Pulling from the Forecast...

I know... the title sounds like a contradiction, but in this case there are two forecasts involved: one in the DC and one in front of the bottleneck.

We are currently redesigning a supply chain for a process manufacturer and one of the problems is, that we have to be careful so that the bottleneck work center, with its limited capacity, always is being fed the right job. Therefore we avoid making too much of that stuff that doesn't sell and avoid ending up having no capacity to make that stuff that does sell.

Imagine a line that produces bottled fruit juices. In the raw materials warehouse we have apples, bananas, oranges and mango (there is sugar and preservatives too and empty bottles, caps and labels). The first work center is a press which takes the fruit and out comes nectar being put in inventory. After that, the next station is a blending tank, taking one or more nectars, sugar, water and some other stuff to produce the finished juice (banana, orange, apple or tropical punch). That blending tank is the bottleneck! The juice is stored in barrels and then gets bottled and shipped to the distribution center in cases on pallets.

My suggestion was: Put a forecast for each individual juice into the DC (strategy 40) and have the planning run generate stock transport orders to create demand for the line. The finished products in the bottling plant are set up for repetitive manufacturing with production versions, so that the bottling schedule is automated and takt or rate based sequencing.

In front of bottling, there are Kanban containers with finished juice - in a simple scenario there are two barrels of each juice. If you take a barrel and make 10 pallets of bottled juice, the Kanban is set empty and a process order is generated to make another barrel of that juice. Therefore that process order is pulling a specific nectar (or more) with sugar through the bottleneck and makes sure that the bottleneck is loaded ONLY with something that goes out at the end.

Now there must be enough nectar of the specific fruit available and for that I suggested a (seasonal) forecast on component level (strategy 70) which also gave a secondary requirement onto the long lead time raw materials

My client does not make fruit juice but they are a process manufacturer and Kanban and takt based scheduling works very well for them. There are many, many different specs and the guesswork on what spec to push through the oven has ended. The operators are now loading according to a signal from a kanban container... and they know exactly what to load onto the capacity-limited line.

Replenishment Strategies in SAP ERP

Replenishment strategies can be setup by way of the MRP type on the material master's MRP1 screen. In combination with lot sizing, various safety stocks, lead times and other indicators, the replenishment strategy is defined. It is important to understand that the replenishment strategy is not just “PD” or “V1”. It is the combination in which the four MRP screens are set up, that determines what strategy is actually executed by the system.

To make up an example; if the MRP type “PD” is combined with a safety stock, then we are communicating to the system that we want to execute the replenishment for that part as a combination of consumption based planning, whilst primarily waiting or planning for demand. We cover demand spikes with the safety stock, but the actual replenishment happens strictly after the demand comes in.

In the following we will discuss possible replenishment strategies; how they work, how they may be set up and configured and what kind of results should be expected. Special focus is given to the analytics that can be used to determine what strategy most likely works best for any given situation. What works well for a specific item today, might not work so well tomorrow. An item with very predictable consumption might suddenly receive spikes in demand and is not fit for the current replenishment strategy anymore. This is why it is so important to understand all strategies and their implications, so that the right strategy can be applied when the circumstances call for it. If the material planner knows one, two or three strategies and does not know how to switch from one to another, your supply chain will function sub-optimally. I have seen places where the MRP controller did not even have authorization to work in change mode on the four MRP screens in the material master. IT was setting lot sizes, lead times, strategies, MRP types and the like as per request. Many times the list of usable MRP types is limited to PD, and VB.

Yes, it looks like you are coaching a football team and the offense has exactly two plays they can choose from: run the ball left or through the middle. Your quarterback never learned how to throw the ball.

Let’s introduce and put together a playbook with which you and your team rip up the defense and move the ball (product) in the most effective way across the playing field (your network).

A Playbook for Replenishment Strategies

Plan on Demand (PD), the most widely used replenishment strategy in the SAP universe, also requires the most manual labor. In no way would I ever say "don't use PD", but give me a break; you use it for 98 percent of your raw and packaging materials? Well, maybe you don't and then I'm particularly proud of you. since you are definitely the exception.

PD is deterministic and therefore, in its purest form, waits for demand before it springs into action. If there is demand and the MRP run gets executed, a supply proposal is generated to cover that demand. No magic, no automation, nothing. It's as simple as that. Before your kid doesn't ask for a bathroom you don't look for one, right? And as long as she gives you enough lead time you don't have a problem (ever took your three kids on a stroll through midtown Manhattan, though?)

No demand, no supply! Which works really well when the purchased part is expensive and therefore costly to store, its consumption is highly variable and unpredictable and the lead time to procure is short. But when your production lines starve because a component is missing, your customers are told that you can't deliver the Porsche because you plan the standard cigarette lighter on demand or your bakery starts making pretzels after you walk in to buy one (or your butchers starts raising pigs after you order a pork sausage)… then we are in real trouble!

Your PDs should be worth the constant attention they need. It is ok to carefully watch and monitor how much of Johnny Walker's Blue Label you hold behind the bar, but to tell a patron that you ran out of salt because you were waiting to buy a sack until they asked for it, is flat out ridiculous (take a quick check to see if any one of your highest consumable, standard parts is set to PD)

There are ways to make a PD work for situations described above. You can set a safety stock, create a parts forecast or work with lot sizing procedures. That way you cover up the disadvantages of a PD, with stochastic (consumption driven) methods which help you somewhat to automate. However if the part calls for such methods, why not employing a standard consumption based planning method altogether? That is why they are there and they work beautifully if combined with the right lot sizing, safety stock or availability checking rule.

Reorder level planning is a consumption based method because it requires a minimum inventory to be available at all times and does not wait until there is demand before replenishment is triggered. Imagine the way your metabolism works. Its inventory is energy and when that energy level drops you get hungry and a desire to fill it back up is triggered. You get some food and eat. Now, you don’t wait until you’re completely depleted of all energy; there is an acceptable level – or range – from where you trigger replenishment. When you trigger energy replenishment, you usually have some lead time to deal with until you get that food, eat it and metabolize it so it becomes energy. You instinctively know that you have to have enough energy left at the trigger point so that you don’t run out completely within the replenishment lead time. This is no different with the raw materials you need to keep your lines going.

This kind of replenishment, like all other ones too, only works well in certain situations. Since you can predict really well what your rate of loss of energy is over time, you intuitively know how to set your trigger point. If your energy loss rate would be completely unpredictable, the trigger point would have to be set very high, because you really don’t want to risk losing your life when you have a very sudden drop in energy.

