SAP, an acronym for Systems, Applications, and Products in Data Processing, is a global leader in enterprise resource planning (ERP) software. Founded in 1972 in Germany, SAP SE has developed comprehensive ERP solutions that integrate various organisational functions into a unified system, including finance, logistics, human resources, and supply chain management. This integration enables real-time data access and streamlines workflows, enhancing operational efficiency and decision-making processes.[1]

For the New Zealand Defence Force (NZDF), implementing SAP through the Defence Supply Redevelopment Project (DSRP) and Project Fusion marked a shift toward a modern, data-driven approach with the potential to strengthen the NZDFs’ ability to meet the evolving demands of military logistics.

Between 1984 and 1994, the Royal New Zealand Army Ordnance Corps (RNZAOC) led the NZ Army effort as part of the significant NZDF initiative to reform supply and inventory management via the DSRP and Project Fusion. Building on earlier projects like the Defence Supply Systems Retail (DSSR) and Defence Supply System Development (DSSD) initiatives, the DSRP set a new standard and laid the foundation for ongoing modernisation, leading to SAP’s adoption as the Defence Inventory Management platform in 1998.

Defence Supply Redevelopment Project (DSRP) – 1984

The DSRP sought to transition from manual processes to computerised supply and inventory management. Initially, the focus was on upgrading NCR accounting machines to mainframe-connected terminals, digitising records with minimal functional enhancements. Although limitations persisted, this shift offered benefits like eliminating manual ledger cards, real-time record updates, and enhanced data availability. Notably, the coexistence of three Item Management Records across various levels (the Defence Codification Agency, retail, and depot) led to duplication, inefficiency, and repeated updates of NSNs (National Stock Numbers).

The DSRP’s objectives were ambitious:

1. Automating supply functions cost-effectively.
2. Improving the management of high-value repairable items.
3. Reducing inventory value while maintaining service levels.
4. Centralising item management.
5. Enabling multi-level data access.
6. Supporting national asset management.
7. Providing analytical and performance measurement tools.
8. Relating inventory levels to demand rates.
9. Enhancing warehousing efficiency.
10. Standardising core functions with adaptable subsystems across services.
11. Providing forecasting and cost assessment capabilities.

Using the SPECTRUM project management system, the DSRP team conducted research and simulations based on NZ Defence Inventory statistics, testing supply and inventory management theories. Recognising the value of learning from allied practices, the team also conducted international reviews with UK, US, and Australian defence forces to avoid redundant explorations and ensure an informed approach.[2]

Defence Inventory Structure and Challenges – 1985

In 1985, the Defence Inventory comprised approximately 600,000 stock lines valued at NZ$155 million ($560,306,361 in 2024), making it one of the country’s largest inventories. Notably, 90% of depot-level items cost less than NZ$100 ($361.49 in 2024) and 69% less than NZ$10 ($36.15 in 2024), enabling prioritised management of high-cost items. The inventory’s Demand Rate analysis highlighted varying item turnover rates, with the majority (71%) categorised as “Too Slow.” Fast-moving, high-cost items required close stock control to prevent stockouts, optimising budget utilisation and customer service.[3]

The mainframe batch-processing system of the time, linked to data capture machines at supply units, relied on manual data transfer via paper tape. The lag between transaction and data integration often rendered central records outdated, limiting operational efficiency.

Implementation of DSSR

Initially rolled out in 1984, the NZDF implemented DSSR as an intermediate solution. DSSR replaced manual ledger cards with electronic records and simplified stock management at retail units. RNZAF Base Auckland led this transition, with 1 Supply Company, RNZAOC in Ngāruawāhia, the first Army unit to transition.[4] By 1985, DSSR allowed units to conduct transactions, generate automated reports, and maintain up-to-date stock files, reducing dependency on higher Headquarters for stock information. The meticulous planning and testing of DSSR implementation instilled confidence in its effectiveness.

Defence Supply System Development (DSSD)

DSSD, the second phase of supply reform, addressed the limitations of NCR accounting machines. Initially established as an expansion of DSSR, DSSD aimed to develop a stable, online supply and replenishment system. Although interim in scope, DSSD laid the foundation for broader supply management enhancements. Developed through a structured project lifecycle, the system addressed fundamental data integrity and management issues within existing supply structures.

