Resilient Supply Chain Management Starts With An Agile Cloud ERP Suite

Achieving this has historically been difficult to near impossible but an agile enterprise resource planning (ERP) suite can get A&D firms closer to wrapping their arms around the problem.

Aerospace and defense original equipment manufacturers (OEMs) regularly struggle with supply chain management challenges. They can arise from raw materials shortages, global disruptions, and dependence on sole-source suppliers of critical components. The resulting supply chain bottlenecks create ripple effects, interfering with production plans, putting delivery commitments at risk, and leading to cost overruns. The fallout puts the overall robustness and accuracy of standard SCM planning in question.

“The supply chain is in the middle of everything,” SAP Industry Product Marketing Director, Frank Klipphahn, notes. “It touches on so many different aspects of the operation of your business. It starts with your suppliers, always in flux. How do you deal with changes? We believe in the ERP suite approach, that unifies [SCM] data together.”

The importance of supply chain data is underlined by the digital transformation currently underway in the A&D industry. According to a 2022 Deloitte supply chain study, 78% of 200 manufacturing executives surveyed believe digital solutions boost visibility and transparency throughout the supply network. In 2023, Deloitte found that companies with higher digital implementation have shown greater supply chain resilience, tend to have increased supply chain visibility and are better able to adapt to supply chain challenges.

Digitalization in A&D is not limited to supply chain management tools, of course. A concurrent manufacturing transformation is unfolding through the “smart factory” movement. Smart factory design seeks to pursue greater efficiency and resiliency using augmented reality (AR), artificial intelligence (AI), the Internet of Things (IoT), additive manufacturing, blockchain, and advanced analytics.

In addition, under the umbrella of “Aerospace-X”, a consortium of players throughout the A&D supply chain is identifying use cases (including those that support a circular economy) to exchange information using data standards and a decentralized architecture.

This could help drive digital continuity, transparency, and data-based value creation for the ecosystem across different vendor platforms. It can also take into account data sovereignty requirements and disparate processes.

The rise of digitalization and the use of AI presents an opportunity to improve visibility and responsiveness; A chance to blend new manufacturing technologies and processes with a scalable Cloud ERP suite that can be extended as needed in a modular fashion with new and existing supply chain solutions to deliver value.

Modern Supply Chains Supported by a Cloud ERP Suite

Supply chains are multi-dimensional constructs that require firms to simultaneously manage inventory, transportation, warehousing, supplier throughput, contracting, price estimation, compliance, employee issues, and more. The demands frequently overmatch the capabilities of even seasoned SCM teams who struggle to maintain a macro view of the landscape and micro views of each and every supplier and problem in a network.

This includes the different planning horizons, where multi-year, long-term strategic decisions need to be aligned with short-term operational planning to ensure demand and capacity alignment. A&D companies face unique sourcing challenges such as long lead times, regulatory compliance, sustainability considerations, and supplier ramp-up time which make on-the-fly adjustments problematic.

A software suite that can offer high-resolution views of both ends of an enterprise supply chain is highly desirable. SAP has spent decades developing a Cloud ERP suite that can provide comprehensive SCM visibility when needed or focus on a kernel central to a small or startup A&D business.

The heart of the suite is SAP’s Cloud ERP with ready-to-run industry best practices, embedded collaboration features and AI capabilities. Cloud ERP has many of the key ingredients of supply chain management – production and inventory planning, as well as transportation and warehouse management.

There are procurement and fulfillment processes in Cloud ERP as well. But the core can also be extended with modular cloud solutions, including business network solutions that allow manufacturers to connect digitally and collaborate with their supplier base. These modular solutions provide enhanced capabilities to complement processes in Cloud ERP including sales and operations planning, inventory optimization and supplier collaboration.

The added collaboration and connectivity capabilities allow A&D firms to “Extend your processes beyond your own company into your suppliers,” Klipphahn affirms. “You can exchange demand forecasts and capacity information.”

SAP’s suite also extends forecasting depth by taking massive amounts of SCMrelated information within Cloud ERP and making it available for machine learning and AI predictions and simulations, presented in a modern user interface. The potential insights better inform planning and can improve efficiencies and supply chain processes at both an OEM and its suppliers.

For example, production planners can apply AI-driven lead-time determination to improve planning accuracy by fine-tuning supply lead times based on context to improve delivery performance. Aftermarket supply chain planners, may want to predict the impact of service parts inventory constraints on performance contracts or service level agreements. They might also seek to improve forecast quality for service parts demand based on historical data.

Leveraging a business suite approach can bring firms closer to realizing unified SCM planning. By making all relevant data available for holistic planning (financial, strategic, supplier details, manufacturing), a business can achieve a positive waterfall-type effect.

“If all of that is already available within a business,” Klipphahn says, “Not only can I automatically drive all the decision-making processes, all the reporting, the monitoring, the analytics - I have early visibility into disruptions and changes so that I can react quickly and mitigate risks in a cost-effective manner.”

A Cloud ERP suite can simplify the number of legacy systems that companies operate to manage their supply chains. This can help companies reduce the total cost of ownership (TCO), standardize processes with industry best practices, and gain faster access to innovations.

“People see they can get more value faster from a standard, out-of-a-box software approach in a cloud environment than from a classical, on-premise way,” Klipphahn asserts. “They can address TCO by simplifying and that applies, for example, to the new supply chain planning platform in the cloud.”

Rolling legacy systems into a single ERP suite not only bolsters SCM efficiency, it relieves businesses of the need to continually plow resources into in-housedeveloped SCM systems and integrations.

“One ambition that we have is to extend the functionality in our Cloud ERP,” Klipphahn explains. “So our Cloud ERP now includes detailed, constraintbased production scheduling capabilities next to the standard production planning processes.”

