Material Planning 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 Basic Principles of Materials Planning 25
1.1 Goals and Tasks of Materials Planning 25
1.2 Core Functions of Materials Planning 26
1.3 Requirements Calculation 27
1.3.1 MRP (Deterministic) Determination of Requirements 28
1.3.2 Consumption-Oriented (Forecast-Based) Determination of Requirements 29
1.3.3 Order-Based Determination of Requirements 30
1.4 Accumulate Balances 30
1.5 Purchase Order Calculation 32
1.5.1 Reorder Cycle Method 33
1.5.2 Reorder Point Method 36
1.5.3 Mixed Procedure 38
1.5.4 Overview of Reorder Policies 39
1.6 Impact of Materials Planning on Inventory 40
1.6.1 Selecting the Production Type 41
1.6.2 Selecting the MRP Strategy/Determining the Stocking Level 42
1.6.3 Selecting Consumption Parameters 45
1.6.4 Selecting Lot-Sizing Parameters 45
1.6.5 Selecting the Safety Stock Procedure 46
1.6.6 Selecting the Forecast Strategies 47
1.6.7 Item Classification and Product Analysis 47
1.7 Conclusion 48
2 Strategic versus Operational Materials Planning 49
2.1 Tasks in Materials Planning 49
2.2 Organizational Integration of Materials Planning 51
2.3 Conclusion 54
3 Item Classification as the Basis for Materials Planning Decisions 55
3.1 Options Provided by Item Classification 56
3.1.1 ABC Analysis 56 3.1.2 XYZ Analysis 61
3.2 ABC Analysis with SAP 63
3.2.1 Outlining the Analysis Process 63
3.2.2 Determining the Analysis Goal 64
3.2.3 Defining the Area to Analyze 64
3.2.4 Calculating the Data Basis 67
3.2.5 Defining the ABC Strategy 69
3.2.6 Defining Class Limits 71
3.2.7 Assigning Classes 72
3.2.8 Evaluating ABC Analysis 74
3.2.9 Performing an ABC Segmentation 75
3.2.10 Case Scenario: ABC Analysis for Warehouse Optimization 77
3.2.11 Case Scenario: ABC Quantity Flow Analysis 79
3.3 XYZ Analysis in the SAP System 81
3.3.1 Running Analyses in SAP ERP 81
3.4 Combining ABC and XYZ Analyses 83
3.4.1 Optimization Using the ABC/XYZ Matrix 83
3.4.2 Using SAP ERP to Create an ABC/XYZ Matrix 90
3.5 Conclusion 96
4 Materials Planning Process in SAP 97
4.1 Business Overview 97
4.1.1 Program Planning 98
4.1.2 Quantity Planning 100
4.1.3 Scheduling and Capacity Requirements Planning 101
4.1.4 Order Conversion and Monitoring 102
4.2 Overview of the Materials Planning Process in the SAP System 102
4.3 Materials Planning Process in SAP ERP 104
4.3.1 Program Planning 104
4.3.2 Quantity Planning 108
4.3.3 Scheduling and Capacity Requirements Planning 110
4.3.4 Order Conversion and Monitoring 112
4.4 Materials Planning Process in SAP APO 114
4.4.1 Demand Planning 115
4.4.2 Supply Network Planning (SNP 117
4.4.3 Production Planning and Detailed Scheduling 119
4.5 Conclusion 124
5 General Materials Planning Master Data 127
5.1 Differences Between SAP ERP and SAP APO 127
5.2 Mass Maintenance of MRP Master Data 131
5.2.1 MRP Group 131
5.2.2 MRP Profile 132
5.2.3 Transaction MASSD 133
5.3 Special Materials 133
5.4 Conclusion 134
6 Planning Strategies and Requirements Consumption 135
6.1 System Settings in SAP ERP 135
6.1.1 Relationship Between the Strategy and Requirements Class 136
6.1.2 Assigning a Planning Strategy to a Material 139
6.1.3 Consumption Parameter 141
