Efficiency increase and seamless integration of the 3PL
In today’s globalized world, companies are looking for efficient and cost-effective ways to optimize their logistics processes. A popular solution for many companies is outsourcing logistics services to external partners, also called third-party logistics (3PL) or contract logistics. It is important that the cooperation runs smoothly and that control over the processes is not lost. This challenge can be mastered with the use of SAP-EWM and associated interface technologies. In this article, we will take a closer look at this topic and discuss the potentials and challenges.
Contract logistics refers to the outsourcing of certain logistics functions, such as warehousing, picking, transportation or distribution, to external service providers. These service providers then assume responsibility for performing these functions and ensure that the processes run smoothly.
Potentials and Challenges of Outsourcing in Warehouse Logistics
Outsourcing of this type offers companies various potentials. Here are five of the most important arguments in favor of such outsourcing:
- Cost savings: With outsourcing, companies optimize their operating and logistics costs and reduce investments in infrastructure, personnel, technology and warehousing.
- Focus on core competencies: Outsourcing allows companies to focus more on their core areas, such as production, product development, marketing or customer service.
- Flexibility and scalability: With the support of a logistics service provider, companies can quickly adapt their logistics processes to market changes or seasonal fluctuations.
- Access to expertise and technology: Companies benefit from the extensive know-how of a logistics service provider and gain access to modern technologies and best-practice solutions.
- Improved supply chain performance: An experienced logistics service provider can improve overall supply chain performance, shorten delivery times and manage international supply chains more effectively.
However, some challenges can arise along the way:
- IT integration difficulties: Collaboration requires IT system integration, the difficulties of which can lead to delays and errors.
- Communication problems: Lack of communication can cause delivery delays, errors and misunderstandings.
- Loss of control: companies relinquish direct control over inventory and processes.
- Quality problems: the logistics service provider may not be able to ensure the quality of storage and logistics processes without interruption.
- Dependency on the service provider: dependency can make the company vulnerable to supply disruptions and performance degradation.
To minimize these problems, companies should:
- carefully consider the selection of the logistics service provider
- Establish clear communication channels and processes
- Carefully negotiate contracts and agreements
- Regularly monitor and evaluate the logistics service provider’s performance
It is also common practice to cooperate with several logistics service providers, e.g. subdivided by country or business unit. This increases the coordination and communication effort, but reduces dependence on a single service provider.
SAP EWM Templates vs. Connection Decentralized WMS
The following scenario: a manufacturing company wants to work with a 3PL logistics service provider to outsource its warehouse logistics. Now the company is wondering whether it should connect the logistics service provider’s decentralized warehouse management system to its own SAP S/4HANA ERP system or set up its own SAP EWM system with the service provider for the shared warehouse. The EWM would be intended as a template system for future shared warehouses. The shared warehouse would be the pilot warehouse for the EWM solution.
An SAP template approach is a method by which a company develops and uses a standardized template, called a template, for implementing SAP software to streamline and unify the company’s business processes.
Technically, an SAP template consists of a group of configurations that correspond to standard processes in SAP software. These configurations are customized to meet the specific requirements of the company. The template contains a set of predefined data and configurations, such as organizational structures, master data, process flows and reports, which speed up and facilitate the implementation process in a warehouse.
Here are some important key points to consider for choosing the appropriate alternative:
Connection to the logistics service provider’s decentralized warehouse management system:
Integration complexity: This option may involve complex integration work, especially if the 3PL’s system is not already compatible with SAP S/4HANA. Custom development and ongoing maintenance may be required to ensure smooth data exchange.
Control and visibility: the company may lose visibility into warehouse operations as the system is managed by the 3PL. However, this can be mitigated by establishing robust reporting and communication protocols.
Cost: This option could be more cost effective in the short term as it avoids the cost of setting up a new system. However, the ongoing costs of integration and potential inefficiencies of a solution that may have evolved historically should also be considered.
