SAP PDF: Demand Management & Production Planning

WEEK 8: Demand Management - S&OP Core Concepts to Master 1. Material Planning Process o Understand the three essential questions it answers:  What materials are required?  How many are required?  When are they required?...

WEEK 8: Demand Management - S&OP Core Concepts to Master 1. Material Planning Process o Understand the three essential questions it answers:  What materials are required?  How many are required?  When are they required? o Understand that material planning balances demand and supply:  Demand comes from fulfillment and production  Supply comes from procurement and production o Know that output of the planning process includes:  Planned Orders (internal procurement)  Purchase Requisitions (external procurement) 2. Sales & Operations Planning (S&OP) o Definition: A process to create a high-level production plan balancing demand and capacity. o Trigger: Happens when production needs change or economic shifts occur. o Uses multiple data sources and can generate multiple plan versions. o Standard vs. Flexible SOP:  Standard SOP uses predefined information  Flexible SOP allows more customization and complexity 3. S&OP Process Goals  o Foster communication between departments (Sales, Marketing, Finance, etc.) o Build a common language and unified plan o Create achievable, cost-e ective aggregate plans o Use rough-cut planning for feasibility checking 4. Sales Forecasting o Based on historical sales data and marketing inputs o Sales forecast → input to S&OP → output is a production plan o Forecasting can be:  Quantitative (e.g., time series analysis)  Adjusted for outliers to improve accuracy 5. Product Groups o Understand why we group products:  Similar characteristics or manufacturing processes o Hierarchical structure: lowest level = finished goods or trading goods o Disaggregation: Production plans at the group level are broken down to individual products using proportion factors 6. Planning Table in SAP o A spreadsheet-like interface to:  Input sales plan  Specify inventory targets  Evaluate plan feasibility o Produces no financial postings or material movements—purely planning  Key Terms to Define and Use Properly  Forecast  S&OP (Sales & Operations Planning)  Product Group  Disaggregation  Rough-cut capacity planning  Internal vs. External procurement  Outlier (and smoothing) 🛠 Practical Tasks You Should Be Able to Do  Generate a forecast using prior data and identify any outliers  Adjust/smooth forecasts by removing or correcting outliers  Use SAP to: o Build a product group o Enter a sales forecast o Create a production plan  Understand the data flow from sales forecast to demand planning WEEK 9: Aggregate Planning & Disaggregation Core Concepts to Master 1. Aggregate Forecasting  A high-level forecast based on product groups (e.g., families, classes).  Used for sales planning, capacity planning, and financial projections.  Created in SOP using historical data, adjusted for outliers.  Leads into Demand Management and detailed planning. 2. Forecasting Methods Qualitative Methods (used when data is limited)  Based on judgment, intuition, experience.  Methods include: o Surveys o Delphi method (expert consensus) o Scenario planning o Life cycle analogy Quantitative Methods (used with stable situations and historical data)  Based on mathematics and statistical modeling.  Methods include: o Time series: moving average, weighted moving average, exponential smoothing, trends o Causal models: linear regression (dependent vs. independent variables) 3. Material Master Data for Planning Know the specific views used for planning:  MRP Views (plant-specific)  Work Scheduling  Procurement Type: internal, external, both  MRP Type: MRP, MPS, Consumption-based  Lot Size Key: Fixed, lot-for-lot, EOQ, period-based  Scheduling Times: setup, processing, interoperation  Planning Time Fence: time window during which system avoids changing proposals  BOM Selection Method: how system picks among multiple BOMs  Availability Check Group: uses ATP logic  Strategy Group: MTS, MTO, ATO strategies 4. Independent vs. Dependent Demand Independent Demand  Comes from external customers (sales orders or forecasted sales)  Applies to finished goods and trading goods  Includes: o CIR: Customer Independent Requirements o PIR: Planned Independent Requirements Dependent Demand  Driven by other products  Applies to raw materials and semi-finished goods o Example: Dough for NRG-A bars depends on NRG-A demand 5. MRP vs. MPS Feature MRP MPS Focus All BOM levels Only 1st BOM level Requirements Derives dependent from independent Same, but more focused Usage Full materials planning Critical FG planning only 6. Consumption & Demand Management  Consumption occurs when CIRs replace or reduce PIRs. o Strategy 40: CIR consumes PIR  Modes: o Forward o Backward o Time period based  Important for planning strategy groups like: o Make-to-Stock (Strategy 10, 40) o Make-to-Order o Assemble-to-Order 7. Disaggregation  After SOP, production quantities for product groups are split among individual SKUs. o Example: If NRG-A is 70%, NRG-B is 30%, production plan is split accordingly  