Introduction to SAP SNC – Supplier Network Collaboration

Executive Summary

• SNC is designed to enable supplier collaboration in demand, inventory, capacity, transport, and procurement/subcontractor collaboration.
• SCN can integrate with RFIDs and uses ASNs.
• SNC can work with release processing and schedule agreements.

What Is SAP SNC?

SAP SNC is a module in SAP APO which is directed to company-to-company supply chain collaboration.

It provides some ways or workflows for collaborating with suppliers and their customers.

SNC’s Workflow

These workflows include the following:

• Demand – Forecasts for replenishment planning, and not the broader collaboration forecasting which other tools tend to speak of when addressing forecast collaboration
• Inventory (part of Supplier Managed Inventory – SMI, aka VMI, as well as Supplier Network Inventory (SNI)
• ASNs – Advanced Shipment Notifications
• Purchase Orders
• Replenishment Orders
• Scheduling Agreements
• Work Orders – SNC specific object designed to track the progress of production
• Subcontracting
• Invoices (invoices and credit memos) enhance traceability and confirmation on the status of payment documents.
• Kanban, just like Kanban inside of a factory, but instead between two different entities
• Inbound Delivery Control
• Dynamic Replenishment (compares customer planned and firm demands and supplier receipts)

Some of these workflows are shared in some forms of collaboration supported by SNC, and others are left out depending on the collaboration being performed.

The Thought Process Behind SNC

SNC is part of a larger concept in supply chain management that proposes that the real benefits lie between organizations’ cross-enterprise integration. This has been a solid development focus of SAP in SCM for several years now. It has not yet taken off as of 2011 because companies have challenges integrating supply chain information internally. However, it may become more prevalent in the future.

Supplier Collaboration and the 80/20 Rule

Supplier collaboration does not have to be universal to be effective. A company does not need to collaborate with all of its supply chain partners to use this software type. Instead, a company can merely collaborate with its biggest suppliers. This spreads the effort of the collaboration over a broad product base. In fact, the collaboration that has historically been at least semi-effective has been between partners where large percentages of each other’s businesses. One example is the collaboration between Wal-Mart and significant CPG companies such as Proctor and Gamble.

Areas of Collaboration

The most substantial candidate areas for collaboration include:

• CPFR – Where retailers are collaborating with suppliers to replenish shelves. The textbook case of CPFR is Wal Mart. This would be an example of Replenishment Collaboration.
• Large marketing brands such as Nike, or Intel, managing their contract manufacturers. This would be an example of a Work Order Collaboration.

There are many areas of collaboration. However, the success in these two areas – CPFR / Retail Replenishment and Contract Manufacturing have propelled the interest in collaborating in other areas.

CPFR

“The CPFR model presents the aspects in which industries focus. The model provides a basic framework for the flow of information, goods, and services. In the retail industry the “retailer typically fills the buyer role, a manufacturer fills the seller role, and the consumer is the end customer.”[4] The center of the model is represented as the consumer, followed by the middle ring of the retailer, and finally the outside ring being the manufacturer. Each ring of the model represents different functions within the CPFR model. The consumer drives demand for goods and services while the retailer is the provider of goods and services. The manufacturer supplies the retailer stores with product as demand for product is pulled through the supply chain by the end user, being the consumer.”

SAP Creates a New Term – SMI and SNC Supplier Managed Inventory vs. VMI

We have been investigating SNC and have been surprised to find the term SMI or Supplier Managed Inventory. For the longest time, when the supplier managed inventory, it was called VMI, but evidently, the vocabulary has changed. Interestingly, the book Supply Chain Management and Advanced Planning by Hartmut Stradter and Christian Kilger, which we consider a comprehensive book on supply chain systems, does not have any listing for SMI, but of course, does have a listing for VMI. The book has a nice definition of VMI; we will quote it here.

“Traditional responsibilities are changing. Large retailers abstain more and more from sending orders to their suppliers. Instead they install consignation stores whose contents are owned by the supplier until the goods are withdrawn by the retailer” “Replenishment decisions are driven by pre-defined service level agreements between the supplier and customer. Inventory collaboration is a service that is usually required by the customer. To control his inventory and the customer’s inventory the supplier has to be able to access the customer’s major inventory levels and forecasts….” – Hartmut Stradter and Christian Kilger

SMI works by inventory and the visibility of inventory between two partners in the supply chain. Min and max levels are set for different product location combinations. When the inventory exceeds or falls below these settings, alerts can be sent to both the supplier and customer.