Also, if you are very far away from food - let’s say on a marathon run where you can’t stop and sit down for lunch – you may eat some extra carbohydrates beforehand so that your energy level is very high and gets you through a long lead time. And last, but certainly not least, you want to think about your service level. What is the percentage of time that would be acceptable for you to wither away? (Now this metaphor does not work that well anymore).

These three variables determine where you set your reorder level. The more predictable the consumption, the lower the reorder level needs to be. The longer the lead time, the higher the reorder level needs to be. And the higher your expectation to never run out (e.g. a 99% service level), the higher the reorder level for safety. In the latter case the reorder level moves up exponentially. This kind of thinking will also help us to determine at what situation reorder level planning does not make sense anymore. Obviously, if you have unpredictable consumption in combination with a long lead time and high expectations to never run out, you should look for another strategy. Your reorder level, and therefore your inventory holding, is too high.

Oh… and don’t forget about the other dimensions: value and size. Salt, something that is cheap and does not take up much room, is assumed to be in inventory at all times (I wouldn’t go back to a restaurant that could not get me a salt shaker on the table, after I asked for it). Even if the use is unpredictable, or it takes a long time to get it, or I never want to run out. It still makes sense to bring it back in after it breaks through an even very high reorder level, since it is cheap to hold and easy to store.

Of course you could also plan salt on demand, but the point is, that if you do that you would have to watch your salt at all times and with the reorder level procedure you get automation; you don’t have to watch it; it’s out of the way and plans itself.

SAP ERP provides you with four standard reorder level procedures to choose from (technically there is a fifth one for time-phased planning which we will cover later):

-          VB, the most basic of them all, where you set your reorder level manually and MRP just simply creates a supply proposal when inventory breaks through that level

-          V1, which also uses external requirements, like a sales order, within the replenishment lead time only, to calculate when the reorder level is broken

-          VM, where the reorder level (and the safety stock) is calculated automatically by the material forecast

-          And V2 which is a combination of V1, using external requirement s and VM, which calculates reorder level and safety stock using the material forecast

Be careful with the automated reorder level procedures. They use consumption patterns, lead time and service level to calculate reorder levels and if one of the parameters is off, your inventories might go through the roof. I always suggest to set the procedure to ‘manual’ and simulate a calculation procedure without saving it. If you do it that way, you can perform “what-ifs” and monitor what’s happening without risk.

Before we get to other consumption based replenishment strategies, I would like to explore another method, which is very often confused with a reorder level procedure and is not controlled by the MRP type on the MRP1 screen. However, it is a consumption based replenishment strategy nonetheless: Kanban!

In its original, simple sense, Kanban uses two bins with a certain quantity of parts in each, and when one is empty, replenishment is executed while the other bin – or its content – is used up. You just have to design the quantity available in each bin, so as to have enough in one bin to not run out while the other is filled back up.

So when do you use that kind of thing? Instead of a reorder level procedure? Because it’s the same thing? I don’t think so. Going back to our energy example, it becomes clear that there are situations where you cannot simply trade a reorder level procedure for Kanban.  I don’t have a second bin of energy that I can switch to, while I fill the empty one up. On an airplane you usually have more than one tank and on my 1957 Money M20A, I was able to switch over to the right wing tank before the left wing tank emptied out, but that is simply not always possible (hmm… was my fuel supply really Kanban controlled?). When you fill Rum into bottles from a tank over the bottling line, you don’t want to switch back and forth between two tanks but rather start the replenishment process for the blending at some point when that one available tank gets to a level where the replenishment lead time fills it back up to where it needs to be, before you run out.

Kanban is great for parts needed on an assembly line. You put two bins of screws on there and the worker takes what she needs. When the bin is empty, she takes screws from the second bin and sends the empty one to the warehouse for replenishment.

Material forecast: I have not yet seen an SAP installation where the MRP type VV is used to its full potential. Here are my five cents:

First off: a VV can also be used for finished goods. It’s just that SAP never thought about configuring that option into the initial version, so they didn’t customize the standard software delivery that way. You will have to maintain some entries for VV in customizing transaction ???? before you can sell a VV product in a sales order. There are many situations that would call to set a finished product to VV. As an example, you can create a forecast in the material rather then in S&OP and then copy the VV forecast as a VSF into demand planning. This has the advantage that you have perfect, individual control over the product’s forecast and the added advantage that sales orders consume that forecast.

So what does the VV do? It is a consumption-based replenishment strategy, in that it maintains inventory in anticipation of actual demand. The inventory is replenished to a forecast which is based on the materials own consumption history. Hence ‘material forecast’. This is a good strategy when you have predictable demand but the lead time to replenish is long. Since you put ‘artificial’ demand out there by way of a forecast, MRP is able to generate all supply elements way ahead of time and all you have to do is to turn the requisition into an order at the date the system tells you to do so. But beware;  it does not take demand spikes into consideration. Any changes in demand will flow into the consumption pattern and eventually be picked up by the forecast module. The system might increase or decrease the forecast or tell you that the current underlying model does not hold water anymore. So, like all the other strategies, you can only use a VV when it fits the bill. Don’t blame SAP when you use VV for a finished product and you complain that it does not pick up immediately on a demand spike. It simply won’t.

It’s like a squirrel planning for his family for the winter. Rocky has a forecast in his head and brings walnuts in to provide for the upcoming winter season. Should he become unusually hungry, he just eats up what he has and does not bring in more to cover that spike. There are no more nuts! So it is with your long lead time items that are predictable. If it takes 6 months to bring in peach skin micro fiber from China, you don’t want additional sales orders introduce nervousness into your procurement schedule… because it just won’t do any good anyway.

You can cover variability in demand; but in case of the VV you do this with safety stock. Either static, forecast adjusted, or dynamic with a range of coverage profile. Once the safety stock is depleted you run out and the service level degrades.

A VV provides a high degree of automation, but it needs to be monitored and SAP provides various options to do so. One of the parameters you can look at to see how good the forecast was, is the error total (FS). It looks at each period where there was a forecast and subtracts the forecast values from what was actually consumed. As the consumption most likely differs from the forecast, the question is: how much different? If the underlying model (constant, trend, season or seasonal trend) is correct then the error should sometimes exceed and sometimes fall short of what was forecasted and over the long run average out and approximate zero.