Bringing more functionality into one system means planners can better align multi-year strategic decision-making with tactical optimization in the short term. This helps an OEM acquire a more holistic view of critical supply constraints across multiple horizons.

Tailor-made planning processes for each horizon increase planning accuracy when dealing with typical industry challenges such as intricate sourcing processes, regulatory considerations, sustainability demands, and global disruptions.

“Companies need the ability to look at long-term strategic planning and the capacities you need in the long run, given the lead times involved, as well as what you need to optimize in the short term,” Klipphahn says.

This is why SAP has worked to create an integrated planning architecture that helps firms evaluate long-term resource bottlenecks using scenario modeling and simulation. Many software solutions typically don’t facilitate the mapping of strategic plans into defined operations (procurement, transportation, inventory optimization, production planning). SAP’s Cloud suite does help to manage these complex supply chains.

From Volatility to Growth

Perhaps the simplest but most vexing challenge to smooth supply chain management is volatility. A&D OEMs constantly juggle change among their suppliers, their materials sourcing, and their respective workforces. The global pandemic was a signal event, but it was also a strong reminder that volatility is always present.

Managing it effectively demands visibility into each of the associated risks, such as foreseeing and understanding potential supplier disruption events.

“What we see here is a need to access [risk] information and bring it into context,” Frank Klipphahn says. “If I’m an OEM and I get an alert about a logistics fulfillment issue that might impact some of my tier 2 or tier 3 suppliers, can the Cloud ERP system help me to understand what that means for my own final assembly line?”

It can, if it has awareness provided by multiple data sources.

SAP and its partners have been working on ways to connect varied data sources (Dun and Bradstreet scoring of financial risk, trade compliance risk, market news, supplier operations status) and to apply machine learning to convert aggregated information into meaningful context for planning. Such an “aware” Cloud ERP suite can generate alerts for planners and dispatchers, illustrate potential impacts, and suggest potential resolution measures.

OEMs can look at specific suppliers in their chains and create risk profiles for each, using these sources to predict the probability that a specific supplier in a specific context or region might become a problem.

“Eventually, things will go wrong so the question is, what are your options to deal with them?” Klipphahn asks.

Operationalizing risk management can give companies a head start in mitigating volatility. For example, real-time insights from shop floor delays can be directly visible for production planners to identify options to minimize downtime.

In addition, a well-crafted ERP suite can also help businesses assess problems beyond the immediate horizon. This is especially advantageous in A&D where workforce issues mirror the long time horizons of product and service cycles.

The sector’s reliance on long-term engineering knowledge is a persistent personnel challenge as experienced staff retire or migrate to other industries. Many A&D companies are working to digitalize their engineering knowledge base before their experienced staff departs.

The potential to drive efficiencies in production pace, capacity, and cost lies within the scope of the Cloud ERP suite as well. The visibility and standardized communication it affords can help an OEM understand if a particular supplier is at full capacity or if its throughput can easily be adjusted to accommodate bottlenecks in its own production line. Klipphahn notes that many companies in A&D struggle to optimize production efficiency and throughput.

In addition, as part of a regulated industry – there are unique IT security requirements. Within the U.S. SAP NS2 provides a range of secure cloud solutions as well as security services and tools that meet the rigorous compliance and security standards demanded. Requirements are continually refreshed as well, whether they touch human resources, finance, or other topics such as trade controls like ITAR (International Traffic in Arms Regulations).

The Payoff

Quantifying the impact of a Cloud ERP suite should be straightforward if the tools that comprise it deliver on lowering risk, increasing visibility, shortening timelines or diversifying supplier and materials options. SAP’s platform has demonstrated tangible performance in global manufacturing and A&D companies including Honeywell International.

In 2021, Honeywell’s leadership faced a slate of post-pandemic challenges, from rising raw materials and logistics costs to the risk of further supply chain disruptions.

The company lacked collaboration between 1000-plus buyers/planners and 16,000-plus suppliers for direct material replenishment. It had limited visibility into buyer-supplier processes, making it difficult to track and monitor its supply chain. A large customer order backlog arising from purchase material shortages had accumulated and Honeywell’s A&D operations were further slowed by growing compliance and regulatory requirements.

Working with a Honeywell team that committed to “do more with less,” SAP integrated its Business Network Supply Chain Collaboration platform into the company’s network to improve operational procurement, invoicing/payments, inbound logistics, and quality issues. Supplier onboarding, performance monitoring, risk assessment, centralizing collaboration, improved demand forecasting, and planning were all targeted for improvement.

After deploying SAP Solutions in late 2022, Honeywell onboarded 6,400-plus suppliers and managed $6.6 billion in network spend in a few months. It achieved 94% on-time payments, up from 74% in early 2022. It realized 96% of the first pass yield on invoice matching while reducing the effort needed for invoice reconciliation.

The system completely integrated purchase orders into the “One Honeywell” portal, eliminating email communications. Order confirmation was automated and standardized shipping terms yielded a rise in on-time supplier delivery from 83% to 95%. All in all, the integration provided easier access to data throughout Honeywell’s supply chain, enabled real-time visibility, and saved 6.52 million pieces of paper and 833 million BTUs of energy annually.

While SAP’s solutions performed admirably for Honeywell’s planet-girdling supply chain network, it performs equally well for smaller enterprises. Its SaaS Cloud ERP is as scalable as it needs to be. When operations grow or diminish, the cost and breadth of Cloud ERP and other cloud solutions can scale accordingly.

As A&D companies look to transform supply chains into a true digital ecosystem, SAP’s scalable Cloud ERP can help them improve collaboration, circularity and visibility throughout their extended networks, a payoff worth going after.

To learn how SAP can support your aerospace business goals, visit us at sap.com/aerospace