SMI is Inventory Collaboration

Of the different collaboration types, SMI is inventory collaboration. We have written a post on the different inventory types here.

SNC supports some different collaborative planning methodologies, and they should first be explained from the business perspective.

Here are some ways that SNC can collaborate:

• Demand collaboration
• Inventory collaboration
• Procurement collaboration
• Capacity collaboration
• Transport collaboration

Demand Collaboration

This is where the supplier gets forecast information from the customer.

Prerequisites

• Harmonized master and transaction data
• Customers on-demand collaboration agreement must be allocated inventory and capacity at a higher priority than noncollaboration customers.

Transferred Object

• Forecasts

Inventory Collaboration

• The customer provides information about his future demand and the current inventory to the supplier. Replenishment orders are no longer sent to the supplier. An agreement is based upon a service level; the service level determines when a new order is created.

Prerequisites

• Harmonized master and transaction data
• Customers must be interested in moving away from submitting replenishment orders and getting into a service contract.

Transferred Object

• Current stock
• Subcontract reservations
• Receipts
• Requirements

Procurement / Subcontractor Collaboration

Driven by the customer. Both the procurement and subcontractor information is set with the same SAP ERP object.

Prerequisites

• Harmonized master and transaction data
• Suppliers on procurement collaboration agreement must be allocated inventory and capacity at a higher priority than noncollaboration customers.

Transferred Objects

• Purchase Orders, ASNs

To read more about ASNs, see this post.

What are ASNs?

ASNs or Advanced Shipping Notices are used to communicate to customers of eminent deliveries. ASN’s are optional. They begin as an XML message but are converted into IDocs before being sent to SAP ERP. They do not go through the CIF, which is an important distinction vs. other data sent between SAP ERP and SCM.

ASNs can be created concerning the following objects:

• Planned receipts
• Replenishment orders
• Forecast delivery schedules
• Purchase orders

The History of The Advanced Shipping Notice

“An Advance Shipment Notice (ASN) is an EDI formatted electronic notification of pending deliveries; an electronic packing list. In the EDI X12 system, it is known as the EDI 856 document…. The ASN is noteworthy in that it is a new concept in logistics, enabled by the advance of modern communication methods. Although it provides information similar to the Bill of Lading, its function is very different. While the Bill of Lading is meant to accompany a load on its path, the goal of the ASN is to provide information to the destination’s receiving operations well in advance of delivery.” – Wikipedia

Goods Receipt and the Advanced Shipping Notice

The ASN creates the receipt of the goods. This may be counter-intuitive as a goods receipt occurs when the inventory has been received into the warehouse. In this way, this can be seen as a projected goods receipt.

Is the Advanced Shipping Notice Universal?

An interesting point is the joint white paper by Ciber and Red Prairie entitled Achieving Best Practice Performance In Automotive Parts Distribution.

“Many parts suppliers have the operational sophistication to provide detailed ASN information, while others are lucky to have a computer in their facility. The receiving process requires a flexible way to receive products using either ASN information, previously sent information or one SKU at a time.”

This brings up a real-world issue of the degree to which ASNs are available from suppliers. If they are not, then another means must be used to communicate outbound/inbound shipments.

Integration with RFID

One of the most critical uses of ASNs is to associate them with RF data. When the material comes into the warehouse (or at the receiving dock of the retailer), the RF read data can be quickly compared to the expected quantity in the ASNs to validate the shipment.

Many parts suppliers have the operational sophistication to provide detailed ASN information, while others are lucky to have a computer in their facility. The receiving process requires a flexible way to receive products using either ASN information,

Where Are ASNs They Used in SAP APO?

ASNs in SNC

As the main SCM module connects different enterprises for various supplier collaboration methods, ASNs are used most extensively in SNC.

ASNs in EWM

EWM is the most execution oriented of the modules in SCM. Because it is responsible for receiving shipments into facilities and sending shipments from warehouses to either other warehouses or retailers, ASNs can be used in EWM to create something called expected goods receipt. This allows EWM to use this information to plan its workload as far out as the ASNs.

Capacity Collaboration

PPMs and PDSs, as well as resource capacities and loads, are shared between supplier and customer.

