SAPSAPDemand ManagementDemand Management

Order ManagementOrder ManagementCustomer ServiceCustomer Service

EIN 5346, Logistics EngineeringEIN 5346, Logistics EngineeringSpring 2010 Spring 2010

Supply Chain Planning Supply Chain Planning ProcessProcess

SalesSalesForecastForecast

SALES AND SALES AND OPERATIONSOPERATIONS

PLANNINGPLANNING

DETAILDETAILPLANNINGPLANNING

SCHEDULINGSCHEDULINGANDAND

EXECUTIONEXECUTIONProcurementProcurementManufacturingManufacturing

Master Production Master Production SchedulingScheduling

MPSMPS

Material Req.Material Req.Planning Planning

MRPMRP

Distribution Req.Distribution Req.PlanningPlanning

DRPDRP

DistributionDistribution

ProductionProductionPlanPlan

Rough-cut capacityRough-cut capacityplanningplanning

Detail capacityDetail capacityplanningplanning

PP: ForecastingPP: ForecastingForecasting is the Forecasting is the

foundation of a foundation of a reliable SOPreliable SOP

Accurate forecasts are Accurate forecasts are essential in the essential in the manufacturing sectormanufacturing sector– overstocked & overstocked &

understocked understocked warehouses result warehouses result in the same thing: in the same thing: a loss in profits.a loss in profits.

Forecasts are ALWAYS Forecasts are ALWAYS WRONGWRONG

  

Constant Model: consumption values vary very little Constant Model: consumption values vary very little from a stable mean value.from a stable mean value.

Trend Model, consumption values fall or rise constantly Trend Model, consumption values fall or rise constantly over a long period of time with only occasional over a long period of time with only occasional deviations.deviations.

Seasonal trend: consumption value is characterized by Seasonal trend: consumption value is characterized by a continual increase or decrease of the mean value.a continual increase or decrease of the mean value.

Seasonal Trend Model: consumption value vary by both Seasonal Trend Model: consumption value vary by both trend and season patterns. The system calculates the trend and season patterns. The system calculates the forecast values by means of first-order exponential forecast values by means of first-order exponential smoothing.smoothing.

PP: ForecastingPP: Forecasting

Forecasting ModelsForecasting Models– TrendTrend– SeasonalSeasonal– Trend and SeasonalTrend and Seasonal– ConstantConstant

Selecting a ModelSelecting a Model– AutomaticallyAutomatically– ManuallyManually

Alpha factorUsed for smoothing the basic value. If not specify an alpha factor, the system will automatically use the alpha factor 0.2.Beta factorUsed for smoothing the trend value. If not specify a beta factor, the system will automatically use the beta factor 0.1.Gamma factorUses the for smoothing the seasonal index. If not specify a gamma factor, the system will automatically use the gamma factor 0.3.Delta factorUses for smoothing the mean absolute deviation and the error total. If not specify a delta factor, the system will automatically use the delta factor 0.3.

Simple Exponential Smoothing Simple Exponential Smoothing (Constant Model)(Constant Model)

Simple exponential smoothing is suitable if the historic data Simple exponential smoothing is suitable if the historic data shows a constant trend. shows a constant trend. ●      ●      Smoothing factor settings: Smoothing factor settings:

Seasonal Exponential Smoothing Seasonal Exponential Smoothing (Seasonal Model)(Seasonal Model)

Choose this strategy if your historic values show seasonal Choose this strategy if your historic values show seasonal fluctuations (for example, annual fluctuations) from a fluctuations (for example, annual fluctuations) from a constant base value. constant base value. ●      ●      Mandatory forecast parameter: Mandatory forecast parameter: Periods per SeasonPeriods per Season ●      ●      Smoothing factor settings: Smoothing factor settings: AlphaAlpha ( (Base Value), ), GammaGamma (seasonal components).(seasonal components).

Linear Exponential Smoothing Linear Exponential Smoothing (Trend Model)(Trend Model)

The forecast is calculated according to Holt’s method The forecast is calculated according to Holt’s method and is suitable if historic values display an upward or and is suitable if historic values display an upward or downward trend. downward trend. ●      ●      Smoothing factor settings: Smoothing factor settings: AlphaAlpha ( (Base ValueBase Value), ), BetaBeta ( (Trend ValueTrend Value).).

