Air Products: In the PipelineBy Mel Duvall Print
Midway through a $350 million plan to improve forecasts and lower inventories, Air Products found it needed morean additional system to improve forecasts and lower inventories.
Stuart Reekie knew he'd have a tough time convincing "The Trio," a committee of three senior executives at Air Products and Chemicals, to invest in new sales and operations planning software in the spring of 2004.
After all, the manufacturer of specialty gases and chemicals was halfway through a $350 million global implementation of SAP, a conversion that involved switching some 600 finance, accounting, human-resources, business intelligence and other applications. A key selling feature of the project: Air Products was supposed to get a better handle on its supply chain, which would help the company improve the accuracy of forecasts, lower inventories and better align production with demand.
Still, Reekie, Air Products' supply chain global process manager, had to convince the management committee to spend more money and divert staff from the SAP project. Why? To install a new application to improve forecast accuracy, lower inventories and better align production with demand. In short, do many of the same things SAP was to accomplish.
The problem, says Reekie, was that SAP only partially allowed the company's planners to develop and analyze sales forecasts to accurately match demand against production capabilities. Information such as historical sales, pricing, production capabilities and sales in the pipeline could be loaded into SAP's Advanced Planner and Optimizer module to create a forecast of market demand, but that forecast was based only on known or historical information.
Air Products wanted a tool that could incorporate the collaborative knowledge of its sales force, marketers and operations managers, and could allow planners to conduct a wide range of "what-if" scenarios. Scenarios such as: "If the price of ammonia is lowered, how would that affect demand and profits?"
Planners at Air Products found it difficult to perform such what-if scenarios within SAP. In some respects, it was a case of too much information and not enough user-friendly tools to decipher it, Reekie says. In the interim, planners had devised their own workarounds, he explains: "We had 17 different business units pulling information out of SAP and performing sales and operations planning in Excel spreadsheets, and doing those kinds of what-if scenarios 17 different ways."
A second major consideration: Air Products had not yet rolled out SAP in several key regions, including Asia, and it wouldn't be completely in place until 2008. Air Products needed to bridge the gap and reach into its existing enterprise applications.
"Let's be clear; the SAP installation has been very successful," Reekie says in an interview at the company's headquarters in Allentown, Pa. "But in this one aspectsales and operations planningit wasn't capable of doing some of the things we wanted to be able to do." SAP didn't return calls seeking comment.
It's a dilemma shared by other supply chain executives in large manufacturing companies with massive enterprise resource planning systems like SAP or Oracle, says Tom Mentzer, a professor and expert in supply chain management at the University of Tennessee. Organizations such as telecommunications equipment maker Tellabs of Naperville, Ill., and Memphis, Tenn.-based delivery giant FedEx have undertaken projects to augment their ERP systems with separate sales and operations planning software.
"SAP and Oracle are trying to be good at everything," Mentzer says, "but what a number of companies are finding is that these ERP systems only take them so far. [The companies] want to be able to pull information out of SAP and do a more comprehensive job of sales and operations planning."
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