The Six P's of the Extended Supply Chain #2

Keeping demand aligned with supply in the modern extended supply chain is growing more and more challenging. Globalization, increasing freight rates, capacity constraints, regulatory pressure and partner collaboration are just a few challenges that need to be constantly addressed to maximize the effectiveness of the supply chain.

In this series, we've begun to describe the six P's that make up the modern extended supply chain and highlight how we leverage the Reveal Methodology to help companies using SAP to run their supply chains to transform their supply chains in an optimal manner. In the first part of this three-part article series, we discussed the Produce and the Procure processes, and in this article, we will proceed to describe the Provide and Product Return processes.

What are the Six P's of the Supply Chain?

1. Procure: Procure-to-Pay for produced or stocked product
2. Produce: Make-to-Order, Make-to-Stock
3. Provide: Quote, Order-to-Cash. Third-party warehouse, warehouse or drop ship fulfillment
4. Product Return: Return to vendor, warehouse, store
5. Perform: Execute the supply chain process -- people, process and technology
6. Process: Cross process visibility and exception management

As mentioned, this article will focus on the Provide and Product Return supply chain processes. In the next article, we'll deal with the Perform and Process in detail.

Provide covers the process of capturing demand for a product all the way through to the fulfillment of that demand. We could also refer to it as the Order to Cash (OTC or O2C) process. We need to provide the product to the customer on the promised date.

As part of Reveal's oVo® Methodology, we follow best practices for the Provide process. That is, we leverage the power of SAP to drive the OTC system activities, and we focus our efforts on educating the applicable resources around the related master data and business rules that apply to the OTC process. In many cases, an extensive change management exercise is needed in order to effectively match the technology (SAP) with the process (execution within SAP) and with the people (get the organization aligned).

The key sub-process for the Provide process can be described as follows:

• Establish a provision or delivery plan, based on prioritized requirements and resources.
• How will you capture the demand for the product from your customers?
• How do you plan on converting that demand into orders?
• How do you translate that demand into production or procurement plans?
• Once you have the order for a product, how do you plan on fulfilling that demand?

Order to Cash (OTC) process is broken down as follows:

• Provide Quote to prospect. Manage the quote process with due consideration to the expiration and conversion aspects of the process.
• Sales Order management, including order confirmation to the customer. This is a critical part of the process because it is the step where we make the promise to our customer of how much product they will provide to them, on what date and at what price. If we fail to deliver on any of these three promises, then we will impact customer satisfaction and potentially lose future business with them.
• Schedule shipment of the goods to the customer. The schedule line on the sales order is a very powerful piece of SAP functionality and should be leveraged to its fullest extent. Use it to plan when transportation should be arranged, when the goods should be picked, staged, shipped and ultimately delivered. This is the plan against which we should execute.
• Pick, Pack and Load the product. Ensuring regulations are met, we get the product ready to deliver to the customer, noting any discrepancies as and when they occur.
• Ship the product. An Advanced Ship Notice (ASN) is sent to the customer, indicating the product is now on route to the customer's location. Much like the Sales Order confirmation, the ASN is a critical document in the OTC process. The last chance to effectively ensure that we deliver according to our promise is prior to the ASN. Once the product is shipped, there is very little we can do to rectify wrong parts, location or timing of an order.

Key information that is needed in the ASN includes:

• ‍Carrier name, indicated by a Standard Carrier Alpha Code (SCAC): Who is shipping the product?
• Carrier tracking number: How do we identify this shipment?‍
• Packing information: What is inside each container that has a unique tracking number? This may include serial numbers and batch detail if relevant.‍
• Delivery date: When will it arrive at the customer?‍
• Shipment tracking: The farther down the supply chain process we go, the more accurate the information. Because the carrier has the product, we should receive carrier status updates from them electronically. If the outbound delivery is going to be delivered late, as per a new carrier status message, then the customer service representative for the applicable customer needs to be notified so that they can proactively reset the delivery expectation with customer. (See our article on Inbound Logistics with Carrier Tracking for more info on integrating the carrier notifications into your business process.)
• Product is received by the customer, verified, assigned a disposition and put away. Note: By tracking shipments with carrier status notifications, you are able to view product that has arrived at the customer (the Proof of Delivery) and thus bill based on POD for those customers who require delivery before being invoiced.
• We issue an invoice for the sales order to the customer, and it follows our accounts receivable process in order to receive payment for the invoice.

