S4/HANA Materials

Management and
Operations – What
Are the Business
Benefits?
Published on December 15, 2015

Sergei Voronin
4 articles  Follow
Experienced SAP Supply
ChainConsultant

S4/HANA (and Materials Management and

Operations – the new name for Simple
Logistics) is being heavily marketed by SAP
at the moment as the revolutionary new ERP
system that will enable you to transform your
business. Whilst I believe a lot of these
claims are true – especially looking at the
new architecture that SAP is working to put
in place for S4/HANA, I feel what they failed
to do so far is to articulate the business
benefits of this new system. Their marketing
messages range from very high level, such as
“you will be able to reduce your inventory
holding by X percent” without giving any
details as to why, to very technical such as
“you will move from X number tables to Y
number of tables reducing your database
size” which also does not help a business
decision maker understand what benefits they
will actually get.
In this blog I thought I would try, based on
some research into Materials Management
and Operations and SAP roadmap, to give my
opinion of where the benefits may lie and
which claims might turn out to be bogus. As
a bit of disclaimer, majority of my experience
is around FMCG industry so please expect
that this blog will be quite biased towards
that.

Let’s start with the business problem – what

do the businesses struggle with, from the
supply chain perspective, and where would
they like to see an improvement? No matter
what company or industry I go to, I
recurrently hear the same three themes:
 We want to reduce/optimize our inventory holding

Our business is moving from B2B to consumer and we are

struggling to keep up

We want to be able to easier accommodate and integrate our

supply chain in case of purchases or acquisitions.

And on top of this, of course, everyone wants

more operational efficiency. In this blog I
will try to address how Materials
Management and Operations can help in
these areas.

Let’s start with the easiest one – the operation

efficiency requirement. How can Materials
Management and Operations help? Three
things are true of S4HANA:

It runs SAP processes quicker

It has a much slicker interface that enables you to bring together

data that users had to go and search for across different (and often

very very cluttered) transactions and systems.

Most importantly, it enables you to run analytics on the fly from

the transactional system without having to run an overnight BW

extract to pull a report.

Whilst these may be small by themselves,

combined across the business, they can
deliver a very substantial efficiency
improvement. No more processes that are
delayed due to the need to wait for a report
being run overnight – or even a report that
takes 30 minutes to run. And everything can
be seen on the same screen – no matter the
device.

Other items are perhaps not as obvious. How

can a quicker system help optimize the
inventory holding? I believe several things
come into play here. SAP always lacked a
“mid-level of detail” planning solution. Both
MRP and Supply Network planning have
been around for a very long time. But one is
very inaccurate – effectively an engine to
very quickly automate creation of planned
orders and purchasing requisitions based on
static pre-defined data. The other is far too
sophisticated and slow to be able to run on a
large volume of SKUs. What the businesses
are really after is something in between -
much simpler than SNP and users can
understand, but at the same time a lot more
accurate than MRP. This is, I believe, the gap
that SAP will try to fill with S4HANA.

Firstly, because it can run faster, it will be

able to simulate multiple scenarios instead of
just running one. Secondly (and nothing
really to do with HANA database), I think
SAP is bound to implement one of the more
“modern” planning methodologies such as
Demand Driven MRP as part of its S4HANA
suite. These methodologies are a lot more
dynamic and produce much more accurate
results. These two combined, I believe will
provide a much more accurate inventory
requirement and thus enable reduction in
inventory held and scrapped.

Now let’s have a look at the challenge around

consumer interaction. If we broke that up a
bit, it really comes down to two things –
much higher volume of transactions and
much smaller production lot sizes. I believe
S4HANA will very easily be able to handle
the first one – including the real time
analytics that become much more critical in a
high transaction volume environment. The
second one is a bit harder to solve – the
biggest roadblock there is actually the lack of
real time integration with shop floor and the
length of the planning cycle. Forecasting is
generally run on a weekly basis and the
feedback from shop floor is often also far
from real time. Both are generally driven by
system limitations. From production side, I
believe MII will eventually integrate into
S4HANA as the only real reason for its
existence is its ability to process very high
transaction volumes. On the forecasting side,
this can also become much more real time –
the data is available there and then, directly
from the source. There will be no need to
extract it to only re-upload the result later
(and lose a couple of days in between!).

Lastly, let’s have a look at the purchases and

acquisitions requirement. This is the area
where I feel the key benefit of S4/HANA is
not actually the performance but rather the
release and hosting strategy that SAP is
trying to put in place, if it pays off of course.
Most of SAP installations today are on
premise, are heavily customized and very
rarely upgraded. You will find anything from
4.6 to ECC5 and ECC6 with various support
packs. Where SAP is clearly trying to move
to is quarterly releases with all instances
hosted in the cloud (whether private or
public). What this should drive is a
significant reduction in customizations – you
cannot launch a massive upgrade project
every quarter, so it needs to be seamless. This
will of course mean that trying to add another
entity (on a fairly standard process) should
become a more straightforward task. On top
of that, data migration should also become
much easier with fewer tables to manage.

So whilst S4HANA and Materials

Management and Operations is still very
much a new product, it feels that it has a lot
of potential. A lot will depend on where SAP
puts focus first and some of their strategy
paying off, but definitely something worth
looking into and exploring.