Demand Management: S&OP

Week 8: Demand Management - S&OP

• Material planning answers what materials are required, how many are required, and when they are required.
• Material planning balances demand and supply.
• Demand comes from fulfillment and production.
• Supply comes from procurement and production.
• Output of the planning process includes planned orders (internal procurement) and purchase requisitions (external procurement).
• Sales & Operations Planning (S&OP) creates a high-level production plan that balances demand and capacity.
• S&OP is triggered when production needs change or there are economic shifts.
• S&OP uses multiple data sources and generates multiple plan versions.
• Standard SOP uses predefined information, while flexible SOP allows customization and complexity.
• S&OP process goals foster communication between departments (Sales, Marketing, Finance, etc.).
• S&OP builds a common language and unified plan.
• S&OP creates achievable and cost-effective aggregate plans.
• Rough-cut planning is used for feasibility checking.
• Sales forecasting uses historical sales data and marketing inputs.
• The sales forecast inputs into S&OP, and the output is a production plan.
• Forecasting can be quantitative (e.g., time series analysis) and adjusted for outliers to improve accuracy.
• Products are grouped by similar characteristics or manufacturing processes.
• The hierarchical structure has a lowest level which consists of finished goods or trading goods.
• Disaggregation production plans at the group level are broken down to individual products using proportion factors.
• SAP Planning Table is a spreadsheet-like interface and is used to: input sales plan, specify inventory targets, evaluate plan feasibility
• The SAP planning table produces no financial postings or material movements and it is purely for planning.
• Key terms include forecast, S&OP, product group, disaggregation, rough-cut capacity planning, internal vs. external procurement, and outlier.
• Tasks include generating a forecast, adjusting/smoothing forecasts by removing or correcting outliers, using SAP to build a product group, enter a sales forecast, and create a production plan.
• Need to understand the data flow from sales forecast to demand planning.

Week 9: Aggregate Planning & Disaggregation

• Aggregate forecasting is a high-level forecast based on product groups.
• Aggregate forecasting is used for sales planning, capacity planning, and financial projections.
• Aggregate forecasting is created in SOP using historical data, adjusted for outliers.
• Aggregate forecasting leads into demand management and detailed planning.
• Qualitative forecasting methods is used when data is limited and are based on judgment, intuition, and experience.
• Qualitative forecasting methods include surveys, Delphi method (expert consensus), scenario planning, and life cycle analogy.
• Quantitative forecasting methods are used with stable situations and historical data based on mathematics and statistical modeling.
• Quantitative forecasting methods include time series (moving average, weighted moving average, exponential smoothing, and trends) and causal models (linear regression).
• MRP views are plant-specific.
• Procurement type can be internal, external, or both.
• Common MRP types are MRP, MPS, Consumption-based
• Common Lot Size Keys are Fixed, lot-for-lot, EOQ, period-based
• Scheduling Times: setup, processing, interoperation
• Planning Time Fence is a time window where the system avoids changing proposals
• BOM Selection Method defines how the system picks among multiple BOMs
• Availability Check Group uses ATP logic.
• Strategy Group includes MTS, MTO, and ATO strategies.
• Independent demand comes from external customers (sales orders or forecasted sales).
• Independent demand applies to finished goods and trading goods and includes CIR and PIR.
• CIR is Customer Independent Requirements.
• PIR is Planned Independent Requirements.
• Dependent demand is driven by other products.
• Dependent demand applies to raw materials and semi-finished goods.
• For example, dough for NRG-A bars depends on NRG-A demand.
• MRP focuses on all Bill of Materials (BOM) levels, while MPS focuses only on the 1st BOM level.
• MRP requirements derive dependent from independent, while MPS requirements are the same but more focused..
• MRP is used for full materials planning, while MPS is used for critical FG planning only.
• Consumption occurs when Customer Independent Requirements (CIRs) replace or reduce Planned Independent Requirements (PIRs).
• Strategy 40 is the Consumption strategy.
• Strategy 40: CIR consumes PIR.
• Consumption Modes: Forward, Backward, Time period based
• Planning strategy groups include Make-to-Stock (Strategy 10, 40), Make-to-Order, and Assemble-to-Order.
• Disaggregation involves splitting production quantities for product groups among individual SKUs after SOP.
• Example: If NRG-A is 70% and NRG-B is 30%, the production plan is split accordingly.
• Disaggregation leads into detailed demand management and MRP.
• Key terms: aggregate forecast, qualitative vs. quantitative forecasting, independent vs. dependent demand, MRP vs. MPS, PIR/CIR, strategy groups, disaggregation, consumption modes, lot size key, planning fence, and ATP.
• Tasks: disaggregate a product group forecast to SKU level, identify which forecast method is appropriate, set up relevant Material Master views, interpret demand types and planning strategy from data, and understand effects of consumption mode in demand management.