In accordance with our oVo® Methodology, and with reference to the Provide process diagram shown above, you can see that the process has three distinct major sub-processes:

1. Plan: If you fail to plan, you plan to fail. Work according to the Sales Order (SO) schedule line detail: If the schedule on the SO is wrong or not trusted, then fix the root cause and embed the change in your ongoing process.
2. Execute: According to the plan. Key master data elements here include the customer master, customer info records, material master, lead times (transportation, staging, material availability). Let the system create the shipping method for you, and you monitor and manage the exceptions.
3. Measure: Monitor the process to get the current status. Trigger an exception management process if a process deviation or opportunity has been uncovered. The exception management process helps to ensure improved total customer satisfaction because it minimizes an inability to execute according to our promise.

Product Return

Continuing on down the supply chain, we get to the process that we hope never to execute against, the Product Return. It is a process that needs to be made as simple as possible for the consumer. If they are wanting to return a product, it's usually for a negative reason; making the process any more cumbersome than need be will only drive that customer further away. One of the reasons that Amazon and Costco are so successful with a high customer satisfaction rating is because of their simple Product Return policies.

One key aspect of a successful Product Return process is capturing the needed information, from the customer, into the system. Most of the time, we follow a proactive approach to capturing this information, such as pre-printing a return label and shipping it with the product. If the customer wishes to return the product, they can simply apply the return label and send it back to the postal system. By doing this, we ensure we have all the needed details in order to effectively receive the product back into our warehouse and provide a timely credit to the customer.

Product Return Best Practices

As part of our oVo® Methodology, we again follow best practices for the product return process. Once again, we focus our efforts on matching the technology (SAP) with the process (execution within SAP) with the people (get the organization aligned) in order to achieve the desired business goals.

The key sub-process for the Product Return process can be described as follows:

• Establish Product Return plan (Return Merchandise Authorization (RMA) Plan) based on prioritized requirements and resources: Match people, process, and technology. Processes may vary for each returning location, but try to keep a standard approach as much as possible. From a system standpoint, make sure that the needed information is available and consistently captured regardless of the method or location of the return. The customer should have an "omni channel" experience regardless of how they return the product.
• The Product Return process needs to address the following stages:
• Detect and Disposition a defective product. Recognize that the product is defective and categorize it (disposition it).
• Request an RMA number from the place of purchase -- obtain approval for the return. This ensures a smooth end-to-end return process because the return will be linked to the original order, and the original invoice could easily be credited if the return is accepted. ‍
• Schedule the return of the product. How do we get the product returned? Return label printing and transportation all are key parts to ensuring customer satisfaction during the return process. Master data and its accuracy play another important role in ensuring that the correct schedule is anticipated.
• Return the product. Products can be returned because they are defective, need maintenance, for remorseful reasons or because the customer received too much product. The reason for the return also needs to be captured and analyzed to determine if a change in the forward supply chain or sales process is needed. Tracking the inbound return shipment is also critical to ensure the receiving location is aware of the actual delivery date of the return. The receiving plant needs to be able to schedule their receiving resources based on all inbound requirements, which includes all inbound purchase orders and returns.‍
• Receive and Disposition the returned product. The product is inspected and either scrapped, repaired or placed back into stock for resale.‍

Variations to this process can vary greatly, especially when dealing with third parties in the repair process or a Return to Vendor (RTV) scenario where a third party receives and dispositions the product, and you are responsible for the financial credit to the customer. Ensuring a standard process across the scenarios allows for the changing of those third-party companies with minimal disruption to the product return process.

In accordance with our oVo® Methodology, and with reference to the Product Return process, the process, once again, has three distinct major sub-processes:

1. Plan: If you fail to plan, you plan to fail. Work according to the RMA order schedule. If the schedule is wrong or not trusted, then fix the root cause and embed the change in your ongoing process.
2. Execute: According to the Product Return plan. Keep as close to one process for the return process across all locations.
3. Measure: Monitor the process to get the current status. Trigger an exception management process if a process deviation or opportunity has been uncovered.

Summary

To sum up, in order to effectively execute your SAP-based supply chain, you will need the following to work together:

1. People: The workforce needs to be educated/empowered to execute the needed supply chain process. Its focus needs to be on maintaining master data, business rules and ensuring that transactional "clutter" is not affecting the process.
2. Process: The process needs to be streamlined, while also ensuring that all the needed transactions and partner collaboration are in play. If the process has a "black hole," then the supply chain is susceptible to increased disruption. Zone in on tightening up that process.
3. Technology: Let your SAP system do the heavy lifting. People feed on the master data and set the rules, and SAP generates the needed orders at the right time, for the right quantity at the right location.

In the next article, we'll deal with the Perform and Process in more detail.