Thursday, December 11, 2014

Introducing Flow, Part II – Balancing a Repetitive Line

When you’re in the business of manufacturing parts that you sell through a catalog, chances are you’re a repetitive manufacturer. And if you produce the same product over and over on a mixed model line, SAP has great functionality for you to schedule and level your production plan – readily available in ECC 6.0. No need for extensive customizing or running a project with 5 consultants over the next 6 months; just yesterday I configured a demo into a client’s ‘sandbox system’ within 3 hours.
As we discussed in part I, to introduce flow into the production line means reducing WiP and with it cycle times. So flow is very desirable, especially if you’re in the repetitive business and to achieve it, you need to balance the operations of the line. Balancing the line means that you allow the same amount of time a product can spend on a work center for every operation. In that case there will be no buildup of WiP (no product has to wait until it can processed on the next work center) in front of any work center.

Let’s see how SAP-ERP can help you do that: First you need to set up your products for repetitive manufacturing and create at least one production version through which you assign the products to the Line Hierarchy. This represents your mixed model line. The production version relates to a routing that contains all operations and work stations the product undergoes while being produced (it ‘flows’ through the line).

The routing may be a Rate (Line) Routing that can be represented graphically…

…and has all the details necessary for lean production.

Once all products are assigned to the Line Hierarchy, you can create a Line Balance for a short term planning horizon of, let’s say, 4 weeks. In that Line Balance, you copy the demand for the next 4 weeks and calculate a takt time by which you need to run the model mix to fulfill exactly that demand. This works in the following way: The system looks at the total demand for all products in the model mix for the next 4 weeks and calculates a daily rate for the model mix, which is necessary to meet the total demand over 4 weeks. Imagine you have 3 products - A, B and C – and a demand of 200, 400 and 100 pieces over the next week for these products. If there are 20 working days in your next 4 weeks, you need to produce 10 As, 20 Bs and 5 Cs every day to fulfill the demand over the next 4 weeks (according to EPEI heijunka leveling). Therefore you need to produce 35 pieces on the line every day. If you have 7 hours available every day, you need to produce 5 pieces per hour or introduce a piece into the line every 12 minutes… this is called the takt time. That, in turn, means that every work center has 12 minutes of work content before it needs to move the product to the next work center.

In above example we have a maximum rate of 35 pieces per 7 hours and a model mix that adheres to the maximum rate. Now we have to make sure that all operations in any work center do not exceed the maximum allowable time in any work center – the takt time. That, in essence, is Line Balancing and may be carried out graphically in standard SAP.

In the Line Balance we can see that product 188 causes a takt violation with operation 0080 on work center 65030TRY (note that work station 65030TRY has more work content available. This is because we have more capacities available – either more labor or more machine capacity). You could now do either one of two things: either you increase the amount of machines used on work center 65030TRY or you could move the operation to another work center, in the flow, that has more work content available. Either way the takt violation is cured.
In any case, you have now calculated a takt time – the speed by which the line must be run to meet demand – and you can now use takt-based scheduling to determine the sequence plan as follows.

From here we can now perform a collective availability check, print the daily schedule or fill a heijunka board on the shop floor. The schedule may also be connected with a Kanban control cycle but that is stuff for another blog post…

Saturday, November 22, 2014

Discrete Manufacturing in SAP versus Repetitive

I am seeing a positive trend within the SAP eco system, of clients better understanding what their options are when it comes to repetitive manufacturing. As we all know, SAP's Repetitive was developed much later than the original PP - the discrete system for job shops. REM was developed because the discrete model didn't fit very well for repetitive manufacturers. So now the big question is: are you a repetitive or a discrete manufacturer? And once you know that answer the decision to go to repetitive or not should be an easy one. After all, you're not using the HR module to manage your inventory, do you? In the same sense you should'nt run a repetitive manufacturing environment with discrete production orders.