DSSD introduced a three-tiered record structure to streamline data handling:

1. Item Identification Record (IIR): Standardised item information across Defence.
2. Item Management Record (IMR): Service-specific data, ensuring consistency.
3. Item Account Record (IAR): Unit-level records linked to IIR and IMR, improving data accuracy and reducing redundancy.

System Enhancements: Provisioning, Receipts, and Stocktaking

DSSD incorporated key supply functions, enabling more accurate provisioning, automated stock level monitoring, and faster transaction processing. Notable improvements included:

• Automated provisioning using a refined Provision Management Code (PMC) for faster processing and workload reduction.
• Receipt processing through warehouse-located Visual Display Units (VDUs), enabling immediate stock updates and more efficient stocktaking.
• Bin Management: Enhanced warehousing efficiency by managing stock by location and expiry, supporting FIFO (first-in, first-out) principles.[5]

Consumer Unit Accounting – 1993

In 1993, the NZ Army implemented Consumer Unit Accounting within its Quartermaster Stores, preparing for an eventual transition to Project Fusion. By trialling this system at 2nd Field Hospital, the NZ Army established a streamlined Q Store management model within DSSD, with full implementation planned for mid-1993.[6]

Transition to SAP

By 1996, with the dust barely settled on the DSSD and Consumer Unit Accounting implementations, the NZDF inventory and supply system continued to evolve significantly. The SAP finance module went live that year, followed by SAP Inventory Management in 1998 and SAP Plant Maintenance in 1999.

SAP’s implementation was intended to be transformative by providing an integrated platform encompassing inventory, finance, and maintenance management. It promised enhanced transparency, accountability, and streamlined workflows across the NZDF. SAP’s ERP structure enabled a comprehensive view of the NZDF’s resources, potentially allowing for more efficient stock control, cost management, and operational readiness. However, SAP’s rollout in the NZDF was not seamless. The broader organisational restructuring—such as the merging of Army logistics corps and trades, commercialisation pressures, service-specific variances and the East Timor Deployment—created friction in the system’s adoption and efficacy. Initial teething issues with SAP exposed gaps between its ambitious capabilities and the practical realities of NZDF’s operational needs, including cultural resistance, institutional disobedience and adjustment issues across the NZDF.

SAP marked a significant leap in data integration and accessibility but has also introduced complexities that did not exist in the manual and earlier computerised systems. While these older systems were labour-intensive, they were simple and provided a level of clarity that more complex ERP systems can obscure. For example, SAP’s reliance on data accuracy and interlinked functions can be both a strength and a weakness; if data entry processes or interservice coordination falter, SAP can lead to cascading errors or inefficient resource allocation. This contrasts with the older systems, where more direct oversight allowed immediate corrective actions, albeit with higher personnel involvement.

The NZDF’s historical reliance on incremental upgrades also indicates a pattern of preferring stability over rapid technological shifts, which may have contributed to SAP’s challenges in achieving full operational potential. Further, legacy systems’ straightforward data architecture may have been more adaptable to ad-hoc military requirements. At the same time, SAP’s complex structure requires rigorous adherence to standard operating procedures, which can be challenging in dynamic military environments.

In summary, the NZDF’s journey from DSSR to SAP encapsulates the challenges of modernising logistics within a traditional military framework. While SAP has undeniably centralised and automated NZDF’s inventory management, unlocking its full potential requires addressing its limitations, particularly regarding adaptability, deployability in operational environments, data integrity, and interservice coordination. A balanced approach incorporating lessons from legacy systems while leveraging SAP’s advanced capabilities could provide the NZDF with a practical, adaptable logistics system tailored to its unique operational demands.

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Notes

[1] “What is SAP ERP?,” 2024, accessed 11 November, 2024, https://www.sap.com/products/erp/what-is-sap-erp.html.

[2] Lou Gardiner, “Defence Supply Redevelopment Project,” RNZAOC Pataka Magazine  (8 March 1984): 14.

[3] Lou Gardiner, “The Current Defence Inventory,” RNZAOC Pataka Magazine  (8 March 1984): 15-18.

[4] Frank Ryan, “DSSR  Implementation Update,” RNZAOC Pataka Magazine  (8 March 1984): 19.

[5] Grahame Loveday, “Defence Supply System Development,” RNZAOC Pataka Magazine 1/87  (April 1987): 49-53.

[6] Kevin Riesterer, “Consumer Unit Accounting,” RNZAOC Pataka Magazine 1993  (July 1993): 9.