Seasonal Trend Exponential Seasonal Trend Exponential SmoothingSmoothing

The forecast is calculated according to Winter/Holt’s The forecast is calculated according to Winter/Holt’s multiplicative method and is suitable if historic values display multiplicative method and is suitable if historic values display seasonal fluctuations from an upward or downward trend. The seasonal fluctuations from an upward or downward trend. The fluctuation increases with an upward trend.fluctuation increases with an upward trend.

●      ●      Mandatory forecast parameter: Mandatory forecast parameter: Periods per SeasonPeriods per Season ●      ●      Smoothing factor settings: Smoothing factor settings: AlphaAlpha ( (Base ValueBase Value), ), BetaBeta ((Trend ValueTrend Value), ), GammaGamma (seasonal components). (seasonal components).

PP: Sales and Operations Planning PP: Sales and Operations Planning (SOP)(SOP)

Information OriginationInformation Origination– SalesSales– MarketingMarketing– ManufacturingManufacturing– AccountingAccounting– Human ResourcesHuman Resources– PurchasingPurchasing

Intra-firm CollaborationIntra-firm Collaboration– Institutional Institutional

Common SenseCommon Sense

PP: Demand ManagementPP: Demand Management

PlannedPlannedIndependentIndependent

RequirementsRequirements

CustomerCustomerIndependentIndependent

RequirementsRequirements

SalesSalesForecastForecast

DemandDemandProgramProgram

MPS / MRPMPS / MRP

PP: Sales and Operations Planning PP: Sales and Operations Planning (SOP)(SOP)

Flexible Flexible forecasting and forecasting and planning toolplanning tool

Usually consists Usually consists of three steps:of three steps:– Sales PlanSales Plan– Production PlanProduction Plan– Rough Cut Capacity PlanRough Cut Capacity Plan

Planned at an Planned at an aggregate level aggregate level in time bucketsin time buckets

PP: Demand ManagementPP: Demand ManagementLink between Strategic Planning (SOP) & Detailed Planning (MPS/MRP)Link between Strategic Planning (SOP) & Detailed Planning (MPS/MRP)The results of Demand Mgmt is called the Demand Program, it is The results of Demand Mgmt is called the Demand Program, it is

generated from our independent requirements - PIR and CIRgenerated from our independent requirements - PIR and CIR

BikesBikes

55%55%

TouringTouring45%45%

MountainMountain

70%70%

24 Speed24 Speed30%30%

18 Speed18 Speed40%40%

18 Speed18 Speed60%60%

24 Speed24 Speed

50%50%

Red 24TRed 24T50%50%

Blue 24TBlue 24T40%40%

Red 24MRed 24M60%60%

Blue 24MBlue 24M

Disa

gg

rega

tion

Disa

gg

rega

tion

Product GroupsProduct Groups

MaterialMaterial

PP: PP: Transfer from High Level to Detailed PlanningTransfer from High Level to Detailed Planning

BikesBikes

55%55%

TouringTouring45%45%

MountainMountain

70%70%

24 Speed24 Speed30%30%

18 Speed18 Speed40%40%

18 Speed18 Speed60%60%

24 Speed24 Speed

50%50%

Red 24TRed 24T50%50%

Blue 24TBlue 24T40%40%

Red 24MRed 24M60%60%

Blue 24MBlue 24M

Demand Demand Planning DataPlanning Data

Planning at Planning at Material LevelMaterial Level

Disa

ggregation

Disa

ggregation

Planned Independent RequirementsPlanned Independent Requirements

At Material and Plant LevelAt Material and Plant Level

TransferTransfer

Operative Operative PlanningPlanning

DataData

Planning at Group Planning at Group LevelLevel

PP: Planning StrategiesPP: Planning StrategiesPlanning strategies represent the Planning strategies represent the

business procedures forbusiness procedures for– The planning of production quantities The planning of production quantities – Dates Dates