Week 10: Procure-to-Pay (PTP)

• PTP Process Steps occur in the following sequence: purchase requisition, purchase order, notify vendor, vendor shipment, goods receipt, invoice receipt, and payment to vendor.
• Master data required in SAP includes vendor master data, material master data, and purchasing info records.
• Vendor Master Data is centralized data shared by MM and FI and includes payment terms and partner roles (e.g., ordering address, invoicing party).
• Material Master Data varies by material type such as purchasing, storage, and accounting views.
• Purchasing Info Records links material-vendor (price, delivery terms, PO history).
• Organizational data includes client > company code > plant > storage location.
• The Purchasing Org negotiates contracts and conditions at the Enterprise-Level, Company-Level, or Plant-Level
• The Purchasing Group is a person/team handling purchasing activities.
• The procurement process in SAP involves creating a purchase requisition, creating a purchase order, goods receipt, invoice receipt, and vendor payment.
• Integration across departments includes MM to FI, MM to WM/PP, and MM to CO.
• MM to FI happens at invoice and payment stages.
• MM to WM/PP happens when raw material moves to production.
• MM to CO happens because cost centers may be assigned to purchases.
• Special topics include item categories in POs, account determination, and conditions.
• Item categories include standard, subcontracting, consignment, services, stock transfer, and third-party.
• Account Determination is based on valuation class and account assignment category.
• Conditions include pricing data (base price, discounts, freight, from info records or contracts).
• Master data for production in SAP includes material master, bill of materials (BOM), work center, routing, production resource tools, and capacity planning.
• A bill of materials (BOM) identifies raw materials and components needed.
• A single-level BOM has direct components of a finished good.
• A multi-level BOM has components that have sub-BOMs.
• The BOM Header consists of Plant, status, base quantity, usage
• BOM Items consists of material number, quantity, item category (e.g., stock/non-stock)
• Routing describes operations and sequence for production and includes setup time, machine time, and labor time, and can include standard, alternate, or parallel sequences.
• Component assignment assigns BOM components to specific operations in routing.
• Discrete manufacturing involves distinct items
• Repetitive manufacturing is continuous or repeated production.
• Process manufacturing is non-discrete and uses formulas instead of BOMs.
• Make-to-Stock (MTS) is produced in advance of customer orders.
• Make-to-Order (MTO) is produced only after customer orders.
• Assemble-to-Order (ATO) is hybrid; components stocked, final assembly after order.
• Materials Requirements Planning (MRP) calculates and plans for required materials and production activities.
• MRP Inputs: Demand, Inventory levels, BOM, Lead times, Lot sizing rules
• MRP Outputs: Planned Orders, Purchase Requisitions, Stock/Requirements List
• Sales & Operations Planning (SOP) flows into Demand Management and then into MRP
• Master Production Schedule (MPS) is the result of demand management.
• MRP disaggregates MPS into material-level requirements.
• Net Requirements Calculation measures available stock which equals Plant stock – Safety stock + Receipts – Issues, and if it is negative, the system creates proposals.
• BOM Explosion expands the BOM to calculate total raw material requirements.
• Backward Scheduling schedules production backward from demand date.
• The planner runs MRP and the system generates planned orders and purchase requisitions.
• MRP List and Stock/Requirements List help planners manage this.
• With make-to-stock strategy
• A Fitter Snacker has a production capacity of 200 bars/min or 3,000 lbs/hr.
• A Fitter Snacker issues include poor communication between Sales & Production, inventory management problems, and standard vs. actual cost misalignment.