Another parameter calculated by the forecasting app is mean absolute deviation (MAD). This is a measure of variability and forecast quality. The MAD is calculated by adding up all absolute values of Error and dividing it by the sum of the actual consumption values. Thi provides you with a measure on how much the actual consumption deviates from the forecast on average. The smaller the MAD, the better the forecast was; the smaller the average deviation, the better.

Now the system is able to calculate the tracking signal for you which is determined taking the error total divided by the MAD. If you think about it; when that coefficient is high, then you have am]n error total which is high above zero (therefore a bad model underlying your forecasting) and a low mean absolute deviation (meaning that consumption follows some pattern, just not the one you had selected). Or, in different terms, the error total should be close to zero and therefore if you get a high number out of the formula FS/MAD, you have such a high error total that you might have to change gears and select a different strategy altogether.

What is being compared to the tracking signal (TS = FS/MAD) in SAP is the tracking limit. It is maintained on the forecast screen and in standard is set to 4.0. If the tracking limit is exceeded by the tracking signal, you get an exception message in MP33 and you can even set the system so that a new model selection procedure is automatically initialized.

Traffic lights in MD07... put them to good use!

In MD07 you get a complete list of all materials assigned to your MRP Controller portfolio. That list has, amongst other information, traffic lights which are colored red, yellow and green. The materials are usually sorted that way, reds first, then yellow, then green (of course, you can change that sorting sequence) indicating where a material falls in terms of its “stock days of supply”.

If you are working in a Make to Stock environment, you should forecast your product’s Sales and cover any variability – the difference between forecasted and actual sales, the lack of adherence to planned lead times and any interruptions – with a safety stock. The type of safety stock I strongly favor over the static safety stock in MRP2, is the dynamic safety stock you can have the system drive by way of the Coverage Profile. This is because it is expressed in days and therefore can be assigned to many products and is visible in MD07, if you know how to set it up and interpret the lights.

A range of coverage profile allows you to set a target safety stock level as well as a maximum stock level. If, for example, you set 5 days as the target and 20 days as the max for a group of products in your warehouse, you are telling the system that there should be enough inventory left over, after you cover your forecast, to get you through 5 days of average sales, should you sell more than what was predicted and forecasted. But the system also cuts the supply (if you have lot sizing EX) so that your inventory never exceeds more than 20 days to be held in stock. Should you work with fixed lot sizes or minimum lot sizes, there might be the occasional excess stock (that’s when you get an exception 25).

The system is now able to plan for these targets but, as we all know, there is variability and not everything will turn out to be on par. But you can monitor these levels with MD07. When calling up your list for the product group for which you have maintained the 5 day target and 20 day max, you can set the traffic lights with a range for

 < red >> 5 days >> yellow >> 20 days >> green >

This way you will see a display, where all the products which have less than 5 days of supply in inventory, will be on top of the list with a red light. All the products that have inventory which lasts for at least 5 and less than 15 days will be  in yellow and all the products with excess stock over 15 days in green at the bottom of the list.

moving towards an exception minded business...

One of the first things I look at when optimizing the SAP supply chain at customers, is how the material planners evaluate the exception messages, which are generated when not everything goes by the plan. SAP ERP has an impressive setup providing for a number of features allowing for exception monitoring and taking actions to balance demand with supply. However, these features are rarely used to its fullest potential. Following some thoughts and recommendations:

I see many people using MD07 and almost everybody uses MD04, but not many people use MD06 or MD05. Sometimes I hear people say "why should I use MD06 when the information is already outdated?". It is usually known that MD06 / MD05 is a snapshot in time; a stock / requirements list as it was created at the time of the last planning run. It is the so-called MRP list, because it has the time stamp of the last MRP run.

When you use MD07, you will get a list with all materials belonging to an MRP controller (or a product group) and their associated, dynamically created stock / requirements lists. This is a good thing if you are cleaning up outdated elements, but not if you want to get in the mode of an exception minded business and you want to tend to those things getting off plan only. MD06 is the transaction to use for that!

This is because in MD06 you have the ability to limit the list to a certain date (other than in MD07 you are asked to provide a ‘from’ and a ‘to’ date in the initial screen). Since the planning run creates the MRP list as the last step of the planning sequence, the MRP list has a time stamp and is, or was, valid only at that specific time and date.

By entering yesterday’s date, you will only get MRP lists which were created yesterday. Therefore you get a list of all materials which were planned yesterday – and none others! That is a great thing, since no one wants to work off a list which is comprised of materials which one needs to look at and materials one does not need to look at (why looking at materials which were not planned and therefore have not received an MRP relevant change since the last time I looked at it?)

Call up MD06 first thing in the morning with yesterday’s date if MRP runs before midnight (…and with today’s date if MRP runs after midnight). And do it every day! After it’s done for a while, the list becomes manageable and allows for a quick and focused exception management.

What do the exception messages mean? Exception messages are generated by the MRP run and categorized into 8 groups. I think SAP has done a great job of how they categorized and grouped these various messages in the standard delivery. I have seen many installations were people (consultants and customers – users and IT personnel) reconfigured the assignment of exception messages to groups. I have not seen any such cases where anything was achieved by such re-grouping. Let me have a shot at my own interpretation of these groups of exception messages and what I think was intended by this grouping:

Group 1 contains exception messages where the opening date lies in the past. Usually, this is a newly created order proposal since the system tries to alert you to this fact every time the planning run is executed, but if you set the run to not create new proposals every time the opening horizon is missed, you will simply get exception 05 on an existing proposal. If you missed the opening date, you missed the date when you had to converted a planned order into a purchase requisition. And this is assuming that you have maintained an opening horizon in the schedule margin key and you create planned orders first before you want a purchase requisition.

Group 2 contains exception messages where you missed the release date to convert a purchase requisition into a purchase order. Like in group 1 messages, this is usually and newly created order proposal. There is also message 63 which tells you that the system has suggested a production start that lies before the order start in lead time scheduling. This happens when you don’t have the system to adjust the basic dates (customizing in OPU5).

Group 3 messages are more serious problems. Now we did not only miss the start but are already past the finish date. We are still on the proposal side of things, so the planning run keeps on trying to adjust the proposals and usually creates new ones. Here we can also see exception 64, which tells us that the production finish is after the order finish – also because we don’t adjust the basic dates maintained in OPU5.