Transport Collaboration

Collaboration on transportation services. This is a collaboration with third-party transportation providers. As you can see, there is much more to SNC than VMI. In fact, the term VMI, which is one modality of collaboration, is no longer used by SNC and has been replaced by SMI.

Extra-Organizational Integration

There is presently a lot of focus around extra-organizational integration technologies like SNC. However, binding together organizations like this is challenging. This is brought to light in a quote:

“Since supply chains are physically distributed, the information that makes up the supply chains is also distributed. The information in any supply chain is originated and owned by different entities, i.e. supply chain partners. Consequently, pieces of information are distributed along the Supply Chain in different systems and, therefore, in different formats. This has a great implication when decision makers attempt to make decisions regarding the supply chain as a unit. Often data is available but the knowledge required for decision-making is hard to come by since a great effort has to precede any analysis in order to obtain the data and format the available data into a common body of knowledge that is universal to all elements of the supply chain. This issue is further complicated when supply chain partners are hesitant to provide this data.”

We discuss the importance of testing these concepts first before committing to any implementation or software company.

Replenishment Collaboration

To understand replenishment collaboration see this post.

How is SNI Different from SMI?

SNC uses two terms that are confusing and not generally used or accepted in the industry.

Using SNC to Track Scheduling Agreements

Release processing is how SNC tracks scheduling agreements. This post briefly discusses this.

What Is SNC Release Processing?

Release Processing is the name in SNC for tracking scheduling agreements. The customer sends the supplier the schedule agreement release. These releases are shown on the SNC Web UI.

SNC and Schedule Agreements

Schedule agreements can be tracked by schedule line. Alerts related to release processing include:

• Create scheduling agreement confirmation
• Create ASN for current release
• Acknowledge receipt of the current release or previous release

Subcontracting in SNC

According to SCM documentation, subcontracting is where the buyer supplies some of the purchased product’s components. This is, of course, very different from the general definition of subcontracting, where a contractor sends out pieces of their contract to other contractors. SCM has become increasingly focused on allowing the SCM owner to plan its partners; this emphasis seems a bit misplaced. There are not nearly as many companies doing this as the development effort in SCM would indicate. However, as of May 2009, we are starting to get many inquiries on SNC, so perhaps SAP was looking out to the future when it invested the SNC effort.

I found this excellent definition of subcontracting. 

“In a subcontracting scenario, the plant provides the subcontracting components to a third party, called the subcontractor. The subcontractor assembles the components and returns the finished product. Enable the outsourcing of manufacturing facilities to a third party. Consider subcontracting scheduling agreements as external procurement relationships.” –Josep Ramon Bonamusa, SAP Iberia.

How is this Setup?

A subcontractor location is a setup in SCM, just as you would set up a vendor. This is what you need to set up a subcontracting relationship that can be part of the plan.

1. Vendor location specific product master records for the subcontracted product and the subcontracting components.
2. External procurement relationship for the subcontractor product (typically a CIFed over Purchasing Info Record).
3. Transportation lanes for the subcontractor product and the subcontracting components
4. Resources for the vendor location and plant
5. PPM at the vendor location (with one resource and one operation at the very least)

Setting this up has substantial configuration complexity, and then, of course, there is all of the complexity with regards to getting subcontractor buy-in. One overlooked issue is that many large companies mistreat their vendors or squeeze them to such a degree on a price that a lot of bad blood results. The problem then is getting these vendors to collaborate with you. It is always easy to get the executives to agree to collaborate (whether they push it internally or not is a different topic of discussion). But it will be the people working in the trenches and their immediate supervisors responsible for the collaborating. So getting them on board is critical as well.

How It is Operationalized

Subcontracting works with some functionalities but not with others.

Subcontracting can work with:

• Optimization
• Heuristics

Subcontracting does not allow for:

• Deployment
• TLB
• Capacity Leveling

Here is what must be created or set up for subcontracting to work:

The end product

“The components to be provided to manufacture the end product

The supplier who is to manufacture the end product as the subcontractor

A purchasing info record of the category subcontracting which documents the subcontractor as the source of supply of the end product

If necessary, an SNP production data structure (SNP-PDS), if you are using this instead of a production process model (PPM) and wish to generate it from SAPR/3 data (see alsoProduction Data Structure in SNP)” – SAP Help

Furthermore…

“If you are using an SNP PDS and wish to generate it from SAP R/3 data, you must choose the SNP Subcontracting option in the integration model. In this case, all master data in the subcontractor location, such as the product master data and the transportation lane from plant to subcontractor, is automatically created in the SAP SCM system.” – SAP Help

Two Ways Subcontracting Can be Implemented

There are two ways to implement subcontracting when it comes to ERP.