So a repetitive manufacturer typically exhibits a number of telling characteristics:
- they offer a product catalog to their customers. As soon as you have a standard product in a catalog you will make that product more than once (you can still make it to stock or make it to order). You repeatedly have that product on your line and you should actually measure how many of the product you made this period, as compared to any other period (its more like a rate than a discrete quantity). This brings me to costing...
- repetitive manufacturers cost the products on a period basis. If you make widgets in lots of 1000 over a period of a year, would you want to cost out every single discrete production order or would you want to see how much production of that materials had cost you in May compared to June? I think the answer is easy and what I see happening a lot, is that companies started out on discrete (because they didn't know any better or were not told any better) and the costing people transfer all cost to spreadsheets and then normalize the cost to a parts / period basis
- repetitive manufacturers want their operations to flow. In a discrete environment, where a customer wants exactly one lot size of a thing that has two holes, a handle and is welded onto a stick, you create a discrete production order with a routing describing the exact steps to make that thing. If the plate has to be fabricated first, you might want to create a second discrete production order to fabricate the plate and then you can see how much inventory of those fabricated plates you have and how much each plate has cost you to make. If you make standard products that always look alike you want to run a thousand per day and you are not concerned about how much inventory of the fourth level intermediate you have or how much that one piece had cost you... you want to know how much WiP (work in process) is in the system and how long it takes to get a product made (if your lines flow your wip is low and cycle times are short and then your cost is low too). Flow is what makes a repetitive manufacturer tick and that is why SAP's REM provides a lot of functionality (mostly unknown) to lean and flow your production environment. To do the same with discrete is impossible.
- capacity planning! in discrete manufacturing, capacity planning is looking at a specific work center (usually the bottleneck) and compares capacity offer to capacity requirements and then levels all the orders on a bottleneck to stay within available capacity. usually a mid-point scheduling is carried out then and earlier and later operations of the order are scheduled on the respective work centers to avoid orders getting stuck. That is a novel idea and often perceived as impossible to do when a repetitive environment is managed with discrete orders in SAP  (Consultants are very quick to point out that repetitive can't do capacity planning and they then point to discrete where they feel more comfortable). Capacity planning in REM is absolutely efficient... you have much more options and you can 'flow' the lines with takt-based scheduling and integrated Kanban withdrawals. Refer to my other blog posts or read some of SAP's REM documentation for further detail. You just have to rethink your basic idea about capacity planning a little but REMs capacity planning is much more superior to discrete - at least when you operate in a repetitive environment.

I could go on for days... explore SAP REM... it's worth it and it was developed just for you because discrete doesn't work so well for you... at least if you are a repetitive manufacturer - and that you are if you don't happen to make plates with holes and handles (or you're running a jumbled job shop environment)

Sunday, November 9, 2014

SAP's safety stock does NOT buffer demand fluctuations during the planning process !

Does the headline in this blog confuse you? Sorry, that is nit my intention. I just want to point out a not-so-well-known fact.

When you set a safety stock level in the MRP2 screen of the material master it is subtracted from available inventory in the MD04 stock / requirements list. Therefore the MRP run ignores that part of the inventory. Imagine the following situation: There is a forecast of 50 pieces for next month and you have maintained a safety stock of 30 pieces. The system will plan to have an inventory of 80 pieces in stock at the beginning of next month. As we are approaching the next month and actual customer orders drop in, the forecast is replaced by actual orders. Should the actual order exceed the forecast - lets say that customers demand 60 pieces instead of 50 - the MRP run will generate a new replenishment proposal for an extra 10 (instead of using the safety stock) and you end up with 90 pieces in inventory, even though you only need 60.

This type of behavior creates dead stock and misses the purpose of using a safety stock as a buffering strategy. The situation worsens if you have a rounding value or a fixed lot size.

So what can you do? Use a range of coverage profile that drives a dynamic safety stock if the situation allows for it. In a range of coverage profile you have a target safety coverage and a minimum safety coverage (in days of coverage). The MRP run can 'see' the safety levels and ONLY generates a replenishment order when the minimum safety coverage is broken. Therefore you have to make sure that the minimum safety coverage is set to 1 day and the target is higher. In that case the MRP planning run uses all the days in the target coverage as a buffer to counter demand variability.

By the way... the range of coverage also has a maximum safety coverage to keep the inventory from blowing up, should the forecast be too high.

