Uwe Goehring's Blog

strategy 10 for a Make To Stock policy?

Uwe Goehring — Tue, 21 May 2013 19:36:00 GMT

as we all know, the most used strategy is 40... Planning with Final Assembly. 40 allows for the Sales Orders to consume the forecast and if the Sales Orders exceed the VSF forecast, the available inventory is reduced and MRP generates a planned order to cover the additional requirement. most people think that is a problem since a planned order is created that falls right into the production schedule.

Not true if you do the right thing in the availability check !

When Sales Order quantities exceed forecasted quantities (and safety stock), the availability check can not confirm the full quantity to the requested delivery date and provides a delivery proposal. Only if you confirm the delivery proposal and do NOT fix the date, the newly generated planned order disturbs the production program. Would you and your customer have consented to the delivery proposal and fixed the date, the resulting planned order would have been scheduled far enough out. Many companies decide not to fix the date, so that the demand gets transferred to today's date and just in case the production scheduler will be able to produce a miracle, backorder processing would pick it right up. That miracle doesn't happen very often.

So if you run a production line at full capacity and you let - according to above - orders drop in anytime by not fixing dates, your production scheduler goes crazy.

Then comes the 'fix-it-all' strategy 10. And people wonder why it doesn't fix a thing. All that strategy 10 does is taking sales order demand out of MRP. So if your forecast is exceeded by additional demand, no one will know about it. But you know what? The demand is still there! And it still does not get fulfilled, because no one can see it. No one but the customer of course.

When you use strategy 10, your forecast is of the requirements type LSF. An LSF is not consumed by Sales Orders but by the goods receipt from production. Sales Order demand will not reduce available quantity in MD04 and is therefore not MRP relevant. Additional demand does not trigger the generation of a planned order to cover the demand.

And that is alright if - and only if - you tell your customers that if they are a customer who wanted more product than what was forecasted, they will have to wait until the next receipt based on next month's forecast comes in.

And you know how to tell the customer and make sure everybody in your organization knows about it? You fix the flippin' date ... in which case you might as well stick with strategy 40!

Flexibility versus "Rigidity" in SAP - there is more to it than what comes out of the box.

Uwe Goehring — Mon, 20 May 2013 17:16:19 GMT

If you decided to manage your operations with SAP, chances are that there are various opinions out there about the effectiveness of your SAP implementation and how well the software performs. In my humble opinion, the success does not primarily (or even secondarily) depend on new technology or the use of new software like APO (regardless of what's communicated at SapphireNow or other conferences). It depends on how well you are engaging the tool you have.

It is a myth often used, that states, that SAP software is rigid. People say “you have to do it the SAP way”. Nothing could be further from the truth. Ask those people what the “SAP way” is, and chances are they can’t tell you. There is no “SAP way” on how to replenish and order raw materials, so that you achieve high service levels with low inventories. There are many pre-configured replenishment types provided in the respective table in the delivery of SAP’s suite of software, but that is only a start – and not the “rigidizing” package. You will find a PD there, a V1, a VV and the lot size HB. And someone who says that this is all you can use, is plain out wrong. As an example: a reorder point method that takes external requirements during the replenishment lead time into account (V1), works very well with a lot size procedure that increases the order quantity by exactly those requirements in the future, so that we end up with inventory above the reorder point when the stuff comes in. In SAP's standard delivery the 'HB' does not increase the lot size by those requirements! And maybe that is ok. Very often it is not.

But if your adviser claims that it is "the SAP way of doing things" you must get your biggest running back and crush through the defense as hard as you can... otherwise you won't score all season, because that adviser will neither protect you as a quarterback, nor will they open up any lanes for you to run through.

So add another HB (please don't call it ZB - see my blog "When SAP replaces ZAP") and have that one add external requirements. Now you have choices in a flexible (not rigid) tool to manage your operations.

Only when you don’t understand how to customize the SAP software, you will be limited by the delivery that comes out of the box. The real value of using SAP software, lies in the use of a very flexible and sophisticated tool to build your perfect replenishment system (and S&OP strategies, and production scheduling methods, and planning strategies) that stretches from materials planning through purchasing and the eventual availability check in the production order; supported by inventory analysis, exception monitoring and service level measurements that provide you with valuable insight to monitor the performance... and... to change that replenishment system (I call it a policy - see my blog on policy setting) when the situation changes and asks for it.