Disaggregation leads into detailed demand management and MRP Key Terms to Understand and Be Able to Use  Aggregate Forecast  Qualitative vs. Quantitative Forecasting   Independent vs. Dependent Demand  MRP vs. MPS  PIR / CIR  Strategy Groups (MTS, MTO, ATO)  Disaggregation  Consumption Modes  Lot Size Key, Planning Fence, ATP 🛠 Practical Tasks You Should Be Able to Do  Disaggregate a product group forecast to SKU level (like in HW 9.2)  Identify which forecast method is appropriate  Set up relevant Material Master views  Interpret demand types and planning strategy from data  Understand e ects of consumption mode in demand management Week 10 – Procure-to-Pay (PTP) Key Concepts:  PTP Process Steps (in sequence): 1. Purchase Requisition – internal request to procure material 2. Purchase Order (PO) – formal order sent to vendor 3. Notify Vendor – communicate the PO 4. Vendor Shipment – goods dispatched by vendor 5. Goods Receipt (GR) – receiving goods into inventory 6. Invoice Receipt – vendor sends invoice 7. Payment to Vendor – financial settlement Master Data Required in SAP: 1. Vendor Master Data o Centralized data shared by MM and FI o Includes payment terms, partner roles (e.g. ordering address, invoicing party) 2. Material Master Data o Varies by material type:  ROH (Raw Materials) – needs purchasing, storage, accounting views  FERT (Finished Goods) – no purchasing views  HALB (Semi-Finished Goods) – includes production views 3. Purchasing Info Records o Material-vendor linkage (price, delivery terms, PO history) Organizational Data:  Client > Company Code > Plant > Storage Location  Purchasing Org: negotiates contracts and conditions o Enterprise-Level, Company-Level, or Plant-Level  Purchasing Group: person/team handling purchasing activities Procurement Process in SAP:  Create Purchase Requisition o Analysis and vendor selection step  Create Purchase Order o Requisition data transferred to PO  Goods Receipt o Increases raw material inventory o Financial impact: Debit Inventory, Credit GR/IR  Invoice Receipt o Matches invoice to PO and GR o Financial impact: Debit GR/IR, Credit Vendor  Vendor Payment o Clears outstanding liability o Financial impact: Debit Vendor, Credit Bank Integration Across Departments:  MM → FI: at invoice and payment stages  MM → WM/PP: raw material moves to production  MM → CO: cost centers may be assigned to purchases Special Topics:  Item Categories in POs: o Standard, Subcontracting, Consignment, Services, Stock Transfer, Third- party  Account Determination: o Based on valuation class and account assignment category  Conditions: o Pricing data: base price, discounts, freight, from info records or contracts 1. Master Data for Production in SAP You need the following master data elements:  Material Master – foundational data for each product (FG, SFG, RM)  Bill of Materials (BOM) – components needed to make a product  Work Center – physical location where operations are carried out (e.g., Mixer, Bake Line)  Routing – sequence of operations to manufacture a product  Production Resource Tools (PRT) – shared tools like gages, tools, equipment  Capacity Planning – schedules production based on available resources 2. BOM (Bill of Materials)  Purpose: Identifies raw materials & components needed  Single-level BOM: Direct components of a finished good  Multi-level BOM: Components that have sub-BOMs (e.g., Dough NRG-A has its own BOM)  BOM Header: Plant, status, base quantity, usage  BOM Items: Material number, quantity, item category (e.g., stock/non-stock) 3. Routing  Describes operations and sequence for production o Includes: setup time, machine time, labor time o Can include: standard, alternate, or parallel sequences  Component Assignment: BOM components assigned to specific operations in routing 4. Manufacturing Types  Discrete: distinct items (e.g., skateboards, bars) – standard SAP production   Repetitive: continuous or repeated production (e.g., NRG bars)  Process: non-discrete (e.g., beverages, chemicals) – uses formulas not BOMs 5. Production Strategies  Make-to-Stock (MTS): produced in advance of customer orders (used by Fitter Snacker)  Make-to-Order (MTO): produced only after customer orders  Assemble-to-Order (ATO): hybrid; components stocked, final assembly after order 6. MRP (Materials Requirements Planning) Purpose: Calculate and plan for required materials and production activities  MRP Inputs: o Demand: from forecast or actual orders o Inventory levels: on-hand stock o BOM: determines components needed o Lead times: procurement and production o Lot sizing rules  MRP Outputs: o Planned Orders (for in-house production) o Purchase Requisitions (for external procurement) o Stock/Requirements List 7. Demand Management & MPS  Sales & Operations Planning (SOP) → Demand Management → MRP  Master Production Schedule (MPS) is the result of demand management  MRP disaggregates MPS into material-level requirements 8. MRP Process Overview  Net Requirements Calculation: o If available stock = Plant stock – Safety stock + Receipts – Issues is negative → system creates proposals  BOM Explosion: expands BOM to calculate total raw material requirements  Backward