Scalability: if the company plans to work with multiple 3PLs, each with their own systems, this could result in a complex web of integrations that is difficult to manage and scale.
Set up a new SAP EWM system for the shared warehouse:
Standardization and Control – With SAP EWM, the company can standardize processes across all warehouses, whether they are operated by the company itself or jointly with a 3PL. This can lead to greater efficiency and control over warehouse operations.
Monitoring: SAP EWM provides real-time monitoring of inventory and warehouse operations, which means better decision making
Cost: The initial setup costs of SAP EWM can be high, but long-term cost savings are possible through improved efficiency and reduced need for custom integrations and system development.
Scalability: if the company plans to expand and set up more shared warehouses in the future, a template system based on SAP EWM can speed up the process and make it more efficient.
In warehouse logistics, it is noted that each warehouse brings its own set of circumstances and challenges. A deployment of an embedded Advanced EWM in a central warehouse and a (later) connection of decentralized external warehouses of a logistics service provider with their own decentralized WMS is also feasible.
SAP Interface Technologies for Decentralized Warehouses
In the following, we provide an overview of the interface technologies that can be used when integrating SAP S/4HANA with decentralized warehouses and logistics service providers.
IDoc (Intermediate Document): IDocs are standardized data containers used as interfaces for exchanging data between SAP systems and external systems. They enable the transfer of warehouse movement data, inventory information, delivery details, and other relevant data between S/4HANA and connected systems.
SAP ALE (Application Link Enabling) is a technology that enables communication and data exchange between different SAP systems. It is used to integrate and synchronize distributed business processes across multiple SAP systems.
BAPIs are standardized programming interfaces that enable seamless integration between S/4HANA and external systems. They enable external access to EWM functionalities such as warehouse management, material flow control and warehouse processing in real time.
Web Services: Web services are another way to connect between SAP and external systems. They use open standards such as SOAP (Simple Object Access Protocol) or REST (Representational State Transfer) for data exchange and thus enable platform-independent integration.
SAP Cloud Platform Integration (SCPI): SCPI is an SAP proprietary middleware solution that enables the integration of various cloud and on-premise applications. It serves as a bridge between SAP and non-SAP systems and provides a set of pre-built connectors and integration scenarios. It supports both point-to-point and complex integration workflows and provides monitoring and error handling capabilities
The choice of the appropriate interface technology depends on a number of factors, including the requirements of the business, the complexity of the integration, and the existing systems at the decentralized warehouses and logistics service providers. Careful analysis and planning are critical to ensure a successful integration and to realize the full potential of SAP EWM.
IDoc message types
The most widely used technology in practice is the IDoc.
SAP provides the following message types for the exchange of delivery documents with information such as material, quantities or storage locations between SAP S/4HANA and external warehouse management systems via IDocs.
These message types already cover a large part of the common requirements in the standard system. However, if customer-specific additional information such as a Z field should also be transmitted in the ERP delivery, this can be mapped via Z segments in these message types. A complete Z message type is rarely necessary. This accessible flexibility makes IDocs an effective tool in system integration.
Message type: MBGMCR
- Transfer of material documents such as goods receipts, goods issues or transfer postings
- Update of inventory data in SAP MM/IM (Material Mngt. / Inventory Mngt.).
- Content (excerpt): Material number, quantity and storage location
Message type: BATMAS
- Transfer of batch master data and batch movement data
- Management of batches for quality control and traceability of products
- Content (excerpt): Batch number, material number, description, unit, control key and other important characteristics of the material.
Message type: SHP_IBDLV_CONFIRM_DECENTRAL
- Transmission of incoming delivery confirmations from decentralized WMS to the central ERP system
- Updating of the order status in the central ERP system
- Content (excerpt): Purchase order number, delivery quantity and delivery date
Message type: SHP_IBDLV_SAVE_REPLICA
- Transfer of incoming delivery documents from the central ERP system in the decentralized WMS
- Synchronization and effective management of stocks in decentralized WMS
- Content (excerpt): Delivery document number, customer number, item number, quantity and storage location.
