Dear,
Logistics chains have been under great pressure since the fall of 2020. When societies recovered activity after coming out of the COVID-19 confinements, and consumption recovered, including a certain rebound in demand, the goods began to to accumulate in the ports, freight prices skyrocketed and inventories began to drop.
Complex supply chains have a tendency to behave this way. The complexity of the supply chain increases its entropy, and when an unexpected event occurs, the disruption is transmitted through the system, multiplying its effects. This nonlinear behavior is called the bullwhip effect, also known as the Forrester effect, and was first described by MIT Professor Jay Forrester's, in his book Industrial Dynamics (1961).
In 1984, the Israeli Physicist Eliyahu M. Goldratt proposed the Theory of Constraints as a solution to the non-linear behavior of organizations, described by Systems Dynamics. According to this Theory of Management, Organizations can achieve their Objectives, managing a reduced number of magnitudes or restrictions. Dr. Goldratt published his proposal in the management-oriented novel The Goal (1984).
During the last 30 years, SAP has transformed organizations by establishing a common language that allows them to integrate their processes, manage their constraints holistically, reduce their entropy and improve efficiency.
First, integrating intracompany processes, then intercompany processes within and outside its group of companies.
In 1998 SAP released its Advanced Planner & Optimizer software, which following the proposals of the Theory of Constraints, has multiplied the efficiency of Supply Chains and reduced the number of their disruptions.
Unfortunately, the economic system is under a level of stress that is not comparable to any other in the last 30 years. The complexity of supply chains has grown exponentially as a result of globalization, and in the last 3 years they have suffered the impact of several events with great disruptive potential. It was first hit by the worst pandemic since the 1918 influenza pandemic, followed by rising raw material and energy prices, multiplied by Russia's military intervention in Ukraine.
In this stressed environment, not all organizations are experiencing the impact of disruption in the same way. Those that have invested efficiently in implementing the Technology and Processes proposed by the best logistics practices (SAP Best Practices), have a greater capacity to manage bottlenecks, proposing alternatives, prioritizing corrective actions, reducing costs and improving, within possible, the level of service.
By reducing costs and improving the level of service, more efficient companies are improving their competitive position against those that lack these capabilities, improving their results, market capitalization and future solvency.
Integrating the business processes between the supply chain partners allows them to detect and manage the bottlenecks with the greatest disruptive potential in the system as a whole. Reducing the stress of these bottlenecks improves the resilience of the entire system, something critical when we manage complex, non-linear, highly entropic systems that can experience chaotic behavior.
The financial system is also a complex, non-linear, highly entropic and potentially chaotic system. The destructive potential of periodic financial crises and recessions, and the less frequent but much more destructive depressions, are ample proof of this.
I have worked as a SAP Consultant for 30 years, first in Real Economy (SD, MM, PP, APO, BIW, etc.) and since 2007, also as a SAP Analytical Banking Consultant.
From my first day as a SAP Banking Analytics consultant, I was impressed by the lack of integration of banking processes and the destructive potential of its disruption, as we all experienced in 2008.
As befits the value proposition that the company has offered for half a century, SAP Banking has solid proposals for the integration of financial processes, with benefits analogous to those that this integration has brought to the real economy. However, and despite what many of us thought in 2009, after the financial crisis of the previous year, the transformation of processes in the Financial System is far from having taken place.
Moreover, in the same way that the integration of processes in the real economy began between departments of the same legal entity but grew to incorporate external partners, the Financial System should integrate the processes of the real economy and is far from achieving it.
This is serious because the stressful economic environment, in addition to debt levels unseen in the history of capitalism, are a powerful disruptive force in the financial system. This disruptive force has the potential to destabilize the system and cause non-linear effects and without integration we will be unable to manage the bottlenecks, as proposed by the Theory of Constraints.
I detected this risk in 2010 and started working on a process integration proposal based on SAP Best Practices for financial services and real economy industries, and on top of it, the principles described by System Dynamics and the Theory of Constraints.
During these years I explained the proposal to other colleagues and we put together a team to integrate financial and non-financial processes supported by SAP technology.
Our proposal measures the Capital and Liquidity consumed and generated by the processes of the real economy, detecting the deficits and surpluses of capital and liquidity of the process. With this information, it proposes financial instruments to offset these deficits and surpluses, optimizing the consumption of capital and liquidity of the system.
We are working on presenting our system to the market and looking for business partners and investors. If you are interested, do not hesitate to contact me at ferran.frances@capitency.com
Looking forward to reading your opinions.
Kindest Regards,
Ferran Frances.
www.capitency.com
Join the SAP Banking Group at: https://www.linkedin.com/groups/92860
Visit my SAP Banking Blog at: http://sapbank.blogspot.com/
Let's connect on Twitter: @FerranFrancesGi
Ferran.frances@capitency.com
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