Scheduling: schedules production backward from demand date 9. SAP MRP Execution  Planner runs MRP  System generates: o Planned Orders → can be converted into Production Orders o Purchase Requisitions → can be turned into Purchase Orders  MRP List and Stock/Requirements List help planners manage this 10. Example: Fitter Snacker  Uses make-to-stock  Production capacity: 200 bars/min or 3,000 lbs/hr  Issues include: o Poor communication between Sales & Production o Inventory management problems o Standard vs. actual cost misalignment Week 12 – Production Execution (Main Focus from Wk12 Slides) Full Make-to-Stock (MTS) Process Steps: 1. Production Proposal (Planned Order): o Triggered by MRP/MPS or created manually. o Contains: what material, how many, when. 2. Convert Planned Order → Production Order (Authorize Production): o Defines what, how many, when, where, resources, and expected costs. o Schedule and check availability before release. 3. Production Order Outcomes: o Availability checks (materials, labor, tools). o Costing, capacity checks. o Shop floor documents ready (e.g., component list, assembly drawings). 4. Release Production Order: o Status: CRTD → REL (release required). o Enables confirmations, goods movement, document printing. 5. Goods Issue (Movement Type 261): o Withdraw materials from inventory. o Reduces stock, creates FI/CO documents. o Costs updated in production order. 6. Execution & Confirmation: o Confirm quantities, activities, and time. o Can be order-level or operation-level (partial). 7. Goods Receipt (Movement Type 101): o Completed items moved to finished goods inventory. o Updates material master, production order, and accounting. 8. Order Settlement:  o Compares planned vs. actual cost. o Settles variance to FI (GL), CO, profitability. 9. Other: o Overhead calculations, WIP valuation, archiving. o Important in high-value, long-cycle productions (e.g., aircraft, construction). Master Data Involved:  Material Master: FG, RM, SFG.  Bill of Materials (BOM): Structure of product.  Routing: Steps to make the product.  Work Centers: Where the operations take place.  Production Version: Links material with BOM + Routing.  Cost Centers & Activity Types: For cost tracking.  Capacity Data: Machines or labor limits. Integration Aspects:  With PTP: Raw material procurement before production.  With FI/CO: Cost tracking and posting.  With Inventory Management: Goods Issue and Receipt.  With Capacity Planning: Scheduling production around resource limits. Financial Impacts per Step:  Goods Issue: Updates inventory, costs, accounting entries.  Confirmation: Time and labor costs posted.  Goods Receipt: Finished goods stock updated, costs transferred.  Settlement: Variance between planned and actual costs recorded. Week 13 – Measuring the Supply Chain (Metrics, Benchmarking, Scorecards) Performance Measurement – Why It Matters  “If you can’t measure it, you can’t manage it.”  Measurement helps with: o Goal setting (targets) o Identifying gaps and improvements o Triggering corrective actions Categories of Performance Metrics 1. Financial – e.g., COGS, return on assets, days sales outstanding 2. Customer – e.g., order fill rate, satisfaction, delivery reliability 3. Operations – e.g., cycle time, manufacturing lead time 4. Employee – e.g., productivity, engagement Good Metrics – Characteristics  Drive behavioral change for improvement  Forward-looking, clear, limited in number  Aligned to strategic goals  Based on processes, not functions  Cascade across the organization: o SC-wide > enterprise > department Key questions good metrics must answer:  Are we improving?  By how much?  How far are we from the target?  Target Setting for Metrics  Historical: based on past performance  Internal Benchmarks: within the company  External Benchmarks: against others  Theoretical: gut-feel or aspirational Overall SC Performance Metrics  Responsiveness: cycle times (MTS, OTC, PTP)  Reliability: order fulfillment rates  Agility: flexibility to changes  Cost: total cost to serve  Assets: cash-to-cash (C2C), return on assets Examples:  Perfect orders  Inventory turns  Delivery performance  Production costs  Inventory accuracy Dashboards vs. Scorecards  Dashboards: o Real-time, operational o e.g., pick rate, warehouse performance  Balanced Scorecards (APICS): o Strategic, long-term view  o Four perspectives: 1. Financial 2. Customer 3. Internal business processes 4. Innovation & Learning (Employees) Benchmarking – APICS Definition  Compare with best-in-class to identify performance gaps and improve  Not limited to same industry Types: 1. Qualitative – maturity assessments, best practices 2. Quantitative – performance indicators (inventory turns, GDP) 3. Competitive – subset of quantitative, used across companies SAP Reporting and Movement Types Review  Key movement types: o 101 – Goods receipt (PO, production) o 261 – Goods issue (to production) o 201 – Goods issue (cost center) o 601 – Goods issue (delivery)  Reports to know in SAP: o MD04 – Stock/Requirements List o MMBE – Stock Overview o MB51 – Material Documents o ME2L – PO list by vendor o VA03 / VA05 – Sales orders o CO03 – Production order display