SAP ERP rocks!

recorded session on effective production scheduling methods in SAP ERP

Uwe Goehring — Sat, 18 May 2013 13:18:58 GMT

here is the re-recorded session I was presenting at this year's ASUG / SAPPHIRENOW conference...

http://www.youtube.com/watch?v=TnbxeezYMKk

SAP ERP on HANA

Uwe Goehring — Fri, 11 Jan 2013 01:09:29 GMT

Today I was invited (thanks @finnern - as an SAP Mentor and bigbyte representative - to participate at the announcement that SAP's business suite now runs on HANA, a superfast, real-time, in-memory database technology. I attended in New York City and the launch took place in parallel in Frankfurt and Palo Alto.

SAP HANA is data base technology and sometimes also called in-memory computing. I certainly don't want to (snd can't) go into details, but it makes things a whole lot faster. So far it was used mainly for BW analytics and CRM and today it was announced that HANA is also available to run the business suite, ERP, the application... whichever you want to call it.

That is very good news, because it means that your transactions can run up to 1000! times faster than they run today. Batch processing will be unnecessary and it opens up very wide windows on 'what if' analysis, reporting, production scheduling heuristics and forecasting and S&OP. And you could start the planning run a thousand times a day! Seems crazy? Maybe at first glance but think about the opportunity to keep everything current at all times. Hasso's original dream or (promise?) - real time is what the R stands for in R/2 - come true.

Hasso Plattner, the man himself, spoke first. "Design thinking is what got us here... and we are now finally dealing with the most important person... the consumer... the user". I love that. A technology company coming around. The end purpose or final cause in mind. And he admitted, just a little bit, that this was not always the case. But by saying 'finally' he sounded to me like that was always on his mind.

In fact I do believe that HANA will enable things for the user that are hard to predict yet. The launch was compared to the release of R/3 twenty years ago and I do not disagree. To have free reign on transaction usage because there is no resource issue anymore will prove to be invaluable to the performance of a materials planner and their daily work.

However, here is a word of caution: to run a falsly configured process much faster produces chaos in a blink of an eye. This stuff is for the companies that have their foundation in order and not for the techno enthusiast who does not know how to keep the inventories down whilst maintaining great service levels.

And at least one of those four poster-customers that were shown today needs a little more groundwork before they run that SAP run company too fast.

Keep your house in order, then speed it up and achieve great results. And keep in mind what Hasso says "...finally we are with the consumer!"

https://www.youtube.com/embed/QEuvpgBaerM

Metaphysics and the SAP supply chain?

Uwe Goehring — Wed, 26 Dec 2012 21:02:50 GMT

When Aristotle took on Metaphysics he wrote about four causes with which an object can be explained; material, efficient, formal and final. A material cause is the stuff a thing or system is made of, the efficient cause is the thing which made it or changes it. The formal cause, and now it gets interesting, is the system's essence or arrangement and the final cause is the purpose of the thing or system.

Now, if operations management with (or without) SAP underlies the still irrefutable laws of metaphysics, then I want to ask the question about how much of the formal and final causes we care about in our efforts to run and continuously improve supply chains. Obviously we do care a lot about the material and efficient causes. As a consequence we pay a lot of attention to the study of business process and product development, but underlying business dynamics and purposeful outcomes fall through the cracks.

All too often we can see slogans, buzzwords, 'philosophies' and entire movements with little or no final or formal goal orientation. Speaking of the goal: Eliyah Goldratt had formulated a final cause with his book 'The Goal' almost 30 years ago. His interpretation of The Goal for a manufacturing operations system (our final cause here) was: "to make money now and in the future". Wallace and Hopp updated this essential purpose by adding "...in ways that are consistent with our core values" in their book 'Factory Physics'.

Once we consider the final cause in our operations management system, we need a way to get there. This is where the formal cause comes into play. The formal cause of a manufacturing operations system is its structure; its underlying principles, governing laws; its essential 'form'. When constructed the right way, it provides a framework of reference, a scientific basis, a guiding model with which policies may be simulated so that we can anticipate what steps need to be taken to achieve The Goal.

