Enhancing Supply Chain Efficiency with SAP IBP and CloudPaths—Part 2

The SAP Unleashed event last week highlighted the growing importance of AI and data in optimizing supply chains, particularly in inventory management.

Irene Jones, VP of Customer Success at CloudPaths, and Lisa Vincenty, Associate Director – Digital Supply Chain at CloudPaths, spoke with SAPInsider on the challenges businesses face in inventory optimization (IO), how SAP addresses them, and how CloudPaths’  SupplyChainPaths practice helps companies leverage SAP IBP solutions for improved inventory control and return on investment (ROI) that can strengthen their supply chain.

Successful IO Implementation

Inventory optimization is crucial for businesses seeking to balance service levels with inventory costs. However, several challenges often hinder successful IO implementation. Vincenty points to two primary obstacles: data management and change management.

“Many legacy systems struggle to capture and process the diverse data inputs needed for successful inventory planning,” she explains. “They often rely on outdated processes and are limited to quarterly or annual reviews, which fail to react to dynamic market changes.”

However, IO powered by solutions like SAP Integrated Business Planning (IBP) provides enhanced data visibility and the ability to adapt to variability in demand, lead times, and other critical factors. “IBP for Inventory allows businesses to move from static, infrequent reviews to a dynamic, monthly Sales, Inventory, & Operations Planning (SI&OP) process, enabling them to respond effectively to changing conditions,” Vincenty notes.

Change management is equally critical. Vincenty adds, “Simply having the right data is not enough; businesses need the right people and processes to interpret the data, visualize it through tools like IBP, and act on the insights.” This includes adjusting inventory targets, refining master data, and reacting to variability in demand and supply.

Why SAP IBP for Inventory Matters

According to Jones, “SAP IBP for Inventory helps businesses overcome these challenges by providing a comprehensive platform for optimizing inventory across the supply chain.”

By considering all relevant factors, including customer service levels, the solution generates optimized inventory targets, enabling businesses to strategically deploy inventory to meet those targets efficiently. “This allows companies to adapt their strategies to ensure they have the right inventory in the right place at the right time, minimizing stockouts and excess inventory,” says Jones.

Jones highlights the announcements at ‘SAP Unleashed’ last week that further emphasized the role of AI and tools like Joule in enhancing inventory optimization. She gives an example from the oil and gas industry where AI and Joule, combined with structured and unstructured data, drastically reduced inventory response times from days to just 45 minutes. “This demonstrates the power of AI to analyze vast amounts of data and provide rapid insights for improved decision-making in dynamic industries,” Jones explained.

She added that CloudPaths helps businesses integrate these new technologies into their IO strategies, assisting them in understanding their data landscape and leveraging AI and Joule to streamline data processing and improve the efficiency of the IBP engine.

ROI from IO

The ROI from implementing SAP solutions for inventory optimization can be substantial. Vincenty suggests that businesses can expect a 10-30% decrease in inventory with the right implementation. Moreover, optimized inventory management allows companies to maintain or even improve service levels while reducing their overall inventory investment.

“By implementing a multi-echelon approach, IBP for Inventory helps eliminate over-buffering at different points in the supply chain, ensuring that inventory is strategically positioned to meet customer demand,” Vincenty notes. More importantly, IBP for Inventory provides the tools and processes for continuous inventory control. This prevents the cyclical pattern of inventory reduction followed by subsequent increases as service levels suffer.

Jones concludes, “IO is a critical capability for businesses seeking to improve efficiency and profitability in today’s complex supply chain landscape.” By leveraging SAP solutions like IBP for Inventory and with the support of partners like CloudPaths, companies can improve customer service levels and reduce costs through demand and supply variability analysis combined with advanced IO algorithms.

What This Means for SAP Insiders

Robust data management is key to effective IO. Both Jones and Vincenty emphasize that SAP users prioritize data management practices that ensure data accuracy, completeness, and timeliness for effective IO. This includes integrating data from various structured and unstructured sources to gain a holistic view of their inventory and supply chain.

A holistic approach helps. Inventory optimization requires more than technology. SAP users should adopt a strategy encompassing people, processes, and technology. This includes fostering collaboration between different departments, establishing clear roles and responsibilities, and implementing robust SOPs and processes. Change management is also crucial to successfully adopting and utilizing new solutions like SAP IBP.

The potential for significant ROI. SAP users can expect significant reductions in inventory costs while maintaining or improving service levels. Businesses can reduce obsolescence and free up working capital by optimizing inventory across the entire supply chain.