ASUG Fall Focus 2013 in Philadelphia - Capacity Planning and Effective Materials Planning

Please visit my sessions "Capacity Planning with SAP-ERP" and "Effective Materials Planning for the Integrated SAP Supply Chain" during ASUG Fall Focus in Philadelphia

http://www.asug.com/events/detail/ASUG-Fall-Focus-2013

Capacity Planning (session code 0407) is on Friday September 27th at 8:30am and Effective Materials Planning (session code 0111) also on Friday at 2:15pm

would be great to see you there!

takt-based scheduling and sequencing of a flow line with Kanban withdrawals !

does this blog header sound like something out of an Asimov book? Have you ever considered doing it on SAP? oh yes... it's standard functionality, adheres to lean principles and comes right out of the box.

Let's first talk about what I actually mean by that headline: If you make product that can be put in a catalog and you sell these on a regular basis, you will have to make these products on a regular basis. If you make these products on a regular basis, you need a production line and workers who can make these products on a regular basis to standard work instructions. And if you make these products on a regular basis, to the same standards, you can compare the production of one period to another. And if you want to do just this, I suggest you measure your performance with rates per period (of course, if you want to, you can also create discrete orders for the production of various lots and then compare one production order to the other - but only a job shop would do that, right... or not?).

Now, that kind of thing is called 'Serienfertigung' in SAP (I refuse to use the english SAP translation since I get most of you upset with that term and you will stop reading on). And in that kind of thing your orders request rates per period and you will be able to establish a takt to which the line is fed. If the demand is high, the takt is short and the line is fast. Think of this as like a conveyor belt which is running at a certain speed. If you are a manufacturer of Rum, you could takt a bottling line and if your demand is high you release a bottle in very short takts, but if the demand goes down you release the bottles at longer distances and therefore you slow down the rate (I know, you don't make Rum! But don't you think that your standard products couldn't be controlled by a rate per period either?)

So why would we want to do such a thing? First, if you control rates, you can control the utilization of the line without producing to the waste of overproduction. Through the takt time you control the speed of the line and you make sure that you manufacture to demand.

Second, your schedulers save a ton of transactional work. No more conversion of planned orders into Production orders. In Repetitive Manufacturing (oh my, I said it out loud!) MRP generates executable Run Schedules and if you are using Sequencing, schedules them right away within available capacity. You then perform a collective availability check and next weeks schedule is set.

But it comes even better: The plan is the plan, but the execution is by demand only! Remember, that I talked about autonomous versus central planning in one of my blog posts? Sometimes you need to leave the workers down on the line with the decision what to make and what not. They are down there, seeing a lot more than the planner in the central office in Cleveland.

That's why we use the plan to reserve capacity and order raw material, but the signal to execute and produce the order is coming when a demand exists. The way you make this work with standard SAP is to use MF50 with Sequencing to fix the plan for next week (to reserve capacity and  make raw material available). But you also have a Kanban control cycle  for every material that runs on this line. If you use the replenishment strategy "Planned Orders with MRP", then the signal 'Kanban empty' will not generate a new order but simply attach itself to one of the orders in the plan. If your workers have the ]Supply View Kanban Board' (PK12N) next to the line, they can execute right to demand and will have capacity and material available for those orders.

I know this sounds simple and like it makes a lot of sense... so... why do you still have production orders?

Is it because your Controller says that they must report cost this way? If that is the case, then ask them why they created additional Zreports to take the order related cost and normalize it to a 'material per period' cost.

 Repetitive with its cost collectors does exactly that - in standard SAP without any additional programming.

Inventory Optimization is not a Project...

...... it's a process!

Projects have a beginning and an end, Inventory Optimization does not. When I talk about effective materials planning (in case you attend the ASUG Fall Focus in Philadelphia this year, I will speak on that subject on Friday, September 27), I point out four parts:  

1. Portfolio Management and 'house cleaning' of basic data and supply elements

2. Policy setting after Segmentation and Classification of your materials portfolio

3. Exception Monitoring

4. Inventory Optimization

The last part - Inventory Optimization - is the ongoing effort to provide maximum availability with minimum stock holdings for any given demand situation. And since the demand situation changes all the time, the policies that were driving that balance when you went live with the SAP system back in the days, may not hold water anymore.

What’s keeping your inventories optimized is the adjustment of basic data – lot size procedures, safety stock settings, forecast parameters, lead times and more – to the situation the individual item is under. Do we have consistent consumption and are able to forecast the demand? Does the item contribute a lot of value to our business or not? Does it have a short lead time? These and other questions will have to be answered before you can set the optimal parameters that drive automation and inventory optimization.