Group 4 are general messages like when a new order proposal was generated and there is no problem with scheduling (01). Or an order proposals quantity has been changed (42) or an order proposal was re-exploded (44). If an order proposal has been changed manually since the last run, you will also get an exception (46). These messages don’t pose a problem and are of the informative kind. It is important to know that you can only view exceptions out of group 4 in MD06 – not in MD07! This is, because the system can’t tell when the last planning run was, since the dynamically created stock / requirements situation (in MD07) has no time stamp.

Group 5 exceptions point to messages resulting from errors in the BoM explosion. For example, if the planning run couldn’t find a suitable BoM, there was missing config to support the explosion, or if there was no valid run schedule in repetitive manufacturing (54)

In Group 6 we deal with exceptions resulting from an availability check or stock shortages and stock excesses. If we dip into safety stock (96), push the inventory above the maximum defined in the coverage profile (25 for MTS, 26 for MTO) or exceed a quota (70), we are alerted and have the opportunity to take action to remedy.

Group 7 contains all rescheduling messages (expedite in 10, push out 15 and cancel 20) and the ‘proposal’ message 30 which tells us that the demand is inside the lead time and cannot be fulfilled without expediting.

Like with group 4, messages out of Group 8 cannot be seen in MD07 but only in MD06. In case the planning run was terminated for a material, message 98 in group 8 is shown.

So what’s the sense in grouping these exceptions? It is simply to prioritize the workload for the exception handler when they call up MD06 in the morning. My suggestion for the sequence is based on experience out of many installations, but it is slightly different from customer to customer. Find your own and adjust it as you go and see fit.

I deem group 8 the most important. You do not want to have any materials in your portfolio where the planning run aborts. Clean those out first. Next you might want to look at group 5. These are structural problems and the planning run can’t even come up with a date or quantity since the demand does not get exploded down to the lower level. Then group 3; not only did we miss a date to firm a receipt, we are so far behind that we missed the date when the receipt was supposed to come in to fulfill a demand. Before that, you will have to deal with the group 2 problems where you missed the date when a proposal needed to be firmed so that we can receive the quantity after the regular lead time. If you miss that date, rescheduling and manual expediting is your only option.

Group 1 exceptions are only relevant when you use an opening horizon and want to have an additional check where your external procurement is triggered first by a planned order and then by a purchase requisition.  Therefore group 7 messages ought to be tackled next. These require expediting and may take a much longer time frame but in the least, I would create a list at this point, which I can execute throughout the day (call vendors, check with purchasing, look at the warehouse for inventories etc.).

Next is group 6. Inventory excess or shortages usually require a change in strategy… and that cannot be done on the fly in the morning during an exception handling session. Again, make a list and see if you can reduce these exceptions over time, applying a different MRP type, changing the lot size procedure, looking at safety stock etc. etc. Last but not least you have a look at the general messages in group 4. Why is there a new proposal? Why has one been changed? These messages are information only and don’t necessarily require action.

As you reduce your exceptions (you will never be able to rid yourself of all of them), you will find all kinds of problems in the process, the master data setup, the system setup or with human behavior. You will get yourself into a more analytical mode of operandi and proactively solve issues rather than work transactionally and constantly try to put out fires.

It is a very worthwhile exercise to learn about all exception messages and why they are being created. Don’t waste your time trying to make sense of them by regrouping and re-interpreting what SAP has already figured out for you!

SAP value stream mapping in the context of an optimization

Usually when I get to a new client who’s been using SAP to run their supply chain for a number of years, I try to get my hands around their process by laying out a value stream. As we all know, a value stream is comprised primarily of an information flow , going backwards from the demand source and a material flow, going forward to the demand source. In the information flow, I can then see what functions and transactions are in use in which way, whereas the material flow gives us valuable insight into WiP and stock locations, throughput and cycle times (as described by Little’s Law).

After we mapped out the current state, we can use it to define, describe and document a future, better state. I also like to build models that we can touch and point to; and Lego has been the preferred choice so far.

Besides the regular elements like ‘process’, ‘inventory’, ‘info boxes’ and ‘FIFO Lanes’ you can make up your own. I use (1) SAP MMR info boxes, (2) Functional area info boxes, (3) transaction info boxes, (4) an element to maintain all relevant information for a Kanban cycle to achieve pull, (5) customizing info boxes, which document the settings to be done in customizing, (6) order related information and how to generate them in SAP, (7) additional descriptions and (8) structure related to as we combine process steps into a routing and eventually an order.

Of course you may define your own ones and every time I create a new value stream, I come up with additional elements.

This way I will know how the four MRP screens are maintained in the MMR, what transaction flow my client employs to schedule the line, creates a forecast or triggers replenishment and what order types are used. And most importantly, what SAP functions are used, used as intended by the standard, not used at all within SAP.

Now I dream up the way I would operate considering the closest options to standard SAP. Where can we use consumption based replenishment strategies to automate supply? Where is the inventory / order interface to identify Finish to Order? What planning strategies may be used to optimize finished goods inventory levels and service? What master data settings support best a better planning strategy? Where can I use Kanban? Should I use repetitive orders or discrete production or process orders? And many things more…

The map is a living document and it gives us not only a point of reference,  for discussion and education but also a place to document our decisions. I then also use the SAP value stream map to identify workshops and educational sessions that need to be performed to get everybody on the same page.

Some general comments: Every value stream is made up of two essential components: demand and transformation. Demand is the reason for the existence of the value stream. Transformation provides the ability to satisfy the demand.

The Value Stream also involves only two basic components: stocks and flows. Both demand and transformation are types of flows. Flows involve capacity and time. The capacity of a flow represents the maximum amount of flow (what we will call the “throughput” which is measured as parts per year, parts per day, patients treated per month, etc.) the flow can produce. The time element describes how long it takes for a part to traverse the flow. We call this the “cycle time.”

Stocks are what separate flows. If two or more parts need to come together in an assembly, for instance, there will be a stock for the parts to match up. Raw materials and finished goods are also examples of stock. Note that only parts can be stocked and services cannot. If you break your arm, you cannot go to the emergency room and get your x-rays, a diagnosis and a cast for your arm off the shelf.

Interestingly, work in process in a flow (the parts that are being made) is not a stock. WIP is a characteristic of the flow and is the product of the throughput and the cycle time (Little’s Law). However, parts that are stored between flows are in a stock. The difference is determined by whether the parts are waiting for a resource (e.g., a machine) or waiting for another “logistical event” such as matching with other parts at an assembly or waiting to be shipped. WIP is waiting for a resource. Stock is waiting for a logistical event. The drivers of resource performance are quantitatively different than the drivers of logistical events.