Week 12: Production Execution

• Full Make-to-Stock (MTS) Process Steps: Production Proposal, Convert Planned Order to Production Order, Production Order Outcomes, Release Production Order, Goods Issue, Execution & Confirmation, Goods Receipt, Order Settlement
• A production proposal (planned order) is triggered by MRP/MPS or created manually and contains what material, how many, and when.
• Converting a planned order into a production order defines what, how many, when, where, resources, and expected costs.
• You must schedule and check availability before release.
• Production order outcomes include availability checks, costing, and capacity checks
• Production order outcomes also include shop floor documents being ready
• Releasing a production order requires you to change the status: CRTD → REL
• Releasing a production order enables confirmations, goods movement, and document printing.
• A goods issue (Movement Type 261) occurs when materials are withdrawn from inventory.
• A goods issue reduces stock and creates FI/CO documents updating costs in the production order.
• Execution & Confirmation: You must confirm quantities, activities, and time on an order-level or operation-level (partial).
• A goods receipt (Movement Type 101) occurs when completed items are moved to finished goods inventory.
• Goods receipt updates the material master, production order, and accounting.
• In order settlement a comparison between planned and actual cost occurs and settles variance to FI, CO, and profitability.
• Other considerations in order settlement include overhead calculations, WIP valuation, and archiving specifically in high-value, long-cycle productions
• Master data involved in production execution includes material master, bill of materials, routing, work centers, production version, cost centers & activity types, and capacity data.
• Integration Aspects: PTP, FI/CO, Inventory Management, Capacity Planning
• In PTP, raw material procurement occurs before production.
• In FI/CO, cost tracking and posting is important.
• In inventory management, goods issue and receipt are used
• In capacity planning, scheduling production must adhere to resource limits.
• Financial Impacts per Step: Goods Issue, Confirmation, Goods Receipt, Settlement
• A goods issue updates inventory, costs, and accounting entries.
• Confirmation posts time and labor costs.
• A goods receipt updates finished goods stock and costs are transferred.
• Settlement measures the variance between planned and actual costs recorded.

Week 13: Measuring the Supply Chain

• "If you can't measure it, you can't manage it."
• Measurement helps with goal setting, identifying gaps and improvements, and triggering corrective actions.
• Four Categories of Performance Metrics: Financial, Customer, Operations, Employee
• Financial examples include COGS, return on assets, and days sales outstanding.
• Customer examples include order fill rate, satisfaction, and delivery reliability.
• Operations examples include cycle time and manufacturing lead time.
• Employee examples include productivity and engagement.
• Good metrics drive behavioral change for improvement and are forward-looking, clear, and limited in number.
• Good metrics are aligned to strategic goals and are based on processes, not functions.
• Good metrics cascade across the organization starting with the SC-wide department.
• Good metrics answer: Are we improving? How much? How far are we from the target?
• Target setting for metrics can be historical, internal benchmarks, external benchmarks, or theoretical.
• Overall SC Performance Metrics: Responsiveness, Reliability, Agility, Cost, Assets
• Responsiveness measures cycle times.
• Reliability measures order fulfillment rates.
• Agility measures flexibility to changes.
• Cost measures the total cost to serve.
• Assets measure the cash-to-cash cycle and return on assets.
• Examples include perfect orders, inventory turns, delivery performance, production costs, and inventory accuracy.
• Dashboards are used to measure real-time, operational metrics, while balanced scorecards are used to measure strategic, long-term views.
• Balanced scorecards have four perspectives: financial, customer, internal business processes, and innovation & learning (employees).
• Benchmarking compares with best-in-class to identify performance gaps and improve.
• Benchmarking consists of qualitative, quantitative, and competitive methods.
• Qualitative methods include maturity assessments and best practices.
• Quantitative methods focus on performance indicators.
• Competitive methods are a subset of quantitative and used across companies.
• Key movement types include 101, 261, 201, and 601
• 101 is goods receipt.
• 261 is goods issue to production.
• 201 is goods issue to a cost center.
• 601 is goods issue for delivery.
• Common SAP reports include MD04 – Stock/Requirements List, MMBE - Stock Overview, MB51 - Material Documents, ME2L – PO list by vendor, VA03/VA05 – Sales orders, and CO03 - Production order display.