Inventory Optimization with SAP

After finishing his studies in business administration at Fachhochschule Nordostniedersachsen in Luneburg, Germany, and at John Moores University in Liverpool, England, Marc Hoppe joined CAS AG, Germany as an SAP developer in the logistics and production planning areas. Later, he became a logistics consultant and was responsible for implementing national and international SAP R/3 projects. Since 1998, he has worked as a Supply Chain Management (SCM) consultant at SAP SI AG. Marc Hoppe is responsible for the business-relevant and IT-based implementation and optimization of SCM processes, as well as the re-engineering of entire supply chain processes. In 2001, he became Consulting Director for SCM, and since 2003, he has managed additionally the Supplier Relationship Management (SRM) unit. Marc Hoppe consults for large corporations such as Siemens, Unilever, Gillette, Philips, Deutsche Telekom, and Philip Morris, as well as medium-sized companies like G+H Isover or Fertiva. He has published numerous works on inventory optimization.

1 Why Inventory is Necessary 25
1.1 Inventory Concepts 26
1.2 How to Deal With Uncertainties 38
2 Factors Influencing Inventory 43
2.1 Five Instruments 43
2.2 Controlling by Inventory Monitoring 50
3 Inventory Analysis 51
3.1 Inventory Analysis Options 51
3.2 ABC Analysis with SAP 60
3.3 XYZ Analysis in the SAP System 81
3.4 Combining ABC and XYZ Analyses 83
3.5 Summary 98
4 Demand Planning and Forecasting 99
4.1 The Influence of Demand Planning on Inventories 99
4.2 The Bullwhip Effect 102
4.3 Optimization Potentials for the Forecast 104
4.4 Selecting the Forecast Method 140
4.5 Details of the Individual Forecast Methods 157
4.6 Running a Forecast 189
4.7 Forecast Accuracy and Alert Functions 206
4.8 Summary 231
5 Material Requirements Planning 233
5.1 Objectives of MRP 233
5.2 Requirements Calculation 235
5.3 Accumulated Balances 239
5.4 Order Calculation 241
5.5 Impact of MRP on Inventory 249
5.6 Tools for Selecting the Optimal MRP Parameter 258
5.7 Strategic vs. Operative MRP 260
5.8 Strategies for Make-to-Stock Production in SAP ERP 266
5.10 Strategies for Make-to-Order Production in SAP ERP 289
5.11 Consumption-Based Material Requirements Planning Using SAP ERP 294
5.12 Requirements Strategies in SAP APO 303
5.13 VMI and SMI MRP Procedures 305
5.14 Potential for Optimization in Material Requirements Planning 327
5.15 Summary 334
6 Service Level and Safety Stocks 335
6.1 Relationship Between Stock and Service Level 335
6.2 Service Level 338
6.3 Replenishment Lead Time 366
6.4 Forecast Quality 373
6.5 Safety Stock 378
6.6 Safety Stock Planning in SAP APO SNP 404
6.7 Safety Stock Planning Using SAP APO CTM 436
6.8 Safety and Target Stock Planning in SAP APO PP/DS 440
6.9 Parameter-Dependent Safety Stock in SAP APO DP and GATP 446
6.10 Summary 449
7 Lot Sizes 451
7.1 How Do Lot Sizes Affect Stocks? 451
7.2 Stochastic (Static) Lot-Sizing Procedures in SAP ERP and SAP APO 453
7.3 Deterministic (Periodic) Lot-Sizing Procedures in SAP ERP and SAP APO 463
7.4 Optimal Lot-Sizing Procedures in SAP ERP and SAP APO 481
7.5 Restrictions in the Lot-Size Calculation 501
7.6 Selecting Lot-Sizing Procedures 503
7.7 Summary 506
8 Production 507
8.1 How Do Backlogs in Production Affect Stocks? 508
8.2 Why Do Backlogs Occur in Production Planning? 514
8.3 Reducing of Backlogs 519
8.4 Missing Parts Management in Production 535
8.5 Finite Planning and Optimization in SAP APO 547
8.6 Heuristics for Inventory Optimization 596
8.7 Alerts and Their Processing 607
8.8 Simulation and Comparison of Planning Results 610
8.9 Capable to Promise (CTP) 616
8.10 Embedding Superordinate and Subordinate Planning Levels 618
8.11 Best Practices for Using SAP APO PP/DS 622
8.12 Summary 623
9 Inventory Controlling 625
9.1 Why Inventory Monitoring? 625
9.2 Introduction to Logistics Controlling 626
9.3 The Information System According to Ehrmann 628
9.4 The Information System of the SCC 632
9.5 Problems with Data Collection 637
9.6 Important Inventory Key Figures 638
9.7 Tools for Inventory Analysis 652
9.8 Inventory Monitoring in SAP ERP 656
9.9 Inventory Controlling with SAP APO and SAP NetWeaver BI 660
9.10 Summary 678
Appendix 681
A Literature 683
B Author 691
C SAP ERP Add-ons 693
C.1 Forecast Monitor 693
C.2 MRP Monitor 693
C.3 Replenishment Lead Time Monitor 693
C.4 Backlog Monitor 693
C.5 Service Level Monitor 693
C.6 Missing Parts Monitor 694