Maybe we can now agree that any improvement or change efforts guided by material and effective causes only, may be exclusively driven by experience and guesswork. Once we are adding the final cause to have a purpose to work towards to and a formal cause with a model, where we can practice and simulate policies... then we can develop intuition, anticipate results, measure progress and generally move into a better world.

So please allow me at this point to add my own little 'philosophic' part so that we could say: "...the final cause or essential purpose of a manufacturing operations management system is to make money now and in the future in ways that are consistent with our core values and...the formal cause or scientific basis of a manufacturing operations management system provides us the framework to construct policies to achieve the final cause"

In that sense it might be worthwhile to consider - next to material and effective causes - a well defined goal and employ a scientific approach in any business improvement program. Easier said than done... but what's the alternative? eliminate muda? that's like saying "I want to be a better cook" and does not provide any guidelines or goals on how good you want to become or how you can get there.

Air travel in modern times

Uwe Goehring — Sat, 24 Nov 2012 22:48:57 GMT

I never flew in the 60s or 70s, but I hear it was a fun thing to do and had a lot of glamour and excitement to it. When I started going on trips that required air travel in the 80s, it was still something I really looked forward to and enjoyed greatly, while I was in the air. In the early 90s I joined the frequent flyer clubs and from then on it was one of my favorite things to do, getting preferred treatment all the way and collecting miles for free trips and upgrades into First Class. The business of supply chain optimization around the world was fun and exciting and not stressful at all.

Fast forward to yesterday: I'm glad its over! Even though I was flying Business First, I did not enjoy yesterdays flight from FRA to EWR. I even dread these things now. I really don't want to get into details - since I know that everybody knows what I am talking about - but flying is not enjoyable or exciting or glamorous anymore.Period.

Just the night before, I saw on TV how the airline industry is supposed to get revived by the Dreamliner, an airplane that Jeff Smisek from United calls the "worlds leading airplane". He talks about the fantastic colors and lighting inside the cabin, the windows darken and lighten by a push of a button and in the bathroom a single button lowers the lid and flushes the toilet at the same time. Wonderful! But the seats are no different! One of the commentators: "you still have only 17 inches to your *** to fly 17 hours to Tokyo, crammed with people left and right to you". Who cares about the lighting when the only thing you have to do on an airplane is staying in your seat? And no one even cares about that... when they configure the seating charts on the new planes.

I am at a point now, where the only thing that I want to do on an airplane is to sleep. Melatonin is my weapon of choice and if an airplane manufacturer would ask me what to do to build better planes, I would ask for anything that puts me out: release some gas into the cabin that knocks everybody out after 2 minutes, hand out narcotics (legally o course) or lull me into sleep with music... anything that makes me not to experience the flight at all. Isn't that sad? That the product these airlines sell us, is so bad that no one wants to experience it? Shouldn't they ask themselves: "why is everybody complaining and what can we do to have happier customers?" But customer satisfaction is very obviously not a thing that they care too much about.

Just this year Continental was taken over by United. I flew regularly on Continental since 1992 and I really don't know if it is United but this year specifically, I have experienced a sharp rise in unacceptable and inconvenient incidents on my trips. Like I said: Its not like it used to be.

On the United program they now give us frequent flyers a contingency of upgrades. Unfortunately they expire at the end of the year but, even worse, they don't just let you upgrade. It's all dependent on whether they can still make money selling the seats. Just now I tried to use one of my global upgrades, but received a message 'no seats available in front cabin'. So out of the 6 global upgrades I had "at my disposal", I have 3 left over which expire on 12/31. And that even though I flew 14 international legs in 2012. So what's the purpose?

You also receive 4 upgrades which you can use within the continental US. Every frequent flyer - whether they fly 25,000 miles a year or 150,000 - will get domestic upgrades. For a flyer like me, who travels between 100,000 and 130,000 miles a year, this means 4 flights in business class and about 35 in coach. Back in the good old "Continental" days, I got upgraded on 95% of my flights. And please don't get me wrong. I don't want to disrespect less frequent travelers, but I wouldn't mind sitting in coach on 2 or 3 round trips a year. However, if you sit on a plane twice a week and you have to work right off the flight, it is a very tiring experience.

enough complaints: I am home now and won't have to travel for 10 days. Yeeha! I am really excited and happy...

on SAP consulting ... and how to use the six aptitudes and more of the right side of your brain

Uwe Goehring — Sat, 20 Oct 2012 15:59:08 GMT

My favorite book right now is Daniel Pink's "A Whole New Mind". A simple book in many ways, and a most profound and well-researched one as well. At about 250 or so pages, it's a quick read. "The future belongs to a different kind of person," Pink says. "Designers, inventors, teachers, storytellers — creative and empathetic right-brain thinkers whose abilities mark the fault line between who gets ahead and who doesn't." Pink claims we're living in a different era, a different age. An age in which those who "Think different" may be valued even more than ever.

