by Pierce Owen, VP, Research & Publishing, SAPinsider About 21% of the SAPinsider Community currently use SAP Integrated Business Planning for Supply Chain, and these companies are 80% more likely to say that they can respond in real-time to changes in demand and supply than those that do not use the SAP solution. In the case of a large global diagnostic medical equipment manufacturer, the flexibility of the demand forecasting capabilities of SAP Integrated Business Planning for Supply Chain contributed to their successful initial response to the COVID-19 crisis. SAPinsider recently interviewed a Senior Director of the technology organization at this medical equipment manufacturer. This SAPinsider case study shares how this company implemented business contingency plans to prepare for the increased demand and disrupted supply chains caused by the COVID-19 crisis.

Recognizing the Scale of the Threat Early

The COVID-19 crisis has sent the global economy into a tailspin, causing stock market crashes and the highest number of weekly unemployment claims in U.S. history. One medical equipment manufacturer, however, has so far seen minimal impact to its ability to fulfill orders and meet the rising demand from hospitals. “Our supply chain always has business contingency plans, and as soon as we hear about an international event, we can have second and third sources of supply ready to step in to fill the gap,” shared the Senior Director. When the coronavirus started making news back in January 2020, this company immediately took preemptive action. It set up a supply chain meeting with all operations and technology stakeholders and reached out to all its factories down to the workstation level. “We got everyone on board,” said the Senior Director. “Communication was a challenge, but we held lots of town halls and the right people stepped up.” The supply chain operations organization took the lead, and the technology organization supported them to ensure all the necessary tools were available for all the appropriate people. “Our executives forced an acceleration of our contingency plans in the third week of January. The procurement organization lagged somewhat in getting suppliers on board because two or three of our top suppliers struggled to source components; however, our procurement professionals stepped in to help those suppliers find new markets to source the components,” said the Senior Director.

Technology Made the Acceleration Possible

The medical equipment manufacturer relied on three primary software solutions to act on its contingency plans fast enough to forecast and fulfill demand. First, it adjusted its demand forecasts in SAP Integrated Business Planning for Supply Chain. As a major player in the global healthcare sector, this company knew it would face a significant increase in demand. “We correctly anticipated the increase in demand for diagnostic equipment and adjusted our forecasts and plans in SAP Integrated Business Planning for Supply Chain to match that,” said the Senior Director. Even though the healthcare sector lacked diagnostic tests for COVID-19 at the start of the crisis, hospitals needed this company’s available diagnostic equipment to diagnose and rule out other diseases in patients. Therefore, hospitals ordered more diagnostic equipment than usual for any disease that might cause flu-like or COVID-19-like symptoms. When this company first adopted SAP Integrated Business Planning for Supply Chain, it did not yet include demand sensing capabilities. Therefore, the company’s technology team developed their own demand sensing tool to integrate with SAP Integrated Business Planning for Supply Chain. “We go through that tool every other week to determine which specific hospitals will likely see increased demand over the next two weeks. It plays an integral part in our ability to keep up with demand today,” said the Senior Director. This represents the second major software solution that helped the company meet demand. Third, the company’s technology organization maintains 99.999% availability for a portal containing all its suppliers with a third-party login for every supplier. Suppliers log in and see all active orders and can update their own logistics details and invoices, and the company’s supply chain professionals can use the portal to arrange and prepare redundant suppliers as necessary. The combination of these three technologies assisted the company in making some major decisions that helped avoid equipment shortages.

Executing the Contingency Plans

This medical equipment manufacturer always plans for a temporary shutdown in China due to the New Year celebrations, meaning it was already partially prepared for a halt in business, but COVID-19 caused that shutdown to extend far beyond the end of the traditional Chinese New Year celebrations. The crisis stretched beyond the Wuhan province all the way to the outskirts of Beijing. When SAP Integrated Business Planning for Supply Chain reflected the increase in global demand and the impact of operations in China, the company ramped up production in France and Hungary. The company also has key supply chain hubs in the outskirts of Taipei and in South Korea with a heavy dependence on both. Due to the change in demand forecasts in SAP Integrated Business Planning for Supply Chain, the company knew it had to double production of components in those countries by the end of January. To make this possible, it used its supplier portal to accelerate payments to suppliers to alleviate any cost constraints on them. “We have kept the engine going and feel very comfortable through the end of April and don’t expect any shortages through May or June either,” concluded the Senior Director.

What Does This Mean for SAPinsiders?

Based on our research and the interview with the Senior Director, the following considerations can help the SAPinsider Community better react to volatile changes in demand and disruptions to the supply chain:

• Always have operational contingency plans ready. Global supply chains help the economy run as efficiently as possible, but they can also make companies vulnerable to disasters and crises in every place that the supply chain runs through. To make up for these vulnerabilities, international companies must have contingency plans ready with flexible sourcing and production.
• Vigilantly monitor operational threats and accelerate continency plans as soon as the threats start to affect operations. No company can monitor all threats all the time, but major natural disasters, revolts, and epidemics qualify as events that should trigger an immediate change in plans.
• Deploy advanced demand forecasting if managing an international supply chain. Globalization means more and more supply chains rely on international operations or foreign suppliers. Globalized supply chains require the ability to respond to changes in demand and supply in real-time, and advanced demand forecasting can help supply chain planners better anticipate and react to the impact of disasters or epidemics on demand.
• Make it easy to accelerate payments to suppliers, arrange and prepare backup suppliers, and redirect supplies as necessary. The medical equipment manufacturer developed its own portal to do this, but SAP also provides a solution for supplier networks and management with SAP Ariba. Every international supply chain needs a similar solution. It does not matter if a company has the world’s best contingency plans and most accurate forecasts if it cannot flexibly work with suppliers to meet demand.

Pierce Owen, Vice President of Research & Publishing, SAPinsider, can be reached at Pierce.Owen@wispubs.com.