But if you answer the questions only once and don’t adjust the parameters as the answers to these questions change over time, your parameters will not support that automation or optimized inventory levels any more. The MRP run will generate supply proposals which do not conform to the paradigm of good service with minimum stock.

What usually happens during an SAP implementation is that because of the limitations in budget and time to Go-Live, only the most basic parameters are being set so that you can start using SAP. Typically this is MRP type PD (maybe a manual reorder level procedure VB), lot size procedures EX and a few periodic ones like WB and a static safety stock that’s guesswork. The planned delivery time is a big unknown and will be set generously, so that you will usually receive the item way ahead of its requirements date.

Then, after you have been using SAP for your materials planning for a while, the ‘Inventory Optimizers’ come in and sell you a 6 months project to get your basic data straight. This is a noble effort and yes, your planners need to understand all the parameters and how to set policy. But if you go through the tedious task to analyze and set up each individual part, your MRP Controllers will learn a great deal about all the fields in the material master record, but they will also divorce their spouses and move into the office.

And once all the materials are finally set up with the right policy, the situation changes – what was consistent consumption is no more, the material is procured from a different supplier and therefore a different replenishment lea time, the item becomes a slow mover because it’s replaced by another part etc. – you will have to start from the beginning. By that time the Inventory Optimizers are long gone. But don’t worry… they will come back in two years and sell you a new project.

So what should you do? Implement Effective Materials Planning with portfolio management, automated policy setting on a periodic basis, continuous exception monitoring within the framework of the Exception Minded Business and Inventory Optimization will be the byproduct of an automated process that will become second nature to your MRP Controller.

Automation is key here, and so is ‘managing by exception’. If you have to look at each item every day and set up each item manually, you will not be able to keep control over your inventory and service levels.

Demand and Supply Profiles

In any supply chain, we are using a planning hierarchy to transfer planned demand and balance supply with requirements on its various levels. A good understanding about what's happening at each level is essential to strike an effective balance of service and inventory levels.

Policy setting is at the heart of this task and the planner has to carefully evaluate when to perform a capacity check, requirements netting and the generation of supply elements.

This video strives to provide a basic model for demand and supply planning using profiles that are available in standard SAP ERP

http://www.youtube.com/watch?v=s58KLTYwrF0&feature=c4-overview&list=UUcNy4oxKL3pwqDNSbN3tvCg

measuring service levels in SAP

To measure service with SAP software is not a simple task. Mostly because there really isn't a standard report, but also because there are so many factors that play a role in the calculation of a service rating and if these are not all lined up correctly and used properly... then it is nearly impossible to correctly determine if the service was ok or not.

One of the most important decisions to take is the MTO versus MTS one. If an item is designated to be replenish by MTS, the customer order (or stock transport order) has to check for stock and incoming receipts, whereas in an MTO scenario the availability check uses the Total Replenishment Lead Time to determine the confirmed date for delivery. If you don't classify your products by MTO or MTS on a regular basis, you simply can't set a reasonable confirmation date against which you would measure your service. And that will result in an incorrect report.

Another important feature is whether or not you fix dates and quantities in the delivery proposal. I've dealt elaborately with this issue in my video on YouTube SAP Availability Checking Options and you can see there what happens when you leave the the fixing indicator unchecked and what happens when you do not (broken down into four possibilities for MTO and four for MTS). The video also explains functionality around confirming delivery dates and that leads me to talk about what we should actually measure against...

SAP has created an Add-On tool called the "Service Level Monitor" which measures three KPIs:
- Delivery Service which measures whether or not the requested quantity was delivered in ful on the customer's requested delivery date
- Delivery Ability which measures if the requested quantity was confirmed on the customer's requested delivery date
- Delivery Reliability which measures against the confirmed date and shows what proportions was delivered in full to that date.

These measures work for both MTO and MTS since they go after the confirmed dates. The Delivery Ability then measures how good we produced to a forecast and therefore works well for MTS products. In a way you can also derive a measure for forecast accuracy on that KPI.

It should become obvious now that if the MTS versus MTO decision hasn't been done properly or if the availability check result is not saved correctly, the resulting KPI's and measures are not very meaningful. It is therefore imperative to fix the process first, before you start measuring the result.

SAP offers Add-On tools that can help you with a number of things that aren't available in the standard suite. The MRP Monitor helps you calssify your products for a a segmentation by consumption variability, replenishment lead time and more... so that you can periodically check whether your product should be setup for MTS or MTO. It also helps you set that policy in an automated way...

Once all factors are lined up you can use the Service Level Monitor to evaluate your orders by the three KPIs we discussed before:

feel free to contact me to discuss more....