"...an age animated by a different form of thinking and a new approach to life — one that prizes aptitudes that I call 'high concept' and 'high touch.' High concept involves the capacity to detect patterns and opportunities, to create artistic and emotional beauty, to craft a satisfying narrative....High touch involves the ability to empathize with others, to understand the subtleties of human interaction..."

— Dan Pink, A Whole New Mind

What I found particularly valuable in Dan Pink's book were the "six senses" or the "six R-directed aptitudes" which Pink says are necessary for successful professionals to posses in the more interdependent world we live in, a world of increased automation and out-sourcing. You can quibble over parts of his book if you like, but I think there is no denying that these six aptitudes are indeed more important now than they ever have been. And I am convinced that us SAP consultants need to apply them more than ever.

Is there a new way of SAP consulting? I am not sure, but what I know is that the old way needs a lot of improvement. Following is more detail on Daniel Pink's six aptitudes - Design, Story, Symphony, Empathy, Play, and Meaning - and me taking a shot on how each may make us a better SAP consultant:

- Design. To many business people, design is something like what roller skates are for a defensive lineman. It's not mission critical. In our field, design is necessary (when we present ideas using slides, show data tables in a spreadsheet or build a model using lego - as I love to do). But most of us decorate instead. There is a difference between design and decoration:

"Decoration, for better or worse, is noticeable, - sometimes enjoyable, sometimes irritating - but it is unmistakably *there.* However, sometimes the best designs are so well done that "the design" of it is never even noticed consciously by the observer/user, such as the design of a book or signage in an airport (i.e., we take conscious note of the messages which the design helped make utterly clear, but not the color palette, typography, concept, etc.). One thing is for sure, design is not something that's merely on the surface, superficial and lacking depth. Rather it is something which goes "soul deep."

— Garr Reynolds - author of Presentation Zen

"It is easy to dismiss design — to relegate it to mere ornament, the prettifying of places and objects to disguise their banality," Says Pink. "But that is a serious misunderstanding of what design is and why it matters." Pink is absolutely right. Design is fundamentally a whole-minded aptitude, or as he says, "utility enhanced by significance."

Garr Reynolds says: "Design starts at the beginning not at the end; it's not an afterthought. If you use slideware in your presentation, the design of those visuals begins in the preparation stage before you have even turned on your computer (if you're like me), let alone fired up the ol' slideware application. It's during the preparation stage that you slow down and "stop your busy mind" so that you may consider your topic and your objectives, your key messages, and your audience. Only then will you begin to sketch out ideas — on paper or just in your head — that will soon find themselves in some digital visual form later. Too much "PowerPoint design," as you know very well, is nothing more than a collection of recycled bullets, corporate templates, clip art, and seemingly random charts and graphs which are often too detailed or cluttered to make effective on-screen visuals and too vague to stand alone as quality documentation."

We have to get better at designing our means of teaching, communicating, convincing and presenting of ideas.

- Story: Facts, information, data; it has never been more readily available. Especially in our profession. But we are using it, dealing with it and processing it in a rather boring and unemotional way...says Pink, "What begins to matter more (than mere data) is the ability to place these facts in context and to deliver them with emotional impact." Cognitive scientist Mark Turner calls storytelling "Narrative imagining," something that is a key instrument of thought. We are wired to tell and to receive stories. "Most of our experiences, our knowledge and our thinking is organized as stories," Story" is not just about storytelling but about listening to stories and being a part of stories.

I always get a much better reception if I wrap my advice with a story. Merely explaining the difference between 'pull' and 'push' is not nearly as effective and memorable, as telling the story of how the State of California did not allow train wagons to be pushed by the locomotive anymore. This came after an accident, where a 'pushed' train crashed into a Jeep left on a crossing and had a much more devastating effect than any pulled train could have ever had.