6.2 Planning Strategies in SAP ERP 142
6.2.1 Strategies for Make-to-Stock Production 143
6.2.2 Final Assembly by Sales Order 145
6.2.3 Make-to-Order Production 151
6.2.4 Planning with a Planning Material 152
6.2.5 Assembly Processing 155
6.2.6 Strategies for Configurable Materials 156
6.2.7 Reducing Planned Independent Requirements 159
6.2.8 Adjusting and Reorganizing Planned Independent Requirements 160
6.2.9 Table Summary of Planning Strategies 161
6.3 Planning Strategies in SAP APO 168
6.3.1 Requirements Class and Check Mode 168
6.3.2 Customizing of Planning Strategies 169
6.3.3 Planning Parameters in the Product Master 170
6.3.4 Planning Strategy Names in SAP ERP and SAP APO 170
6.4 Conclusion 171
7 Determination of Requirements Through Planning and Forecasts 173
7.1 Forecasts in SAP ERP and SAP APO 173
7.1.1 Forecast Methods 175
7.1.2 Forecast Parameters 187
7.2 Forecasting Accuracy 192
7.2.1 Error Total (ET 192
7.2.2 Mean Absolute Deviation (MAD) 193
7.2.3 Mean Square Error (MSE 193
7.2.4 Root of the Mean Square Error (RMSE) 194
7.2.5 Absolute Percentage Error (APE 194
7.2.6 Mean Absolute Percentage Error (MAPE 195
7.2.7 Median of the Absolute Percentage Error (MdAPE 196
7.2.8 Relative Absolute Error (RAE 196
7.3 Forecast Results and Demand Management 197
7.3.1 Adjusting Historical and Forecast Data and Other Influences 197
7.3.2 Guidelines for Materials with a High Forecast Error 199
7.3.3 Results Evaluation 200
7.4 Conclusion 201
8 Materials Planning Procedures 203
8.1 Materials Planning Procedures in SAP ERP 203
8.1.1 Consumption-Based Planning 204
8.1.2 Deterministic MRP 212
8.2 Materials Planning Procedures in SAP APO 214
8.2.1 PP Procedure 215
8.2.2 Heuristics 217
8.3 Conclusion 227
9 Procurement Quantity Calculation 229
9.1 Business Background 229
9.2 Procurement Quantity Calculation in SAP ERP 233
9.2.1 Static Lot-Sizing Procedures 234
9.2.2 Periodic Lot-Sizing Procedures 234
9.2.3 Optimum Lot-Sizing Procedures 235
9.2.4 Lot-Size Restrictions 237
9.2.5 Additional Lot-Size Options 238
9.2.6 Scrap Quantity Calculation 241
9.3 Procurement Quantity Calculation in SAP APO 242
9.3.1 Static Lot-Sizing Procedures 243
9.3.2 Periodic Lot-Sizing Procedures 244
9.3.3 Optimum Lot-Sizing Procedures 245
9.3.4 Lot-Size Restrictions 248
9.3.5 Additional Lot-Size Options 248
9.3.6 Origin of the Lot-Size Settings 248
9.3.7 Scrap Quantity Calculation 250
9.4 Conclusion 252
10 Safety Stock Planning 253
10.1 The Purpose of Safety Stock 253
10.2 Uncertainties in Materials Planning 254
10.3 Selecting and Defining the Service Level 255
10.3.1 Alpha Service Level 255
10.3.2 Beta Service Level 256
10.3.3 Defining the Service Level 257
10.4 Safety Stocks and Multilevel BOMs 258
10.5 Safety Stock Planning in SAP ERP 259
10.5.1 Manually Maintained Safety Stock 259
10.5.2 Automatically Calculated Safety Stock 260
10.5.3 Safety Time 263
10.5.4 Dynamic Safety Stock 265
10.6 Safety Stock Planning in SAP APO 268
10.6.1 Static Standard Methods 268
10.6.2 Dynamic Standard Methods and Extended Methods 271
10.6.3 Extended Methods 276
10.7 Conclusion 285
11 Determining Sources of Supply 287
11.1 Source Determination in SAP ERP 287