Wide range of strategiesWide range of strategies– Make-To-Stock (MTS)Make-To-Stock (MTS)– Make-To-order (MTO)Make-To-order (MTO)

Driven by sales ordersDriven by sales orders

– Configurable materialsConfigurable materialsMass customization of oneMass customization of one

– Assembly ordersAssembly orders

PP: Material RequirementsPP: Material Requirements

Planning (MRP)Planning (MRP)

In MRP, the system calculates the net In MRP, the system calculates the net requirements while considering requirements while considering available warehouse stock and available warehouse stock and scheduled receipts from purchasing scheduled receipts from purchasing and productionand production

During MRP, all levels of the bill of During MRP, all levels of the bill of material are plannedmaterial are planned

The output of MRP is a detailed The output of MRP is a detailed production and/or purchasing planproduction and/or purchasing plan

PP: Material RequirementsPP: Material Requirements

Planning (MRP)Planning (MRP)

Detailed planning levelDetailed planning level

Primary Functions Primary Functions – Monitor inventory stocksMonitor inventory stocks– Determine material needsDetermine material needs

QuantityQuantity

TimingTiming

– Generate purchase or production Generate purchase or production ordersorders

PP: Material RequirementsPP: Material Requirements

Planning (MRP)Planning (MRP)

MRP is used to ensure the availability MRP is used to ensure the availability of materials based on the need of materials based on the need generated by MPS or the Demand generated by MPS or the Demand ProgramProgram– 5 Logical Steps5 Logical Steps

Net Requirements CalculationNet Requirements Calculation

Lot Size CalculationLot Size Calculation

Procurement TypeProcurement Type

SchedulingScheduling

BOM ExplosionBOM Explosion

MRP – Net RequirementsMRP – Net Requirements

Procurement Procurement ProposalProposal

Firmed ReceiptsFirmed Receipts

Firmed Orders Firmed Orders or Purchase or Purchase RequisitionsRequisitions

Requirements – Requirements – Planned Ind. Req.,Planned Ind. Req.,

ReservationsReservationsSales Orders, Sales Orders,

Etc.Etc.

StockStockSafety StockSafety Stock

ShortageShortage

Procurement TypeProcurement TypeExternal ProcurementExternal Procurement

– Purchase RequisitionPurchase Requisition– Purchase OrderPurchase Order– Schedule LineSchedule Line

Internal ProcurementInternal Procurement– Planned OrderPlanned Order

Production OrderProduction Order

PP: Output of MRPPP: Output of MRPMRPMRP

Planned OrderPlanned Order

Convert toConvert to

In-HouseIn-HouseProductionProduction

ProductionProductionOrdersOrders

PurchasePurchaseRequisitionsRequisitions

PurchasePurchaseOrdersOrders

ScheduleScheduleLinesLines

ExternalExternalProcurementProcurement

PP: Orders, Orders, OrdersPP: Orders, Orders, OrdersPlanned Order (planning)Planned Order (planning)

– a request created in the planning run for a a request created in the planning run for a material in the future (converts to either a material in the future (converts to either a production or purchase order)production or purchase order)

Production Order (execution)Production Order (execution)– a request or instruction internally to produce a request or instruction internally to produce

a specific product at a specific timea specific product at a specific time

Purchase Order (execution)Purchase Order (execution)– a request or instruction to a vendor for a a request or instruction to a vendor for a

material or service at a specific timematerial or service at a specific time

PP: Execution – Production PP: Execution – Production OrderOrder

Production orders are used to control Production orders are used to control production operations and associated production operations and associated costscosts– Production Orders define the followingProduction Orders define the following

material producedmaterial produced

quantityquantity

locationlocation

time linetime line

work involvedwork involved

resources usedresources used

how to costs are settledhow to costs are settled

PP: Execution – Production PP: Execution – Production OrderOrder

BOMBOM

HowHow

WhatWhat

QuantityQuantity Time LineTime Line

PP: Execution – SchedulePP: Execution – ScheduleCalculates the production dates and Calculates the production dates and

capacity requirements for all capacity requirements for all operations within an orderoperations within an order– Determines a RoutingDetermines a Routing