Story can be used for good: for teaching, for sharing, for illuminating, and of course, for honest persuasion.

- Symphony: Focus, specialization, and analysis have been important in the "information age," but in the "conceptual age" synthesis and the ability to take seemingly unrelated pieces and form and articulate the big picture before us is crucial, even a differentiator. Pink calls this aptitude Symphony:

"Symphony...is the ability to put together the pieces. It is the capacity to synthesize rather than to analyze; to see relationships between seemingly unrelated fields; to detect broad patterns rather than to deliver specific answers; and to invent something new by combining elements nobody else thought to pair."

Doesn't this sound like integration? The best consultants can illuminate the relationships that we may not have seen before. They can "see the relationships between relationships." Symphony requires that we become better at seeing, truly seeing in a new way. "The most creative among us see relationships the rest of us never notice," Pink says. Anyone can deliver chunks of information and repeat findings represented visually in spreadsheets and powerpoints, what's needed are those who can recognize the patterns, who are skilled at seeing nuance and the simplicity that may exist in a complex problem.

Symphony in the world of SAP consulting does not mean dumbing down information into soundbites and talking points so popular in our industry To me, Symphony is about utilizing our whole mind — logic, analysis, synthesis, intuition — to make sense of our world (i.e., Sales & Operations Planning), finding the big picture and determining what is important and what is not. It's also about deciding what matters and letting go of the rest. A symphonic approach to our job and our ability to bring it all together for our customer will be greatly appreciated

- Empathy. Empathy is emotional. It's about putting yourself in your customer's shoes. It involves an understanding of the importance of the nonverbal cues of others and being aware of your own. Good consultants have the ability to put themselves in the position of the user. This is a talent, perhaps, more than it's a skill that can be taught, but everyone can get better at this. Everyone surely knows of a brilliant adviser who seems incapable of understanding how anyone could possibly be confused by his (or her) explanation of how to create a production schedule using repetitive manufacturing in SAP — in fact he's quite annoyed by the suggestion that anyone could "be so thick" as to not understand what is so "obvious" to him.

We can certainly see how empathy helps a consultant in the course of an engagement. Empathy allows a consultant, even without thinking about it, to notice when the audience is "getting it" and when they are not. The empathetic consultant can make adjustments based on his reading of this particular Users group. This is important since I have witnessed all too often how advisers impose their strict methodology without even knowing if it can help. As an example, I know of a consulting company which comes into every customer site with the pitch to "reduce 30% of their inventory, increase service levels by 20% and fix their exception handling and the way they do inventory analysis (without knowing the way they do it today)". That kind of behavior has absolutely nothing to do with empathy. It rather is a desperate attempt to get a revenue-rich project when one doesn't care about the customer's real pain and needs.

- Play: In the conceptual age, says Pink, work is not just about seriousness but about play as well. Pink quotes University of Pennsylvania professor, Brain Sutton-Smith who says, "The opposite of play isn't work. It's depression. To play is to act out and be willful, exultant and committed as if one is assured of one's prospects."

Indian physician Madan Kataria points out in Pink's book that many people think that serious people are the best suited for business, that serious people are more responsible. "[But] that's not true," says Kataria. "That's yesterday's news. Laughing people are more creative people. They are more productive people." Somewhere along the line we were sold the idea that a real business project must necessarily be dull, devoid of humor and something to be endured not enjoyed.

Let's employ more lego models, the beer game as a way to visualize the impact of the bullwhip effect and bathtubs to demonstrate Little's Law. It will raise the interest level but, more important, take the seriousness and dullness out and put some fun and smiles in. As Pink points out, "Laughter is a form of nonverbal communication that conveys empathy and that is even more contagious than the yawn..."

- Meaning: I don't want to put too fine a point on this, but performing well on an SAP project, is an opportunity to make a small difference in the world (for your customer, their employees, your fellow consultants). An SAP project gone bad can have a devastating impact on your spirit and on your career. But an optimization which goes insanely well can be extremely fulfilling for you and everybody involved. Some say that we "are born for meaning" and live for self-expression and an opportunity to share that which we feel is important. If you are lucky, you feel passionate about your job. If so, then it's with excitement that you look forward to the possibility of sharing your expertise — your story — with others. Few things can be more rewarding than connecting with someone, with teaching something new, or sharing that which you feel is very important with others.