Message type: SHP_OBDLV_SAVE_REPLICA
- Transmission of outgoing delivery documents from the central ERP system in the decentralized LVS
- Synchronization and effective management of stocks in the decentralized WMS
- Content (excerpt): Delivery document number, customer number, item number, quantity and storage location.
Message type: SHP_OBDLV_CONFIRM_DECENTRAL
- Transmission of outgoing delivery confirmations from decentralized WMS to the central ERP system
- Updating of the delivery status in the central ERP system
- Content (excerpt): Delivery document number, delivery quantity and delivery date.
The following example is taken from a gicom project for a medium-sized manufacturing company.
Disclaimer: Names and product designations have been changed. Process and technical details are authentic.
Sales using a batch reservation
KÖBES Corporation, an important customer of OVERATH International GmbH, is active in the energy industry and needs the latest miniature reactors for an innovative energy project. This project has very specific requirements for the reactors, such as safety functions and software settings that are adjusted during manufacturing. Therefore, it is important that the right batch of these specifically manufactured reactors is reserved exclusively for KÖBES.
To ensure this, an OVERATH International employee creates a sales order in the SAP system. In this order, the specific batch of miniature reactors manufactured for KÖBES is noted. In addition, a special item category is specified in this sales order. This item category is an internal identifier in SAP that ensures that the reactors in this batch are automatically assigned to the “individual customer stock” of KÖBES.
For this purpose, the special stock indicators “B – Customer stock” and “E – Order stock” are stored in Customizing.
Now OVERATH International must ensure that the miniature reactors are also available in the correct warehouse. Since OVERATH International has a decentralized warehouse structure with a logistics service provider, the company needs a way to communicate this information.
This is where IDocs come into play. For example, OVERATH International’s SAP system generates an IDoc with type SHP_OBDLV_SAVE_REPLICA. This IDoc contains all the necessary information about the batch and is sent to the corresponding decentralized warehouse. This is done using the SAP Cloud Platform Integration (SCPI) middleware.
The service provider’s WMS then confirms the availability of the batch by sending a confirmation IDoc of type SHP_OBDLV_CONFIRM_DECENTRAL back to the central ERP system. If the batch is not available in the decentralized warehouse or has already been reserved for another customer, the warehouse can indicate this by not sending a confirmation IDoc. In this case, the sales order for KÖBES is also not confirmed in the SAP system.
To ensure that this process works correctly, OVERATH International can test the process by sending a test IDoc (using the IDoc test tool WE19) to the decentralized warehouse. Using the ALE message status monitor (transaction BD87), OVERATH International can then monitor the status of the transmission and exchange of the IDocs.
So this whole batch reservation process is critical to ensuring that KÖBES receives the specifically manufactured miniature reactors they need for their innovative energy project, and that those specific reactors are not inadvertently shipped to other customers. It also ensures that OVERATH International can effectively monitor and manage the inventory and supply chain to provide the best possible customer service.
At the same time, the ALE Message Status Monitor (transaction BD87) allows OVERATH International staff to monitor the status of IDoc transmissions in real time. They can immediately determine if there are any problems with communication between the central ERP system and the decentralized warehouse, or if the batch has been successfully reserved for KÖBES.
Then the delivery can be generated based on the sales order and delivered by the logistics service provider. Just as in the reservation, the latter receives the necessary information through the IDoc of type SHIP_OBDLV_SAVE_REPLICA and reports back the execution via SHIP_OBDLV_CONFIRM_DECENTRAL.
This allows OVERATH International GmbH to ensure high customer satisfaction and efficient processes by carefully managing their batch reservations in the SAP system. It ensures that their customers get exactly what they ordered and that their internal processes regarding warehouse management and order fulfillment run smoothly.
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Contact : Leo Scherhag
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