A value stream therefore, is a structure of flows and stocks providing transformation to meet demand. Note that this definition is completely scalable and can apply to a production line, a plant or an entire supply chain.

Using this type of information and the value stream we can measure the effectiveness of the supply chain. This can be done using the flow benchmarking process, which I started to describe in a previous blog. But there is much more…

SAP Mentors at SAPPHIRE NOW 2012, Orlando

It was a great show with many excellent presentations and great keynote speaches. Below are some of my fellow SAP Mentors with the entire executive leadership of SAP:

front middle: the man himself, SAP co-founder Hasso Plattner and co-CEOs Bill McDermott and Jim Hagemann-Snabe.

hope to see you at TechEd in Las Vegas October 15th through the 19th and / or SAPPHIRE NOW in Madrid November 12th through the 16th.

I say: don't optimize your setups or change-overs !

on my blog about not reducing future forecast, I received many differing opinions and there were lively discussions going on. That is the kind of stuff that makes us think a little bit longer about our opinions and usually leads to a better solution... and then, of course, there are many different situations and each situation calls for a slightly different approach.

alright... here is yet another opinion of mine: "optimizing setups or change-over time in the production schedule adds to the waste of overproduction and is unnecessary!"

take a production line that has a capacity of 1000 hours in any given period. A forecast calls for the provision of certain quantities of products A, B C and D in that same period. If the production of those quantities can be done in less than 1000 hours, you have free available capacity. Typically, a costing person now says 'fill the lines' and you see that you can put more product on the line and try to utilize close to 100%.

Now, if you also optimize your change-over times, you will free up even more capacity and the production manager is busy to put even more product onto the line, which no one buys.

In my opinion, if you have left over capacity, you are better off just shutting down the lines rather than making product that gets stuck in the warehouse... now here is a radical idea: what if you don't shut down the lines but instead using the free capacity for more change-overs? what I actually suggest is that you cut down on the lot sizes, which results in more change-overs, and here is where most people get hung up on. "Change-overs are bad", they say... and I agree, unless I have capacity left and achieve smaller lot sizes with it.

What I am saying here is, that you are better off using superfluous capacity on the line with change-overs rather than making product that you don't sell or shutting down the line. Because the increase in change-overs comes from a minimizing of lot sizes, which in turn, gives you much more flexibility and helps you move towards a more (actual) demand driven supply chain.

And here is the kicker... I see companies spending an incredible amount of time breaking their heads over optimizing change-overs or setups or production programs. All these Advanced Planning systems market themselves with heuristics and optimization strategies that help you fill the line, so that you can fill the line with waste! You say no? as soon as I produce anything over demand, I produce waste. And that happens when I either fill extra capacity with product that I don't need or when I produce in big batch sizes and have no way to undo that big production run from Monday morning through Tuesday afternoon, when on Thursday, it turns out that I really didn't need that much.

Besides... here is a little anecdote about determining the best possible schedule: If I have one work center and I need to schedule three jobs I have 3! possibilities. Therefore I have 3 times 2 times 1 possibilities which is 6 (first A then B then C or first B then C then A or...). However if I have one work center and 25 jobs to schedule on it, I have 25! possibilities. That is a number when put in pennies, it covers the state of Texas... 6 miles high! How many of you have more than one work center? and what heuristic can produce a good result for that?

What you plan for tomorrow you can't give away today...

Everybody knows how a VSF generated by strategy 40 works, right? After all its the most commonly used planning strategy around.

You enter a forecast (there are many automated or manual ways to do it) and the MRP planning run ensures that there are supply elements to provide enough product so that if the customer wants what you forecasted, everything will be fine. Of course, the forecast is never the same as sales are, but that is what safety stock is for.

So if your planners are somewhat right, your MRP controllers make sure that product is made and available just before the forecast requested it and your sales people check availability on available stock, You will be able to have a very high fill rate.

But there is another component you have to worry about; the way you consume your forecast!

The consumption strategy you find on the MRP3 screen. There is the possibility of consuming forward, backward or both. And not too long ago I thought going backward first and then forward is the best thing to do. I don't think that way anymore...

Just recently a production scheduler complained to me that he can't handle all the requirements thrown at him... Ever!

We looked at many things. Availability checking rules, forecast accuracy, demand leveling, available capacity... But the problem, as it turned out, was the consumption of the forecast.

What happened was that there was strategy 40 (a make to stock strategy where a forecast is consumed until its gone and then additional demand is placed on the line) and a consumption strategy that looked 20 days backwards first and then 22 (working) days forward to see if there is any forecast that can be used up.

Now the product we were looking at was an A item and a big seller which was chronically under-forecasted. My friend (he is now a good one ;) ) was complaining that no one ever requested anything in advance, but the orders rolled in last minute in quantities impossible to handle.

Well... Think about it... Too low of a forecast and then a consumption logic where sales orders quickly run the current forecast down and then consume down the forecast of the next month and then the one thereafter. And if there is no more forecast left for the next month, the planning run thinks you don't need anything the next month.

So the more you sell the less is planned for. Not a good planning strategy!

Here is a simple remedy: consume ONLY backwards. If you do the right thing, there will be inventory on the first day the forecast stands at and throughout the period you consume THAT forecast. After you used it up you have safety stock. And after that is gone, you can tell my production planner friend to make more - but only then - and that will be the exception and most likely at the end of the period. But don't ever take down the forecast of the next period; it does not make sense to tell the system that if I sell a lot today, I need less tomorrow.

the SAP Mentor program

Just recently I was named SAP Mentor, thanks to the nominations I received from you. Thank You for that. I am not yet 100% sure what the SAP Mentor program exactly does, but from what I understand it bridges the gap between SAP and their customers.

SAP has claimed from the very start, that they are a software house and therefore are responsible for the provision of excellent software products - which, in my mind, they certainly do.  The delivery and maintenance of these products should primarily be provided by so-called system integrators. And these provide that service to a varying degree. Naturally there are very good ones and not so good ones. And as I mentioned in previous blogs, the customer is often at the mercy of the system integrator because there is a "functionality-filtering" going on. You only get what your consultant knows.

How does the SAP Mentor program help in that regard? I am hoping that we will be enabled to receive all necessary information and have access to the important spots (in our field all the way up to the SAP executives), so that we can rely important news and developments back to our customers in the most efficient way. And that is exactly what it looks like is happening !