Frankly, the bar is often rather low. SAP customers are so used to less-than-excellent performance that they've seemingly learned to see it as "normal" even if not ideal. However, if you are different, if you exceed expectation and show them that you've thought about them, done your homework and know your material, and demonstrated through your actions how much you appreciate being there and that you are there for them, chances are you'll make an impact and a difference, even if it's just in the smallest of ways. There can be great meaning in even these small connections

Getting the opportunity to work with SAP users and having the stage to present my ideas, has been most rewarding to me. It's an opportunity to share knowledge and experience, broaden my own network, and it serves as good practice. What could be better?

...the traveling supply chain optimizer goes on a road trip

Uwe Goehring — Wed, 09 May 2012 03:40:59 GMT

During the months of August and September I will hit the road and visit anybody interested between New York and Seattle, Miami and Montana for a guided two day workshop using your SAP system.

if you want to:

- have a new look at your master data settings that support your planning process (lot sizing, MRP type, safety stocks, strategy etc.)

- connect the sales department with the production planners using availability checking rules, demand smoothing and the use of the appropriate strategy groups

- measure the performance of your supply chain (inventory efficiency, production line efficiency, planning efficiency, forecast accuracy, service levels and fill rates)

- introduce a more effective materials planning process with exception monitoring, range of coverage planning and demand / supply balancing

- use SAP ERP to implement lean principles like 'pull' through Kanban, sequencing and heijunka leveling, line balancing and conWIP procedures

- create a more agile supply chain with demand driven planning and execution of a product mix

- automate your procurement and replenishment process

- empower your user community with education on all standard replenishment strategies, planning strategies and production scheduling procedures

- implement decision systems and analyze your inventories and products on a regular basis for more efficient planning

...then you want to have me drop by. I will spend two fun filled days having a quick look at the state of your SAP supply chain and quickly move into sessions with your planners, buyers, materials controllers and management to make valuable recommendations and also get some quick wins on the low hanging fruit.

Often it just takes a bit of change in thinking and perception (through eye opening explanations on how this stuff works) that makes a big difference. There is so much potential in the use of all these, mostly hidden, standard functions in SAP and it often just takes someone pointing you in the right direction.

please drop me an email to uwe@bigbytesoftware.com and I will send you the details and start the conversation

For the production line is dark and full of errors...

Uwe Goehring — Mon, 07 May 2012 00:11:00 GMT

To kill some time before the next episode of Game of Thrones airs, I'd like to write about the undeniable fact that, at least from what I have seen, not very many SAP using companies connect the plan with the schedule. For all of you who do, I profoundly apologize and ask you to please share your successes in this forum so that we all get a better grip on this dilemma.

In every supply chain there are three phases: the planning phase, usually done by Sales & Operations Planning, where we estimate and try as best as we can to come up with a senseable plan to make and buy in the right quantity at the right place at the right time (the right product).

Then there is the scheduling phase. Here we committ to the plan (usually a shorter time frame). We send out purchase orders to the vendor and turn planned orders into production orders which will be scheduled on the line.

At last there is the actuating phase where things are actually happening. Goods receipts, confirmations, kanban containers are emtied and components are consumed.

Of course, the ultimate goal is to align all three of these phases as close as possible. But if we're not able to align the plan with the schedule, then there is no way that what's actually happing is near anything we tried to anticipate.

So... Before you wonder why this stupid SAP system does not help you out, check on the alignment between S&OP and the production schedule for the lines.

Every company I have seen has good service levels, decent inventories and availability. Otherwise they would be out of business. The question is always: how much manual effort do you have to go through to stay in business? And to what degree are you letting SAP do the heavy lifting?

You probably heard it a million times: "don't work in silos". Well... don't do it! Let your planners work with your schedulers so that the line won't be dark and full of errors but "bright and beautiful and full of hope" (as Melisandre would say).

Here are a few thoughts and ideas on how to improve on that interface:

1. Create a statistical work center for every one of your lines. Make sure the uptime for the line is maintained in it for at least the planning horizon. Then make sure that your planners use that uptime to check their planned numbers for feasability on the line. Im standard S&OP there are great ways to do that.