Operation specific time linesOperation specific time lines

Material Consumption PointsMaterial Consumption Points

– Material MasterMaterial MasterScheduling Margin Key (Floats)Scheduling Margin Key (Floats)

– Work CenterWork CenterFormulasFormulas

Standard Inter-operation TimesStandard Inter-operation Times

PP: Execution – Schedule PP: Execution – Schedule & Release& Release

The time between scheduling and The time between scheduling and releasing an order is used for company releasing an order is used for company checks and any preparation needed for checks and any preparation needed for the processing of the orderthe processing of the order

Once an order has been released it is Once an order has been released it is ready for execution, we can at this timeready for execution, we can at this time– print shop floor documentsprint shop floor documents– execute goods movementsexecute goods movements– accept confirmations against the orderaccept confirmations against the order

PP: Execution – Material PP: Execution – Material WithdrawalWithdrawal

When a production order is created it references When a production order is created it references a BOM to determine the necessary components a BOM to determine the necessary components to produce the material, it then places a to produce the material, it then places a reservation on each of the components reservation on each of the components

Upon release of the order (or operation) you can Upon release of the order (or operation) you can withdraw the reserved materials from withdraw the reserved materials from inventoryinventory– reservation is updatedreservation is updated– inventory is updatedinventory is updated– costs are assigned to the order as actual costs are assigned to the order as actual

costscosts

PP: Execution – PP: Execution – ConfirmationsConfirmations

Confirmations are used to monitor and Confirmations are used to monitor and track the progression of an order track the progression of an order through its production cyclethrough its production cycle– confirmation can be done at the confirmation can be done at the

operation or order leveloperation or order level

Exact confirmation shortly after Exact confirmation shortly after completion of an operation is completion of an operation is essential for realistic production essential for realistic production planning and controlplanning and control

PP: Execution – Goods PP: Execution – Goods ReceiptReceipt

Acceptance of the confirmed Acceptance of the confirmed quantity of output from the quantity of output from the production order into stockproduction order into stock– effects of the Goods Receipteffects of the Goods Receipt

updates stock quantityupdates stock quantityupdates stock valueupdates stock valueprice stored for future valuation changesprice stored for future valuation changesproduction order is updatedproduction order is updated

– Three documents are createdThree documents are createdmaterial documentmaterial documentaccounting documentaccounting documentcontrolling documentcontrolling document

PP: Execution – Order PP: Execution – Order SettlementSettlement

Consists of settling the actual costs Consists of settling the actual costs incurred in the order to one or incurred in the order to one or more receiver cost objectsmore receiver cost objects– receivers could include: a material, a receivers could include: a material, a

cost center, an internal order, a sales cost center, an internal order, a sales order, a project, a network, a fixed order, a project, a network, a fixed assetasset

PP: Execution – Order PP: Execution – Order SettlementSettlement

Settling a Production Order to StockSettling a Production Order to Stock– debt posting is made to the Production debt posting is made to the Production

Order with the value of the materialOrder with the value of the material– difference between the debt posting and difference between the debt posting and

credit posting is posted to a price credit posting is posted to a price difference accountdifference account

MaterialMaterial Prod. OrderProd. Order

1001008080

**Material Price determine by the quantity produced times the Standard Price in the Material **Material Price determine by the quantity produced times the Standard Price in the Material Master.Master.

Price DiffPrice Diff

2020

PP: Execution – Order PP: Execution – Order SettlementSettlement

Costs analyzedCosts analyzed– PrimaryPrimary

MaterialsMaterialsExternal ProcessingExternal Processing

– SecondarySecondaryProduction, Material, and Administrative OverheadProduction, Material, and Administrative OverheadLaborLabor

Cost Analysis ReportingCost Analysis ReportingCalculate and analyze planned costs, target costs, Calculate and analyze planned costs, target costs,

and actual costs of the production order.and actual costs of the production order.Calculate and analyze variancesCalculate and analyze variances

PP: Order SettlementPP: Order Settlement

PP: Order StatusPP: Order Status