I was kindly invited to attend SAPPHIRENOW in Orlando this coming week and there is a very busy schedule for me to meet with many people in the SAP organization.

I am very excited about the opportunity, not only to go to SAP's user conference and see Van Halen live, but about the possibility to become the bridge to our customers and make sure they get the most out of their investment.

drop me a note if you want me to do something very specific for you, to help advance your SAP investment... so that we can start kicking off this mentoring thing and make it worthwhile

uwe@bigbytesoftware.com

inventory ghosts and mythical stories...

Sometimes I come to an assignment at a company and I hear from all sides a panic stricken message: "inventories are too high!". And even though I keep asking for a more insightful statement, I only hear "inventory is too high" How high is too high? 5 million? 50 million? Should you ask me, I would tell you that an inventory value of 50 million dollars with high turns and low dead stock is much, much better than an inventory value of 5 million dollars with low turns and high dead stock. So where is the rational here? "Inventories are too high because they are higher than they were last year". That's a statement that does not make much sense. Last year we had stockouts on many products and that is why we need more raw materials in the process and more of the right finished product in the warehouse. WE NEED MORE INVENTORY !

People are being confused by conflicting messages. What I usually teach, is that you don't blindly reduce inventories but that you optimize inventories, so that you have the right product at the right time in the right quantity. This does not happen if you simply look at an inventory value at one point in time and compare it to an inventory value at another point in time. We need to take a more scientific approach and consider internal and external influencing factors. For example: if I keep dead stock from past inefficient planning processes and want to raise inventories for product that we were running out of, our inventory will undoubtedly rise. The answer can not be that I keep the dead stock around and/or do reduce the raw materials inventory for the product that I need so desparetly. I either accept the fact that inventory MUST rise or I get rid of the dead stock and it will stay the same. But I CANNOT keep the inventory low on a product much needed and keep on running out. Reducing Sales is not an option and usually a reason to fire someone (...instead of firing someone else when the inventories rise??)

Buyers and Planners are afraid of getting more raw materials but without raw materials they can't make finished goods... and they were told to get the coverage up to 6 to 8 weeks.... and they did... and then someone says "The inventory is too high"

so here is the Planner at the crossroads: he gets told not to scrap the dead stock; then he gets told to increase the finished product to 8 weeks of cover so we can sell; he dutifully fulfills his tasks and brings in raw materials to make the right product at the right time in the requested quantity... and then someone just simply looks at the difference in inventory value from, before he was told, to after he was told and fulfilled his duty... and says: "the inventory is rising!" duh!

Lean SAP for the process industry

If your company is a process manufacturer, you most likely mix, blend, cure or otherwise process your products on a production line. One of the characteristics of processed products is that you can't disassemble them. An automobile you can usually 'unscrew' and put the components back in inventory (even though that is not true 100%, it is an approximation to generalize the difference between process and discrete manufacturing). 

Also, in process manufacturing you may have by- and co-products; unfinished yield that may be re-introduced into the process. And you often can't predict what exactly comes out of the process. So you have to work with ranges (of specifications) and chemical formulas. All of that is provided with recipes and process orders in PP-PI.

As "lean manufacturing" came primarily from the automotive industry, process manufacturers always asked the question if they can reduce waste as well. Why not? You can not introduce 'one piece flow' but that's not the only lean principle. Why not heijunka level a production program or make every product every interval (EPEI)?

Peter L. King has written a book, Lean for the Process Industries. Dealing with Complexity, which beautifully translates all the 'automotive lean principles' to process manufacturing. 

One of the most interesting ideas is the 'product wheel'. It represents the heijunka for processed products. 

Products wheels allow you to schedule, capacity level and sequence your production program all at the same time. It is a mixed model scheduling concept which allows you to automatically fill a processing line to it's capacity, in a setup-optimized sequence, ensuring that the smallest possible lot size is processed as many times as possible within a planning cycle. 

Within this concept the circle represents the lengths of the planning cycle, each spoke is a batch size (the lengths in time to produce it) of a specific product and the gap in between represents the time it takes to setup, clean or prep the line for the next product. Note that there are spokes for MTO and spokes for MTS. The MTS spokes are planned based on a forecast, whereas the MTO spokes are reserved time / capacity which can be filled by customer requests which are made to order. 

A planner will first identify how much time is available during a planning cycle, to get around the wheel. If that time span is one week we simply sequence the total forecasted quantity for all products on that line and for the week around the wheel. If, with that, we get 2/3rds around the wheel, then there is 1/3 available for MTO capacity and setup time. So now you take up some space for MTO and 1/4 of the cycle is available for setup.

...and here is an interesting concept playing into one of the lean principles: avoid waste of overproduction!

If you have 1/4 of your line capacity left over after you planned for MTS and MTO, don't fill the line up to just make something! But rather use that capacity for more setup, so that you can produce in smaller batches. Smaller batches means more setup but also means more flexibility. If I make the entire batch of product A required in the week on Monday and Tuesday morning, I have no way to react, should the customers pick up less than what was forecasted. But If I make some on Monday, some on Wednesday and some on Friday, I have a much better chance to switch over Fridays production of A to make more of B.

And if my demand calls for only 3/4 of my capacity, I am really NOT better off reducing setup time and making more product - product that most likely goes to waste. And since most process manufacturers have shelf lives for their product, this concept becomes much more important here than in the automotive industry.

...so how do you setup the product wheel concept in SAP? There are two ways to do that: either you use capacity dispatching of process orders, graphically in CM25 or you employ the tools of repetitive manufacturing (i'm getting excited now :-) and most of you think I'm out of my mind! Yes, you can use ManRep with recipes as well!)

If you use CM25, you can setup a product wheel strategy to sequence and capacity level your plan which will look something like this:

Should you go my preferred route and use LAS2 in repetitive manufacturing, you will have a heijunka-like procedure profile, you will be able to set the capacity limit for scheduling purposes and you don't have to convert any planned orders into process orders. the weekly sequence looks like this:

The moral of the story (if there is one) in either case is that there are possibilities with no end in the SAP system. Learn about them! Make them your own! Use them to advance your company's operations! And what is really exviting is that all this stuff works!

You can't do capacity planning in SAP? I can!

Last year I traveled to Europe for an american manufacturing company. There, they had a production facility which has been using SAP for a while. Finance, Sales, Human Resources, Material Management and Production Planning were long implemented but only used to various degrees.