2. Make sure the schedulers don't schedule the line for 100% (or even beyond). Variability happens and a line scheduled at capacity has no agility tat all.

3. Classify the products you run on the line and assign them to either MTO, MTS or FTO (finish to order) and stick with it! What that means is that you can't designate an item to be MTO and then have somebody put a forecast on it or check the availability without replenishment lead time. But you have to know that what's MTO today might be MTS tomorrow. Perform a classification regularly (in another blog post I mentioned Marc Hoppes Monitors and simulation tools which cover white spots in the SAP functionality)

4. Put KPIs in place that track the difference between plan, schedule and actual and have the planners meet with schedulers to discuss. This is not about blaming each other. After all it is impossible to have a perfect plan (the forecast is always wrong, right). The exception messages in MD06 and MD07 together with the traffic lights provide a beautiful basis for a regular meeting like that; if fully understood and rightly used.

Like with other aspects in life, it is important to talk with each other and to fully understand the tools we have at our disposal. My suggestion is to make sure everybody knows as much as possible about all the features and functions available in SAP and how to fine tune them. But regular meetings are imperative. If the planner does check with the scheduler and vica versa, then the line might be running bright and your production schedulers (usually the people who take the blame) won't experience any terrors.

standard S&OP with S076... I strongly propose to perform a rough capacity check for the line.

Uwe Goehring — Sun, 06 May 2012 20:08:30 GMT

Standard S&OP uses information structure S076 which is delivered with level-by-level planning and some standard characteristics and macros. It is also based on a product group hierarchy which you can set up to your liking, however, you can only use product groups in the hierarchy and material master records with their plant code on the lowest level of the hierarchy. Should you desire anything different from these defaults, you should opt for Flexible Planning where, as the name implies, there are many flexible options.

The product group hierarchy is maintained in MC84, MC85 and MC86 and contains all products which need to be forecasted. You can maintain a product group hierarchy and the planning figures are aggregated and disaggregated throughout the hierarchy using proportional percentage values. These proportional values may be set manually or automatically using past historical data.

Typically a product group represents all MTS and FTO members produced on one given production line. This will eventually ensure a smoothing of the production program for this line. Note that there will be MTO products as well to be scheduled on the line. Therefore, and for a number of other reasons, the line should never be planned to 100% of its capacity.

After the hierarchy is setup, the plan can be put together. Planning with product groups happens in MC82 for the active version.

In the planning table for information structure S076, you can generate a sales forecast based on historical consumption, any characteristic from the SIS, a budget from COPA or maintain your own figures manually. Another option is to import that sales figure from a spreadsheet or other external system.

Next you should maintain ‘Target Days of Supply’. This is the number of days of inventory coverage your plan wants to have in inventory as a safety over and above your planned sales. Since your sales will never be the same as what your forecasted them to be, this inventory coverage will cover the variability in your sales process. Should you maintain 5 days of supply for the end of every period, then you can cover additional sales for an extra 5 days. You may also just simply set a target stock level to be in safety inventory at the end of the period.

Once you run the macro to create the production program based on Target Day’s of Supply, the system calculates what needs to be produced in order to cover the projected sales and still have some safety in inventory to counter any variability.

Now you can see your projected production program – still within the planning part; we can’t execute on this yet - that needs to be executed to make sure we can produce all product group MTS member’s forecast and carry some safety stock. This production program should now be checked against available capacity on the line. As mentioned above, it makes sense to set up product groups which contain all MTS members that are run on one particular production line. This gives us the ability to now check on that line’s capability to execute the production requests and meet the projected sales.

As you can see in figure ??, there is a display for the capacity balance in every period at the bottom half of the screen. The available capacity (in this example, hours) are taken from a statistical work center which was maintained for this production line and the capacity load comes from the orders that were created using a rough-cut planning profile (acts like a routing) and the figures in the line ‘Production’. Using these two values, the utilization is calculated and displayed for every period in question. Since the production schedulers maintained their future available capacity in the statistical work center, the planner can now see the feasibility of her plan, given the planned available capacity. Here is where sales planning must come to a consensus with the production planners.

