GrundfosPropelled to the next level of planning with SAP® APO
Infrastructure providers around the world count on pumps from Grundfos Holdings A/S, known for its leading-edge technology and high quality. Deliveries are quicker and more reliable than ever now that Grundfos uses the SAP® Advanced Planning & Optimization (SAP APO) component for lining up all the right supplies to meet demand.
Grundfos’ supply chain is enormously complicated and challenging to manage. The firm has 15 assembly locations on 3 continents that produce more than 100 product families – “a pump for every need.”
When the firm was smaller, spreadsheets and the SAP ERP application sufficed for planning the influx of supplies to satisfy anticipated demand. But growth made that approach less and less practical, the proof coming when Grundfos took six months to react to the recession of 2008 and the havoc it wrought with sales. Resolving never again to be caught with massive inventories of goods it couldn’t sell, Grundfos completely redesigned its business processes and implemented SAP APO. Now supplies are well matched with demand, which means that manufacturing and inventory costs are down, planning accuracy is up, and delivery service to customers has improved.
Founded in 1945, Denmark-based Grundfos has grown to become the world’s largest multinational supplier of pumps that primarily move water. The company’s first six decades were a model of steady, predictable revenue growth on the order of 10% annually. But when the recession struck, Grundfos suffered not only a drop in sales but also excessive costs because it did not stop buying supplies and manufacturing products soon enough.
If you see water moving and gravity isn’t responsible, there is a good chance that a Grundfos pump is involved.
Ebbe Gubi, the firm’s director of demand and supply integration, explains why: "There were only sporadic local processes in place for deciding when, where, and how to slow down. Even if we’d had an overall process, there was no infrastructure in place to coordinate globally and deliver the information needed to make those decisions."
Besides, decisions of that nature occurred at local levels, not at the top.” Sales went up again as the market recovered, but Grundfos’ executives learned an important lesson from the experience. “We realized how lucky we’d been during our first 60 years, with a steady growth pace year after year, and recognized that there was no reason to expect the next 60 years to be the same,” says Gubi.
“There will no doubt be a lot more volatility in the market from now on. Our vision was to prepare ourselves by integrating our supply and demand planning company-wide. We knew we had reached the point in our growth where spreadsheets were far from adequate. We needed a coordinated network for overall company sales and operations planning, and a new application specifically designed for synchronized, integrated supply and demand planning.”
Grundfos has used the SAP ERP application to support its business processes for many years. Knowing how important it would be for the new application to integrate closely with its core SAP software, the firm naturally turned to the SAP software portfolio for a solution and found SAP APO. “We like the way SAP APO bridges demand and supply planning and how it even integrates long-term planning into our shortterm execution,” says Martin Andersen, business solution architect for Grundfos. “The solution needed to cover an enormous and complex supply chain and, from a long-term perspective, multiple supply chains. The requirement, therefore, was for a scalable solution, and we found that in SAP APO.” To confirm its decision, Grundfos invited consultants to examine its situation. When the consultants recommended SAP APO, the path was clear.
One of our core strategies in IT is to look first to SAP when we need new solutions. Integration with our existing software is always important.
Ebbe Gubi, Director of Demand and Supply Integration, Grundfos Holdings A/S
With the product decision made, Grundfos’ next step was to select an integration partner to implement the new software. The firm solicited proposals and received the best one from SAP partner Implement Consulting Group.
Grundfos and Implement spent a full year designing the new sales and operations planning processes and preparing for the deployment before software installation even began. “It seemed like a long time when we were in the middle of it, but in retrospect all that planning was very worthwhile,” comments Gubi. “By making sure we thoroughly understood the situation and got the company prepared, we avoided surprises later and therefore completed the implementation on schedule, with a stable solution to show for it.” Grundfos completely overhauled its supply and demand business processes and simultaneously carried out the software installation, conforming with best practices advocated by SAP for SAP APO.
SAP APO has replaced the spreadsheets, interacting with SAP ERP to form an integrated platform for overall sales and operations planning. Salespeople, who had not been consulted in the past, provide the input for capturing customer demand. “We have had 95% on-time input of monthly sales projections for two years now,” Gubi says.
This demand data is inputted to SAP APO, which supply planners then use to secure the availability of machine capacity, components, and labor to fulfill anticipated needs. The result is one set of numbers that is used by sales and marketing, operations, product management, and partially by finance, with all the departments enjoying full information transparency. Planning is performed at global, regional, and local levels. Long-term planning is done with an 18-month time horizon, with monthly updates for short-term planning.
Grundfos makes sure its supplies are ample to meet anticipated demand. It is also able to define and evaluate different scenarios and decide which of them to prepare the supply chain to meet. “One way to put it is that we can choose a safe plan for 30,000 units of a product, or we can agree to aim for 50,000 if we succeed with all our sales and marketing activities,” explains Andersen.
The planning transformation has had a profound impact on operations throughout Grundfos. SAP APO has been used for demand planning throughout Grundfos ever since it went live. For supply planning, however, Grundfos began with its industrial market business unit, which represents about one-fifth of the company.
The planning transformation has had a profound impact on operations throughout Grundfos. “You can tell the difference at our meetings,” says Gubi. “Before the project, everybody was arguing about whose numbers to use. Now our people’s time is spent much more productively, figuring out what it takes to accomplish our one set of numbers. And we’ve been able to cut lead-time commitments to customers by 16%, which is having a big impact on their satisfaction. Not only that: we’re better than ever at meeting our quoted delivery times – 10% to 15% better.”
It’s hard not to be pleased with our accomplishments. Everybody agrees that we are going in the right direction and the company is better off because of our move to integrated planning with SAP APO.
“We’re saving costs at the same time,” adds Andersen. Since going live with the new system, we have cut our component inventory by 20% in the industrial market business unit, and that’s despite a revenue growth of 10%. That’s what happens when you cut out double-stocking and internal bullwhip effect, because you can rely on the plan throughout the supply chain.
“We are now way better at predicting loads on our internal resources – people, equipment, space, and so forth,” says Gubi. “Our projections three months away are turning out to correlate with actual loads at a 93% accuracy rate. That’s enormously valuable for planning how to meet future requirements. For instance, we’ve been able to recognize the need to transfer capacity loading from one location to another that will need it more, and we’re prepared to defend such decisions if they are ever challenged.”
Experiences at the industrial market business unit have been so good that the board of directors recently decided to go company-wide with SAP APO for supply planning. Soon all sales and operations planning for all of Grundfos will be done in a fully coordinated way with SAP APO.
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