Monday, August 4, 2014

setting safety stock levels in line with the supply chain strategy

one of the critical success factors in supply chain management is the correct translation of a supply chain strategy into materials planning policies. Take as an example a directive to provide a certain service level to the customers. Management might say "we want to achieve a 98% fill rate on our most valuable products" (usually A items).

What usually happens then, is that every materials planner figures out how much inventory they need to hold and what replenishment policy to use to achieve that. If you want to standardize this kind of directive and develop a system to have everybody use the same calculation, I suggest you use the field 'service level' in MRP2 and calculate the safety stock setting for each material using the variables lead time, mean absolute deviation and a safety factor. 

You can do this on the forecasting screen of the material master. Depending on how you configured your MRP type, the forecast run can calculate  safety stock level for you. However, you have to kind of doing this for every material and you can only simulate exactly one service level.

A better solution is the SAP Add-On Tool 'Safety Stock and Reorder Point Simulator'. With it you;re also getting a new KPI: safety stock value! You can also simulate many service levels and compare the results in terms of quantity and value. On top of everything else, the safety stock calculation gives you two more - very important - parameters: the variation in replenishment lead time and a variation in demand.

Let's say management desires a service level to the customer of 95%. In that case you would pull all those materials into the simulator, set 95% nd your variation in lead time demand and click the 'calculate button. The simulator then calculates all safety stock individually for each materials and totals the value. This way you can determine what a 95% service levels means compared to your current master data settings or to other service levels. In our example, all materials currently have a service level of 96% which, with the manual calculation the materials planner was using, produced a value of $7,342 in safety stocks. However, the safty stock simulator produces a value that's higher with a lesser service level... and that calculation is using the same variables for each material across the board and therefore probably much more accurate than what the planner ever can come up with - possibly applying different methods and being totally overwhelmed doing this for hundreds, if not thousands of materials.

In the end, you push the save button and safety stock and service level are being updated into the MRP2 screen for each and every material in the list.

Management changes their mind tomorrow? no problem!

Saturday, August 2, 2014

how to use detailed scheduling in SAP-REM for the automated generation of a weekly production program

One of my favorite clients runs a mix of production orders and repetitive manufacturing. As I visited their distribution center last week, I saw that they have a fairly simple assembly and kitting operation going on in the warehouse before the ship bundled spare part kits to the customer or the manufacturing plants.

My suggestion was to use repetitive manufacturing for the scheduling of the assemblies (and kitting) to make it easy and automated. With only little customizing necessary, we put the whole thing together within 3 days. Actually, the only customizing effort that was required was for the layout key and a setup matrix (using setup group category and setup group key), so that we can dispatch a sequence that is build automatically according to 'like' setups.

The first thing we did was switching from reorder planning to the deterministic PD. the previous V1 had the effect that inventory holdings (how much to put into the reorder level) had to be calculated based on the two demand sources:
- Stock transport order requests from Manufacturing Plants
- After Market requests from Customers
With a changing demand situation it was very difficult to find the right reorder point and assembly was only triggered when a reorder point was broken. Since then a forward scheduling is executed, the inventory left, after the reorder point was broken, had to be enough to fulfill the demand. This is a very difficult planning situation and requires a lot of inventory.

That is why we decided to plan these products with PD, where future demands (from STOs or customer orders) result in the generation of supply orders in exactly the quantity and exactly the date, they are demanded. Using safety stock to buffer any variation in lead time and demand, we can now schedule production to exactly meet demand. With a fixed lot size FX that corresponds in quantity to the smallest possible run, the MRP run generates supply proposals into the order pool that are a multiple of the minimum run quantity. In scheduling we can then flexibly sequence run quantities in feasible lot sizes

after the MRP run you can then see all the various demand elements in MD04 and the supply that covers them.
Now we can move onto scheduling and in MF50 we can see - tabular or graphically how MRP, which works without any consideration of capacity, sequence or material component availability, fills the pool of orders.
using the previously customized layout key for sequencing according to 'like' setups, we can now simply select three weeks worth of orders and click the 'dispatch button. The system uses the sequencing profile and first sorts all the orders and builds a sequence, then it distributes the orders within the limits of available capacity defined in the individual work orders.