Should there be over utilization, one can discuss moving production quantities into earlier periods with under capacity or the possible addition of capacity (more workers or another line) to meet growing sales. In case of under capacity, you might consider using the line for partial production of products from another product group.

Note that one should never plan for 100% utilization. Variability in form of a difference between forecast and actual sales or a line being down and even preventive maintenance can be buffered by open capacity. Also consider that not all products that are manufactured at this line are included in the product group. There might be some MTO items which are naturally not planned with a forecast. These MTOs should be planned by reserving some capacity, so that any sales order dropping in for any MTO product can be included in the weekly schedule. More about that when we discuss ‘Product Wheel’ scheduling.

After the plan is smoothed in its first iteration, we need to hand it over to operational scheduling. This is done via ‘Transfer of Demand’ where further smoothing happens and actual orders are generated by MRP using lot sizing procedures, lead times and detailed or finite available capacity. During the transfer of demand, the strategy group^{^[1]} plays an important role.

When demand is transferred, through a forecast or a sales order, the strategy which is set in the material master’s MRP3 screen, determines the requirements type. And the requirements type controls the actions executed in operational planning and execution. As an example it may call for consumption of a forecast when a sales order is entered. Or it may generate a customer specific section in the stock / requirements list, so that product inventory can be managed for each customer separately. Another strategy, 50 and 52, governs that any planned orders generated by MRP to fulfill a forecast requirement, is of a statistical nature and may only be executed (turned into a committed order) when a sales order comes in^{^[2]}.

In either case, after demand is transferred into operational planning, the MRP run determines net requirements, explodes the Bill of Material, places secondary requirements and generates all necessary supply elements (order proposals) using lot sizing rules and lead times from the material master. Sales &Operations Planning has ended. The plan is actuated and material planners and production schedulers take over.

All this happens on a periodic basis, meaning that there is agreement on what period the S&OP planner looks at. Most likely there is a short term plan, a middle term and a long term plan. The short term plan is transferred to MRP and the S&OP planner continues working with the long and middle term plans which, at some point in time, will turn into the short term plan and eventually become operational.

^{^[1]} I call it the strategy group because that is what SAP labels it on the MRP3 screen. And what is maintained there is a actually a group of strategies. During demand transfer the system picks the main strategy from the strategy group. Therefore what actually is being used is the strategy.

^{^[2]} The statistical order transfers secondary demand down to the raw material so that the procurement of such can be executed ahead of time

the hidden power of the coverage profile...

Uwe Goehring — Sat, 21 Apr 2012 10:18:21 GMT

The coverage profile which gives you the ability to maintain a dynamic safety stock is one of the most undervalued features of the SAP Planning modules. With it you can define how many days of coverage for future requirements you want the system to hold in safety stock and you can have the system to automatically hold the stock level between a min and a max.

Of course you need future requirements for the system to figure that out. Unless you have an external forecast or enough dependent requirements into the future, a PD MRP type won't work. Any reorder level pocedure in combination with a coverage profile won't do the trick because it lacks the future requirements for the calculation of the average daily future (and why would we want to maintain a dynamic safety stock level on a reorder procedure anyway). So a VV with a material forecast seems to be perfectly destined to use a coverage profile. Check it out yourself. Use a VV for a material that has consistent consumption, create a forecast that goes beyond the replenishment lead time and use a coverage profile with your choice of how many days you want cover for. Check the result in the graph that you access in MD04 (go to List>Graphic).

If you want MRP to not exceed a certain stock level you have to maintain a maximum range of cover in config for the Coverage Profile. Should your consumption or sales be less than what you forecasted then your inventory will rise. However, the maximum range of cover will limit this rise. MRP will reuce future order proposals if your lot size is set to EX. If you use a minimum lot size and the receipt exceeds your max, the system will give you exception message 25 'excess stock'. The minimum range of cover triggers the addition of quantities to the order proposal so that after all requirements are covered, the target range of cover remains as safety stock. Therefore don't set it too far below the target. The period view in MD04 has all pertinent information about the result of the calculation of the dynamic safety stock. Why dynamic? Because if the future requirements go down so does the safety stock and if they go up the safety goes up with it. This is because 5 days of coverage are 10 pieces if the future daily requirement is 2 pieces and it is 100 pieces if the average daily requirement is 20 pieces