11.1.1 Overview of Procurement Types in SAP ERP 287
11.1.2 Types of Special Procurement 289
11.1.3 Sources of Supply for In-House Production 297
11.1.4 Sources of Supply for External Procurement 299
11.2 Source Determination in SAP APO 307
11.2.1 Overview of Procurement Types 307
11.2.2 Sources of Supply for In-House Production 308
11.2.3 Sources of Supply for External Procurement 311
11.2.4 Validity of Sources of Supply 313
11.2.5 The Source Determination Process 314
11.3 Conclusion 322
12 Scheduling Parameters 323
12.1 Scheduling in SAP ERP 324
12.1.1 Basic Date Scheduling for In-House Production 324
12.1.2 Lead-Time Scheduling 330
12.2 Scheduling in SAP APO 339
12.2.1 SAP APO Scheduling for In-House Production 339
12.2.2 SAP APO Scheduling for External Procurement 345
12.3 Conclusion 348
13 Interactions 349
13.1 Parameter Dependencies 349
13.2 Relationship Model of Parameter Optimization 353
13.3 Conclusion 356
14 Processing Materials Planning Results 359
14.1 Tasks of the MRP Controller and SAP System Support 359
14.1.1 Master Data Maintenance 360
14.1.2 Qualitative Versus Quantitative Materials Planning 360
14.2 Materials Planning Controlling 361
14.2.1 MRP List and Stock/Requirements List 362
14.2.2 Standard Analyses 363
14.3 Personal Settings 367
14.3.1 Filters 367
14.3.2 Navigation Profiles and Favorites 368
14.4 Exception Messages and Troubleshooting (Alert Monitoring 369
14.5 Conclusion 371
15 Availability Check 373
15.1 Availability Check in SAP ERP 373
15.1.1 Availability Check Against ATP Logic 373
15.1.2 Availability Check Against Planned Independent Requirements 379
15.1.3 Availability Check Against Product Allocations 380
15.1.4 Availability Check Against Capacity 380
15.2 Availability Check in SAP APO 381
15.2.1 Combination of Basic Methods 381
15.2.2 Rules-Based ATP Check 382
15.2.3 Capable to Promise (CTP 382 15.2.4 Multilevel ATP Check 384
15.3 Conclusion 385
16 Collaborative Materials Planning Procedures 387
16.1 Vendor-Managed Inventory (VMI) 388
16.1.1 The Traditional VMI Process with SAP ERP 391
16.1.2 The Extended VMI Process with SAP APO 392
16.1.3 The VMI Process with SAP SNC (Responsive Replenishment 394
16.1.4 Evaluation of VMI 397
16.2 Supplier-Managed Inventory (SMI 399
16.2.1 SMI with Scheduling Agreement Delivery Schedule Lines 399
16.2.2 SMI with Purchase Order Processing 401
16.2.3 Evaluation of SMI 403
16.3 Conclusion 404
17 Materials Planning with Kanban Control 405
17.1 The Pull Principle 405
17.2 Elements of Kanban Control 407
17.2.1 Kanban Control Cycle 408
17.2.2 Kanban Card 408
17.2.3 Kanban Board 409
17.2.4 Control Charts 409
17.2.5 Determining Priorities in the Working System 409 A Comparison of Kanban Control and Conventional Production Planning 409
17.4 Kanban Procedures 410
17.4.1 Classic Kanban 410
17.4.2 Event-Controlled Kanban 411
17.4.3 One-Card Kanban 411
17.4.4 Kanban with Quantity Signal 412
17.5 The Kanban Process 413
17.6 Automatic Kanban Calculation 416
17.7 Procedure for Selecting Products Suitable for Kanban 420
17.8 Conclusion 424
18 Inventory Controlling 425
18.1 Why Inventory Monitoring 425
18.2 Introduction to Logistics Controlling 426
18.2.1 Statistical Differentiation of Key Figures 427