One of the functiones they did not use was capacity planning. To my question: why not? I received the reply : "SAP ERP can not do capacity planning!" whoa! So I dug a little deeper and to make a really long story very short: back in 2002, their implementation consultant obviously did not know SAPs capacity planning (in a previous blog I claim that your SAP gets functionality-filtered down: first by time and budget constraints, then by what your consultant knows). 

Back then it was concluded that the place to maintain available capacity ( in capacity planning you need to compare available capacity - from the work center - to required capacity - from the order) is the MRP Controller !? In the material masters MRP1 screen. Well, that didn't work that well and the team came to the conclusion: Capacity Planning is something SAP can't do!

Nothing is further from the truth (we have done capacity planning at Dornier in Germany with R/2 back in the 80's) but in this specific case a horde of external ABAP programmers developed a 'capacity planning module' for lots of money (in a previous blog post I asked the question: how is it possible that a consultant can program better software in SAP, than SAP can?). It is of no importance that the same company which suggested that SAP can not do capacity planning, also programmed the "missing" SAP capacity module at this plant. 

Now that we had that settled, I wanted to see how the planners level capacity. The supervisor very proudly presented their "own" excel spreadsheet solution. "It does not have the current availability and the orders are batch-downloaded only on a weekly basis but at least we can estimate the cost of production - if the plan matches what is actually produced" 

So let me sum this up: you buy an SAP system, you pay for the implementation, you pay to develop a work around, you then develop a spreadsheet solution on your own - and you end up with nothing! Not a very good business case.

Capacity Planning in SAP is very real! It is extremely flexible and works for everything from discrete to process manufacturing. it is perfectly integrated with all your planning and execution and costing functions in SAP and does not require any modification or work-around.

I bet you the cost of a work-around to make it work at your company to your fullest satisfaction with all the bells and whistles you ever need. In the standard!

have your Sales department and Production Scheduling dance to the same song...

Wherever I go to do an optimization, we assemble a supply chain team comprised of all functional areas. Procurement certainly plays a big part and so do the material planners. Then there are the demand planners and the production scheduling people. And there is always talk about including the Sales department but it never materializes. Do you have the same problem or is it a phenomenon that only I experience? Sales is always on the agenda but they never show up. I am not sure why, but it seems that because they are on the downstream side of the value stream, they don't experience the pain caused by a sub-optimized information flow (in a value stream the information flows upstream and material flows downstream) but rather only experience the problems occuring in the material flow. And those problems, so they claim, are not due to false information, but bad execution coming out of the sub optimal material flow. So the sales people are not the problem (?!). It's the other people that need to optimize their workings. I somewhat disagree.

If a sales rep performs an availability check for a make to order product and does not find anything in inventory... what would you say should happen? should we place additional demand on the production line to produce it asap? should we complain to the planning people? should we tell the customer that we will do anything we can to get it to them immediately? No, no and no! An item identified as to be 'Made to Order' has no business to be in stock readily available to be shipped. It will be made to that order and therefore the availability check has to tell the customer that they will get it AFTER the replenishment lead time. And if the sales rep promises anything different, the production scheduler will take the blame for a situation which was "fubar'ed" by someone who didn't know the process or didn't follow it.

Yes, I find it very often (or actually always) that after the implementation there is a lot to learn about master data rules and how better settings can support a better material flow. But all this optimization does not bear any fruit if the result of the availability check is ignored, a false requirements type is transferred or a forecast quantity is consumed that wasn't meant to be consumed by that type of order.


possible misstep number 1: availability check in the sales order
Every time a sales order is entered by a sales representative, an availability check should be carried out.The  availability check should tell the sales rep if and when which total or partial quantity of the product may be committed to the customer. The availability check looks for inventory if the item is MTS. Should it not find inventory, that AV check goes out and looks for the next receipt and confirms according to that date - and does not put additional demand on the line, and therefore create noise. So that;s the MTS check! In case of an item that is MTO, the availability check should always confirm the item after the replenishment lead time. Because we are making this product AFTER the order is received it will take time to make it - the time to replenish the product to the order.

Now you have a committed date for either order, but if the sales rep does not fix the date - and strangely enough I don't see sales reps fix the date anywhere - then today's date will show up as the material availability date in MD04 and all hell breaks loose in the exception monitor (of course only if people aren't desensitized by the amount of red lights and exception messages they receive on a daily basis in the materials planning department)

Whoever enters sales orders into the system needs to understand the implications of MTS vs. MTO or ATO and have a grasp on the planning procedure!

possible misstep number 2: to reduce the forecast or not to reduce the forecast... there shouldn't be a question and it can make the planner look bad
when planning an MTS product, you should generally put out a forecast to which the production scheduler can plan producing inventory to. Usually this is a forecast of the type VSF coming from strategy 40. When entering 40 in MRP3, you can also maintain consumption parameters and let me tell you... I have seen crazy things.

You have the option to consume a forecast (through incoming actual sales orders) going forward, going backward or doing both. Now think about this: let's assume there is a monthly forecast. This would mean there is a VSF with a negative quantity (a demand element) standing at the first working day of every months. The planning run will cover that demand by creating a supply element (usually a planned order) to bring in the quantity just before the first working day of the month. This would ensure that there is enough inventory available at the first so that I can sell (with actual sales orders) that forecasted and produced to - inventory throughout the months (plus a safety stock).

Naturally every sales order coming in during the months is reducing the inventory and should reduce the forecast - but only the forecast that was created for it, right? You achieve that by maintaining a consumption strategy that consumes in a backward direction - no more than 22 working days. If your consumption strategy consumes backard and then forward, you will, after you sell more than what you forecasted, not dip into safety stock alone, but also start consuming the forecast from the next month. That will result in putting less into inventory for the next month and essentially telling the system that because our sales went up this month, they will be less next months

That is most likely not true and makes the forecast planner look bad!

possible misstep number 3: what's made to stock and what needs to be made to order?
please note that I made a difference in tense in the wording of the question. 'what IS made to stock' is present, whereas 'what needs TO BE made to order' is future tense. That is because in a MTS strategy we anticipate and make it available before the orders comes in and in MTO we only make the product after the order is placed. Of course you can't make anything to stock beforehand, if you can't predict it. So MTS items have a forecast and are predictable and MTO items are unpredictably and are not kept in inventory.