1. In one situation, the item can be sent out as an assembly to the contractor and then return as a finished good.
2. The second is if the item is sent out as a finished good and then returns as a finished good.

This depends on whether the item is just a “WIP” item or both a WIP item and a sellable item. From these basic rules, we have generated a subcontract decision matrix.

Processing the Flow

Regarding the process flow after subcontract SNP stock transfers are created:

“If an SNP stock transfer is created for the end product in the subcontractor location, a purchase requisition is generated from it in the SAP R/3 system after the CIF transfer. This automatically contains the address of the subcontractor in Asia (not that of the plant in the U.S.A.) as the delivery address At the same time, theSubcontracting Vendor indicator is set. The delivery address in the requisition is adopted in the PO during the document conversion process.When a goods receipt is posted against such a purchase order, the components of the handheld device are automatically posted to the “stock of material provided to vendor” (stock with subcontractor).” – SAP Help

The Problems with an Overlay Competitive Culture and Its Impact on Vendor Relations

The US culture is based on competition. However, what is less focused on is the benefits of cooperation. In the excellent book Who Really Made Your Car, the competitive US culture is a disadvantage when integrating with suppliers.

Japanese carmakers have established constructive partnerships with their suppliers. The three leading Japanese carmakers, Toyota, Honda, and Nissan, are seen as legitimate semi-insiders by supplier companies…positive relationships are achieved by following six steps:

• Understand how suppliers work
• Turn supplier rivalry into an opportunity
• Supervise suppliers
• Develop supplier technical capabilities
• Share information intensively but selectively
• Conduct joint improvement activities

Increasingly many areas of manufacturing rely heavily on suppliers and supplier relationships.

Subcontract Planning Book

SCM has a subcontract planning book that allows the planners to interact with subcontractors’ information effectively.

Subcontracting and Procurement Collaboration

SNC supports several collaboration methodologies. Subcontracting is actually categorized as procurement collaboration, and the object transferred is a purchase order. You can read about subcontracting’s categorization within SNC here.

What Level of Collaboration?

One of the questions on projects is the degree of collaboration that is actually required. That is, is it

1. EDI
2. Portal
3. Full SNC implementation

Some supply planning projects have collaboration listed as necessary, but how much collaboration is necessary is important.

https://wp.me/p9G3d-1vs

SPP and SNC

This post shows the integration of SNC with SPP, SAP’s service parts planning module.

Deliberately Trying to be Confusing?

We can’t tell if SAP is trying to confuse people or not deliberately, but SMI and SNI are so close that we had to do a double-take when researching the topics. Therefore, we thought a post differentiating the two would be helpful since we almost tripped up on the terms ourselves.

Terminology Confusion

It should be understood that SAP is creating new terms for SNC. These are not generally accepted terms that you can begin using on a project without first defining them for other people. Furthermore, SAP is evidently not keeping its glossary up to date because neither of these terms is listed in its glossary. Every term used by SAP should be defined by SAP in its online glossary. That seems like a reasonable standard to expect.

Beyond the glossary, a search in SAP’s help website for the terms was equally unhelpful.

Terms Defined?

When new terms are used that are not industry or academic terms and do not define yourself (as SAP), you have created a problem in terms of understandability for the software and implementation. We found a rough definition of SNI on an SAP marketing page; however, it is not specific enough to be helpful. Here is the article to that definition.

Because of this lack of information, this post will be unusual in that we will tell you what we think SMI is since we are not sure. Anyone with SNC implementation experience is welcome to comment, and we will be happy to adjust this post in the future to reflect information coming from comments.

Supplier Managed Inventory (what we think it is)

This is SAP’s umbrella term for the different collaborations that can take place within SNC. SAP referrers to these as different processes. These processes include:

• Forecast delivery release process
• Purchase order process
• Subcontracting
• Supply Network Inventory
• Work Order Collaboration
• Kanban
• Dynamic Replenishment
• ASN Processing
• Invoice Collaboration

Supply Network Inventory

Supply Network Inventory is then just a process within the larger Supplier Managed Inventory. It is similar to replenishment collaboration in that it uses the concept of a target stocking level and then compares it to the projected stock level to make inventory decisions.