18.2.2 Business-Related Differentiation of Key Figures 428
18.2.3 Logistics Costs and Costs of Materials Planning 431
18.3 Problems with Data Collection 434
18.4 Important Inventory Key Figures 435
18.4.1 Range of Coverage Key Figure 436
18.4.2 Inventory Turnover Key Figure 441
18.4.3 Slow-Moving Items Key Figure 442
18.4.4 Stock Value Key Figure 443
18.4.5 Dead Stock Key Figure 444
18.4.6 Average Stock, Consumption, and Range of Coverage Key Figures 445
18.4.7 Receipt Value of Valuated Stock Key Figure 447
18.4.8 Safety Stock Buffer Key Figure 447
18.4.9 Safety Stock Key Figure 448
18.4.10 Service Level Key Figure 450
18.4.11 Stock at Receipt Key Figure 456
18.4.12 Lot Size Key Figure 456
18.5 Tools for Inventory Analysis 457
18.5.1 LMN Analysis 457
18.5.2 Flowcharts for Material Flow Analysis 458
18.5.3 Procurement and Consumption Cycles 460
18.6 Inventory Monitoring in SAP ERP 461
18.7 Inventory Controlling with SAP APO and SAP NetWeaver BW 464
18.7.1 Options for Evaluating Inventory Information 465
18.7.2 Overview of SAP NetWeaver BW 467
18.7.3 Using Business Content 469
18.8 Conclusion 479
19 Materials Planning Optimization 481
19.1 Classic Problems and Optimization Potential 481
19.1.1 Lack of Knowledge and Insufficient Use of the Standard SAP System 481
19.1.2 Stock Problems Caused by Incorrect Order Progress Messages 482
19.1.3 Stock Problems Caused by Backlogs 484
19.1.4 Weaknesses of Parameterization in SAP ERP 485
19.2 Example of the Process Flow of an Optimization Project 486
19.2.1 Step 1: Master Data and Process Analysis According to ABC/XYZ 486
19.2.2 Step 2: MRP Training 487
19.2.3 Step 3: Classifying and Creating the Set of Rules 487
19.2.4 Step 4: Migration and Continuous Optimization 489
19.3 Product Classification 491
19.3.1 Decision-Making Support for MRP Controllers 491
19.3.2 MRP Matrix 504
19.3.3 Effects of Classification on Planning 508
19.4 Optimization Tools from SAP Consulting 510
19.4.1 MRP Monitor 510
19.4.2 Replenishment Lead Time Monitor (RLT Monitor 514
19.4.3 MRP Optimization Expert Tool 515
19.4.4 Forecast Monitor 517
19.5 Conclusion 519
20 Outlook 521
A Literature 527
B Materials Planning Parameters and Influencing Factors 529
B.1 Planning Strategy 529
B.1.1 Parameters Affected by the Planning Strategy 532
B.2 Materials Planning Type 534
B.2.1 Parameters Affected by the Materials Planning Type 535
B.3 Forecast Method 536
B.3.1 Parameters Affected by the Forecast Method 537
B.4 Lot-Size Procedure 540
B.4.1 Parameters Affected by the Forecast Method 542
B.5 Safety Stock 543
B.5.1 Parameters Affected by the Safety Stock 544
C Materials Planning Optimization Four Steps for Implementation with the Support of SAP Consulting 547
C.1 Introduction 547
C.2 Materials Planning Optimization Service Offering 547
C.3 Objectives of the Materials Planning Optimization Service Offering 549
C.4 Contents During the Implementation 549
C.5 Procedure When Implementing the Ser-vice Offering 550
C.6 Results of Service Offering 550
D Add-Ons for SAP ERP 551
D.1 Forecast Monitor 551
D.2 MRP Monitor 551
D.3 Replenishment Lead Time Monitor 551
D.4 Simulating Safety Stocks 551
D.5 Service Level Monitor 551
E The Authors 553