Note that there are three work centers that can be scheduled. If you define alternative routings and production versions, you can use the dispatching strategy in a way that, in case of missing capacity, the dispatching can resort to another work center and therefore perfectly distribute the orders.

since we are working with repetitive manufacturing, there is no need for a planned order conversion to production orders. The orders you see here are executable. Now you may perform a collective availability check using MDVP on the schedule and expedite missing parts for next week.

All that's left is MF51 where you can prnt the schedule and hand it to the operator who will be happy to receive instructions on a feasible plan that's checked for capacity and materials availability.

Saturday, July 12, 2014

It's more than just football (and yes, it's called football)

As I am looking forward to the World Cup final tomorrow, the world around me has no other thought (at least the world where I am right now). I am currently in Germany, in the Black Forest, where I was born. The excitement about the match against Argentina is without bounds and the unbelievable game against Brazil will not be forgotten in a long time - if ever. However, in my chosen home - New York City - and the United States of America, there are probably many more things that are of interest tomorrow. There was a burst of excitement going on and many people were talking about the 'rise of American soccer', but, as always when the team gets eliminated from the World Cup, the attention quickly shifts to other (American) sports or worldly events.

In my personal opinion, US football will never dominate the world - and that is the problem. Americans need to be the best and if they're not, they will consider it uninteresting, not important, less challenging. Focus is lost and if you don't focus, you can't become the world's best. In football nations like Brazil, Argentina, Italy, the Netherlands, Uruguay, Spain, Germany there are very elaborate programs to support and focus on the youths. In the US, if there is a good young athlete, they focus on the usual suspects... american football, basketball, baseball, hockey. And that's also where the money is. Besides, the US does not have the football IQ necessary to rise towards becoming a football nation. Attempts like bringing in Klinsmann or some old players from European clubs into MLS are not enough. You would need a structure underneath. In Germany, the DFB develops support programs, provides detailed seminars for youths coaches, has talent events and raises tomorrow's superstars through a program that starts at age 8 and stands by their sides until they finish school.

But that is quite alright. The US does not need this kind of football. They have their own.Tomorrow, however, it's our (the rest of the world) day and (besides some dutch coach) the entire football world will watch the culmination of a world event that takes place only every four years and never produces surprises (another reason this will never become a US major event). It's always the same old suspects n the semi finals. Brazil, the Netherlands, Argentina, Italy, Germany, Spain, maybe Uruguay, also England or Hungary a long time ago.

Was the game Brazil - Germany a surprise? Definitely when considering the score. But if you look underneath you can clearly see that Brazil did not have a plan and Germany did. Emotions alone is what was driving Brazil and Germany executed on a step by step program. Just review the first goal: It was a set piece situation... a perfectly executed corner kick. Thomas Mueller, shadowed by David Luiz, was moving towards the back goalpost. When David Luiz was trying to follow, Miroslav Klose stood in the way and Mueller was open to score the 1:0.

What happened after that is history and we don't know all the tactics, little tricks and moves the players were executing so perfectly, but this time it worked and the Brazilians were taken by complete surprise and had nothing in the cards to avoid the unthinkable - emotions had taken over their preparation and that is why football is more than just football. It's not just the goals that are interesting in a football game. Even more it's all the little things that happen in between.

Football is culture, Italy will always beat Germany when it counts. The Spanish will either play like gods or disappoint like hell - nothing in between. Brazilians can not be successful without the child-like, beautiful, awe-inspiring samba football that they tried to replace with sober, tough and aggressive play that was adopted over the past few years. They will have to reinvent themselves and go back to what they are. The English? Well, that's another story... and the Netherlands will have to find a solution too. They played three Finals, always have an excellent team and never go all the way. Why? I do not have a clue and that's the beauty about this sport: it;s complicated and impossible to understand. Non-followers always try to figure it out during the World Cup for them it's easy: Whoever wins was the better team and if a game has a low score it wasn't good.

There is so much more to this sport and there must be a reason for it to be the most followed in the world. I tried to figure it out since I was watching my first world cup at the age of 9, playing the sport myself and still following it until I die. But I will never fully understand what exactly is going on when Germany dismantles Brazil within a few minutes. And that is beautiful, exciting and interesting to me (no, I don't mean the dismantling - I love Brazil).

