I have one more request -

If you have any documents regarding the SmartOps ( Its functionalities, operational logic - how it calculates the safety stock or the reorder point or optimum inventry level etc. ) pls send it across to me.

Thanks in advance and warm regards

Purnendu

Message was edited by: Moshe Naveh

[Former Member · Accepted solution]

Ken - I was really expecting some response from your end. It would have been great if I would have got your opinion from your experience from FPL implementation.

Anyway if you have some time pls post a reply to this thread. I will really appreciate that.

Thanks and warm regards

Purnendu

[Former Member]

Dear All

I am really thankful for your inputs on this threrad.

I am working on a project to highlight which Inventory Opt tool to use APO or i2 Optimizer.

I have been trying to look for the appropriate thread, but I've been unable to do that. If the readers can point me to the correct thread, it would be a great help.

My question is: How should we dcide which IO tool to choose out of the ones available.. I mean comparative analysis? And what factors should be considered while doing such a comparison?

If any one has any information related to this.. please post it here

Thanks

[Former Member]

SAP has a vibrant ecosystem of trusted partners. In the area of Inventory Optimization SAP has selected to partner with SmartOps for Inventory Optiimization with ERP and SCM. SAP Enterprise Inventory Optimization by SmartOps is the only Endorsed Business Solution for enterprise inventory optimization.

Endorsed Bsuiness Solutions are Partner offerings that are selected by SAP to provide end-to-end business processes for the customer. SAP ecosystem offerings providing the right level of solution integration and support for customers. Endorsed Business Solutions (EBS) are rusted solutions relevant for your industry.

The SAP Endrose Business Solution qualification delivers

• Application level integration with solution qualification to ensure end-to-end business process

• Complementary solutions selected by SAP Product and Industry groups

• Product roadmap guided by SAP based on Cooperative Development Agreement

• Endorsed by SAP and sold by partners

Developed by qualified SAP partners, SAP endorsed business solutions are complementary to SAP software offerings and provide additional choices and flexibility for businesses running SAP software. SAP endorsed business solutions are Powered by SAP NetWeaver and are offered by partners so that customers can realize more benefits from their investment in SAP.

SAP Enterprise Inventory Optimization offers integration with ERP and SCM (APO). EIO

• Provides Demand, Supply, and Production Variability Analysis and Alerting,

• Determines optimal, time-phased inventory policies for multi-tier assembly and distribution supply chains

• Sets the Inventory Policy for each finished good, work in process, and raw material in the Supply Chain in SAP ERP and SCM

[Former Member]

So it has been several years since this thread about inventory optimization has been updated so I will provide some additional information.  Those of you in this thread may have already answered your questions and implemented a solution but if others are new, I can bring you all up to date.  I am an SAP Solutions Consultant for the Inventory Optimization application.  In 2013, SAP acquired SmartOps and it is now called SAP Enterprise Inventory and Service-Level Optimization (SAP EIS) and is another application on the SAP price list.  Here's a link on Sap.com to get started:  Inventory Management Software | Integrated Sales & Operations Planning | SAP

I've uploaded a three slide presentation onto SCN tonight that I will share in this dialog once the publishing process is complete in a few days.  These slides examine the integration and differences between EIS and APO in detail.

Here's the link to that document: How Does SAP EIS Compare with SAP APO? | SCN

To follow up on one of Ken's comments about managing A B and C ranked items differently, EIS allows you to set customer service targets at a very granular level which allows you to set those targets based on A B C classification.  Better yet, the Service Level Optimization tools within EIS allow you to enter more detailed data about your portfolio and let the system calculate CSL targets for every SKU to achieve minimized lost sales dollars and total global customer service targets.

Service Level Optimization: The Answers Might S... | SCN

To answer one of Maiti's question, EIS comes with a toolset called the SAP Connector which provides a start to building interfaces to and from ECC and now APO.  Every user's set up is different so it will take work to adapt these BAPI's etc. to your environment, but this is far more integrated to SAP than any other inventory optimization tool and provides superior optimization algorithms.

I would also agree with Srinivas' estimate of 3 to 6 months to implement SAP EIS.  Having a master data structure and the business process to maintain it is one of the keys to success.

[Former Member]

Not much to add to be honest.

Srinivas added most of the details I would add.

APO is not an inventory optimization tool.

It is not even that great for safety stock calculations.

It is better than R/3. Most companies are not in the position to pick and choose the best of breed products. SAP is the preferred vendor and APO is your choice.

Obviously you will get better inventory levels than w/o APO, but is it optimal? Probably not.

And FPL used the optimizer solely to enable the transfer of material from one location to another. Optimizer is the only engine that supports this. but again, there is a cost associated with these movements... You can model these costs in the optimizer, but the optimizer is not realistic. It does not handle partial shipments / handling costs, etc...

ken snyder

[Former Member]

Ken - Thanks a ton for your valuable input.

My takeaway from the whole discussion -

1. APO is at its best when used as a supply chain optimization, but not as a inventory optimizer. It may be better than standard MM MRP but definitely not upto expectation. It is purely not a IO tool.

2. If someone is looking for true IO then he should look for thirdparty tools like SmartOps and Optiant.

3. In Utility industry the rational of using APO is to optimize the supply network. The materials are generally purchased centrally and are transported to different locations based on the project requirement. APO provides the planner a better overall view of the requirement and instead of planning individually it can plan centrally and consolidate all the requirements and accordingly generate output for STO or external PO. It determines the route and the supply network ie from which plant to supply the material to another plant.

4. Thus APO and these thirdparty softwares can provide a robust solution to whole supply chain management process.

Thanks to both Srinivas and Ken for their inputs.

BTW in future if someone have some additional information regarding this, I will appreciate if he/she can post that against this thread. That will enrich the thread as a whole.

Thanks and Warm regards

Purnendu