It is imperative that you make that distinction and clearly communicate it. If it isn't clear what it MTS and what is MTO, it will be impossible to plan correctly, check availability correctly or tell our customers what they should expect from us. And remember: what is MTS today might be MTO tomorrow. So do an analysis regularly and make sure all your planning is up-to-date

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

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

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.

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...

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.

Playing golf with the bigbyte pros at the Legacy

One of my favorite things to do is spending a few days at the Legacy. The Legacy is comprised of two championship, award winning golf courses, a team of incredibly friendly, professional and honestly loving employees and a warm, welcoming and fun towns folk in the Brainerd Lakes area of Minnesota. I take every opportunity to stop by there for a few days and play as many rounds as I can (last year in September there was a Sunday when I completed 81! holes).

So this time was like all others. I got up there from Minneapolis and everything was perfect. Chuck, the golf Pro will advance my game, Kerry in the restaurant makes sure I am happy with food and drink and Clayton gets me the best deals for accommodation (this time a cabin on the lake with a deck and three bedrooms). And then it's time to play golf.

The Legacy's two courses are incredibly well kept. Bobby's, a Par 73 with a special treat on hole 13 - an Eagles nest with Leslie breeding every year - goes by lakes and woods and is named after its designer Bobby Trent Jones. Dutch, which inherited its name from Legacy's owner (Dutch Cragun) and son of the inventor of Paul Bunyan and Babe the blue Ox, is a five star, award winning course.

So this time I received a special treat and was invited to play with Teresa Puga and her boyfriend Alex Osowski. Alex is one of the two guys we have been sponsoring with bigbyte (the other being Brandon Myers). These two young men have incredible talent and play an awesome round of golf. But Teresa ups that one with the most beautiful swing I have ever seen - on TV or on the course! When we teed off on hole 1, I had no idea about all of that and expected Teresa to shoot from the reds. After she drove the ball 280 yards from the mens white, I had to apologize.

Teresa plays on the Spanish Ladies national team and has been a member of the University of Minnesota's Gophers for four years.



Needless to say it was yet another great round of golf but even more important - wonderful times at the Legacy! I love that place.

Why is repetitive manufacturing treated like a black sheep in the SAP functions family?

Repetitive manufacturing! It has its own menu area in SAP! It's a bit scary to some, a mystery to most. Some people touched it back in the late nineties when it wasn't quite ready yet and some heard this and that about it over the past few years. Most people I have dealt with, do not know why it is there and what it can do. And then there are a lot of people who guess and interpret the functionality in their own way. So please allow me to take a stab at it as well. Unfortunately you can't find much documentation about it. So you will have to do quite a bit of trial and error. Since I am a true believer in RepMan and a convinced advocate (there are probably some folks out there scratching their head and wondering when I will ever give up promoting it - my SAP Mentor shirt reads "Use MF50" on the back) I spent considerable time and effort making it work for my clients. I am not 100% there yet, but my never ending quest continues. Here are some thoughts. You will find more detailed suggestions on how to make it work in some future blogs.

 Misconception about repetitive manufacturing number 1: "since I am a discrete manufacturer I can't use it!" Repetitive manufacturing should not be classified as a third option after discrete and process manufacturing. Discrete manufacturing is roughly everything that after you put it together, you can take it apart again. An automobile, a telephone, a coffee maker. Process manufacturing is, as its name applies, a process to combine and mx ingredients into something you can NOT take apart anymore. Take orange juice, tomato soup or paint. Repetitive manufacturing has nothing to do with that classification but allows you to execute either one in a much more simplified way (no need to convert planned orders or post an individual goods issue for every component). RepMan ist just not good in a job shop environment where every part is different and needs its own order and spec. However, if you have standard parts and you make them again and again using the same instructions in a routing and BoM, you are a repetitive manufacturer. For some reason many people refuse to have their operations classified as a repetitive shop. In one instance the planners of a maker of water faucet filters vehemently defended their position that they don't operate like a repetitive manufacturer. They put through 75,000,000 pieces per day in that one plant alone and have 12 different filters. This is not a blog to point out the advantages those planners would get from using SAPs repetitive manufacturing module. Otherwise I would write another 25 paragraphs on this. 

 Misconception about repetitive manufacturing number 2: "you have to make millions of the same thing every day!" Not true! Wouldn't you say that if you only make one product a day, but it's the same product, you repeat the process? Repetitive manufacturing with SAP allows you to schedule by takt, amongst other things, and that helps you to smooth a production program that suffers from uneven and unpredictable demand. It also allows you to schedule your basic make to stock products and let the make to orders flow in as required. This is very easy in RepMan and very difficult with regular production or process orders. So if you have repeatable products, no matter how small the volume, take advantage of the more efficient transactions. RepMan was developed by SAP coming from the need to plan and execute more efficiently. 

Misconception about repetitive manufacturing number 3: "we can't control our cost with a cost collector!" In RepMan you collect cost on a so-called product cost collector. So you don't need to post cost for every order separately but for the product collectively. If your costing people tell you that that does not work for them, ask them to explain to you why. And don't give up on having the opportunity to save a load of money in producing the right product at the right time in the right quantity at the right place just because someone says "I don't know why, but we need to cost every order separately and we have done so for 50 years.

 Misconception about repetitive manufacturing number 4: " backflush is not an option for us and a must for repetitive manufacturing" First: you do not have to backflush. Second: why not doing it? In my mind there is absolutely no need to have inventory management by the minute. The smallest unit in inventory management, planning or MRP is days. So it should be sufficient if you post a GR for the lines at the end of the day and have the items backflushed accordingly. (there is also reporting point backflush for cycle times in excess of one day)

Misconception about repetitive manufacturing number 5: "repetitive manufacturing only has planned orders. I need production orders" When MRP generates supply elements for products setup for repetitive manufacturing, it creates orders of the type PE (not LA which are planned orders which get turned into production orders). A PE type order does not need to be converted. It's executable right away and it can use a rate routing, a recipe or a standard routing. It may also be immediately scheduled and costed and capacity checked and fixed. It's a beautiful thing and makes your life as a planner much more enjoyable. 

Repetitive Manufacturing excites me (I know, I should get a life) with its simplicity in execution, effectiveness in usability and ability to automate a complex process. It has many features which allow you to practice 'lean' with its line balancing, sequencing board, takt-based scheduling and mixed model planning. It is worth looking into and has been proven to increase visibility into the process, reduce waste in the supply chain (lean) and improve flexibility to customer demand (agile).  "Use MF50!"