Service Levels and Fill Rates

This is not a simple subject. But it is yet another project very worthwhile doing right. However, it requires people hanging out on the same deck.

Here is my personal take on the topic: First; I believe in making a difference between MTS and MTO! Why? Because if you are planning for it, you should have it and if you make it to a specific request you should not expect your production planner to have it readily available.

Therefore we call the service level for MTS items a 'fill rate'. The MTO performance I call 'Service Level'. It does measure if we can stick to what we promise. Because we can't fill, we have to promise; after the replenishment lead time.

Now that we know that we have to distinguish we can start figuring out how to measure. For MTS products I would simply say that we take the availability checks result. If it found inventory, all is well; if it failed, the fill rate degrades. How can you measure this? Look at the availability check and if the material availability date is the same as todays date you are good, if not, your fill rate declines.

In an MTO scenario you have to work with the total replenishment lead time. There should not be any inventory. Therefore, your service level is good if you adhere to the result of the availability check (which should tell the customer that they can have the product after that time).

Bottom line: make a difference between MTS and MTO when it comes to service level. Standard SAP doesn't really have a good report for this. Global Software Inc. out of Raleigh, NC has a cool solution. But more about that later...

Lot Sizing optimization in SAP with an Add-On

Today I saw something great!  It has always been a bit of a problem to me to go to end users, having to tell them that, in order to find the best lot size procedure, you have to do a lot of leg work. And if your portfolio exceeds a few hundred materials it becomes an impossible thing to do..

Well... Marc Hoppe and his team at SAP Consulting have a solution: a lot sizing simulator!

I have written about Hoppe's Add-Ons before. These cover 'white spots' of functionality not available in standard SAP, with solutions written within the SAP namespace. Beautiful stuff. As an example there is the MRP Monitor and it comes, amongst other things, with lot size simulation. The Monitor serves as a basis for many things and lets you store a table containing your portfolio with various data to analyze. You put this record together in that you collect historical data, usually coming from table MVER. However, SAP Consulting provides another option: you can use MVER, the standard consumption history, or you build your own. Building your own gives you the ability, as an example, to exclude certain movement types (like transfer postings). You can also exclude slow movers or new materials which don't have meaningful information yet.

After you built your analysis this way, you can use the various simulation tools and one of these is the lot size optimizer. With it you select a segment of your ABC / XYZ analysis (which the MRP Monitor has put together) and you run the simulation. What this does is exciting. For every material the solution looks at the future demand and tests every lot sizing procedure you choose. It then comes up with a list where for every lot size you can see the cost of replenishment, comparing ordering cost with stock keeping cost!

You can then choose to generate a list which shows for every material and demand situation the optimum lot sizing procedure. In this list you also see a comparison of your cost with the existing lot sizing compared to the lower cost one and the cost saving you get by switching over. With the push of a button all materials are updated with the best procedure and the next MRP run produces best possible order quantities and dates. 

Periodically you run the optimizer again and keep your lot sizes in tune with your changing demand situation... This, by far, beats the impossible labor required by your MRP controller to have the best lot sizing methods maintained. The sheer impossible amount of effort needed is the main reason while only static and periodic lot sizes are in use. This simulator enables the optimizing lot sizes right away.

Strategies and Policies in the SAP supply chain

In an earlier post I talked about Strategies in an Enterprise

Breaking down from - and supporting - an enterprise strategy, we can employ three major sets of strategies in standard SAP; these are the replenishment strategies to automate the procurement of components, raw materials and products, the planning strategies to separate the MTS from MTO (and other strategies) and the production scheduling strategies to run the lines according to lean and agile principles.

Each one of these strategy groups contains individual strategies. In replenishment you may, as an example, procure based on past consumption or based on future requirements. As for the planning strategies you may plan for Make to Stock or you may plan on an assembly level for Finish to Order or for the Production Scheduling Strategies you may employ takt-based, repetitive scheduling.

In either case you need to do some work so SAP can support the strategy you decided on. This work usually requires setting up some basic data. The combination of settings that support a certain strategy, I call a policy. Please note that a policy is not an SAP term. SAP didn't pre-set policies; they left it up to you to put the appropriate combination together to retain utmost flexibility. The downside to this is the fact that you need a lot of experience and detailed knowledge to figure out the right combination for the right strategy. But who said that SAP is easy? And your consultant should know how this stuff works out. (in a previous post I pointed out the necessity for a consultant who explains all the options and does NOT simply give you the solution.... you will have to flexibly adjust new solutions to changing requirements. So if the consultant gives you the solution upfront - without you understanding the dependencies - you WILL be screwed once the influencing factors vary.)

Back to policy: a policy can be described in words like :"replenish based on a automatically determined forecast model on past consumption, ordering weekly demand with a minimum of 5 pallets, rounding to a pallet size, keeping safety stock in line with growing demand and at 3 days,  receiving only Tuesdays and Thursdays, sourcing with Quantity Contracts and Quota Arrangements" and then needs to be set up in SAP accordingly. In this example the setup would like something like this:

MRP type:  VV

Lot Size:  WB

Forecast Model:  J

Min Lot Size:  2,500

Rounding:  500

Range Of Coverage Profile:  003

Planning Calendar:  TT

Source List:  YES

As you can see, we need to be clear on what out strategy is first; then we need to define the policy supporting that strategy and finally we need to maintain the master data (this can be quite extensive work to do for an MRP controller and therefore I highly recommend looking into Marc Hoppe's Add-On tools by SAP Consulting - I mention these in another post). The following graphic represents a simple decision tree for replenishment strategies:

I personally consider policy setting and maintenance one of the most important tasks in the SAP supply chain. Most users don't understand that MRP type PD is not a policy! Neither is strategy group 40. But if you combine a PD with a Range of Coverage profile and a Lot Size Procedure EX, you have put together a policy! One that supports the strategy of planning on future demand with a safety stock that dynamically adjusts itself to changing demand. It also makes sure that your safety stock never exceeds a maximum level (EX helps with that). 

Figure out first what what you want the system to do. Then tell it to do just so. SAP has done a wonderful job to provide you with all the levers and switches. They are not easy to handle but that is why we pay the big bucks to our advisers and educators, isn't it?