E2Open Connected to APO

One relatively popular third-party vendor is E2Open. However, it does not appear that E2Open is connected very frequently to SAP APO from my research. This does not cause me very much concern because it simply means that the integration most likely has to be created by the client between SNP and E2Open. There is, of course, some work involved in the integration; however, in many cases, companies only are interested in integrating on one or two of the possible supplier collaboration workflows. Each of the different supplier collaboration workflows is essentially a separate technical integration, and the integration objects connect to different areas within SAP. For instance, forecast collaboration tends to connect to SAP DP. Modeling supplier resources will tend to connect to SAP SNP or SAP PP/DS or both (depending upon how much of SAP APO the client has installed – when SAP SNP and SAP PP/DS are both installed, the standard and I think best design is to represent the resources identically in SNP and PP/DS, and in fact, when a PDS (a combined master data object made up of the BOM, work center and routing) is created in APO from ERP, both an SNP and PP/DS PDS are created at the same time, and they match.

The Benefits of Copying the SNC Integration Design

While a company may not decide to go with SNC, they can still benefit from studying SNC when designing an integration to a third party application such as E2Open by copying the SNC workflow and the insertion and extraction points and out of SAP APO. SAP has put a lot of work into determining where these insertion and extraction points are so that they flow naturally with APO’s normal operation. Therefore it makes sense to leverage this work and replicate the workflow as much as possible. After the functional design is complete and validated with the business, documentation can be handed over to an ABAP team that can code the adapter to E2Open. This is a fairly straightforward process: writing the technical specification and performing the coding once a detailed functional specification; based upon the SNC to SNP integration design is completed.

Using E2Open

E2Open and other third-party applications are sometimes used instead of SAP SNC to perform supplier collaboration. When a company decides to go in this direction, it makes a lot of sense to copy SAP’s integration design to SNC to create the adapter and even design the process flow for the supplier collaboration process. My impression is that SNP will be more frequently connected to third-party supplier collaboration applications in the future as SNC may not meet every client’s needs, and many companies may prefer a less involved and less expensive supplier collaboration implementation than SNC. Decades after EDI development, EDI is still how most companies collaborate on supply chain and other data. Supplier collaboration has been a relative laggard in implementations compared to the big three of demand, supply, and production planning. Many companies have a completely antagonistic relationship with their suppliers and hammer them on price, select them primarily because of price, and then expect the lowest cost bidder they could find to sign a contract to invest in technologies for collaboration. It is an unrealistic expectation but is far more often the case than the opposite being true. This is a case where, again, Toyota’s model is cherry-picked. Before its culture changed a few years ago, Toyota was so successful with suppliers because they truly collaborated with suppliers from a relationship perspective. They did not only emphasize price in the relationship. Every client I work with now seems to have the desire to collaborate with their suppliers, if not the actual capability. In many cases, connecting a variety of APO applications confidently, leveraging the workflows provided by SAP is a major advantage.

Conclusion

SNC is easily the most poorly documented SCM module we have come across, and we have investigated or implemented all of them. The first problem is that SAP has selected some non-industry standard terms and has avoided using others (notable VMI) that are industry standard. Secondly, it has simply not invested adequately in documentation to explain what SCM does clearly and concisely. SAP charges a lot of money on its software, and for its consulting, it can afford to spend more on its knowledge infrastructure. To use SNC, we feel as if we would have to create our own SNC (we have not taken the SNC training course, so we have not seen SAPs material on it) and reference material ourselves.

Reference

Kyle Harnden, Inventory Planner

https://knowledge.wharton.upenn.edu/article.cfm?articleid=2366

Supplier Collaboration with SAP SNC, Mohammed Hamady and Anita Leitz, SAP Press 2008

https://en.wikipedia.org/wiki/AdvancedShippingNotice

Supplier Collaboration with SAP SNC – SAP Press

https://www.ciber.com/downloads/whitepapers/CIBERAchievingAutoBestPractices.pdf

Suman Bhattacharyaa at IBM Global Services

https://www.sap.com/spain/company/events/2008gestioncadenalogistica/pdf/6Killer%20Applications%20Day%20SCM%202008_SNP.pdf