Tomorrow is huge. My team is in the Final ! and they might be the favorite because of that semi final. But this is football and we don't know what those smart people that make this sport so exciting, memorable and beautiful have in the cards for us.

May somebody win. Go Football !!

Friday, June 20, 2014

introducing flow into production

Did you know that SAP-ERP offers excellent functions and tools to implement flow? These functions are well hidden (I really don't know why) and not documented too elaborately. So let me take a shot here to introduce you to that kind of functionality and maybe you find it useful for the scheduling of your production line. It's probably taking me a couple of blog posts before I get the entire process together, so here is part 1:

Flow is usually desired on production lines which manufacture products in a sequential fashion. There may be feeder lines for components and these, more often than not, make products available for final assembly or, as in process manufacturing, the packaging lines. So, very often you have a value stream that look something like this...

In this example, two feeder lines flow into the main line and the finished product is held in a Kanban super market. As you can see, the processing times at the various work stations are all different, and therefore WiP will build up in front of some stations and other stations will starve... if the line is fed jobs without WiP control. 

And here I'd like to point out a few things:

First: A push system is defined by the fact that the Throughput is controlled (scheduled) and WiP is measured. On the other hand, in a pull system WiP is controlled and Throughput is measured. This is a fundamental statement (from the people at Factory Physics) to describe the difference between push and pull.

Second: A Kanban control cycle does not guarantee pull. The disadvantage of a Kanban system is that when the container is empty, Kanban simply says "make me", and does not tell us when or in what sequence to make the product. So you'll end up with a bunch of jobs at the beginning of the line and no one knows in what sequence and at what time to introduce the jobs into the line.

So back to push or pull... if you do what many companies do, you collect the Kanban cards at the beginning of the line and tell the people who introduce the jobs into the line to start that job first that is furthest behind (often Kanban cards are stacked into a board where each product has its own column. If a products Kanban cards pile up to push these above a red line, then that is taken as a signal for highest priority). As a result, the jobs are introduced according to what's needed at the supermarket and not according to what's flowing the line.

Look what happens in the line when you keep starting jobs...
... WiP builds up in front of the station with the longer processing time. The WiP corresponds to the difference in processing time and it increases with every new job introduced...

...and grows without bounds!

Meanwhile other stations are starving because their processing times are shorter and the previous station can't feed them fast enough. As a result, if you look on the shop floor, there is WiP everywhere, therefore it takes long until the finished product shows up at the supermarket (Mark Spearman from Factory Physics calls WiP 'visible cycle time'), and t looks like you never get what you need.

So what can you do to flow the line? You need to control the WiP and make sure that you only introduce another job into the line if there is room in the line to let it flow! The way I recommend doing this in SAp is the following:

1. Figure out a future forecast for the Kanban supermarket. Based on the forecast you can calculate the Kanban quantities for each product. You are also using that forecast to create a sequence for your product mix, but before you do so...
2. Balance the line (SAP transaction LDD1) and create a product mix with rates that exactly meet the forecasted demand. In LDD1 you can use the forecast to calculate a needed product mix and bottleneck rate that stays below the maximum rate the production line can take.
3. Based on this production rate we can now figure the takt time (the inverse of the production rate) by which we need to introduce the jobs into the line - this is the time we need to wait before we let another job into the line. If we do that, the jobs can flow through the line without getting stuck, because we gave each station a work content that allows for the line to flow (if nothing unforeseen happens in the line)
4. Now we put together the planned sequence of the jobs (with SAP transactions MF50 or LAS2). This can be done using setup optimization, heijunka or a FIFO lane.

What's important here is that we use this planned sequence ONLY to procure raw materials for the schedule and to reserve capacity on the line (yes, this is capacity planning... ). We are not executing - or introducing jobs into the line - by the plan, but rather wait for the Kanban signal. Therefore...

5. Use a replenishment strategy in the control cycle that does NOT create an order, but rather looks for an order on the Sequence and attaches itself to it.

Now we have a system that is controlling WiP - because we only introduce a job into the line when one comes out - adheres to a planned sequence that guarantees material availability and enough capacity, and  is demand driven to avoid the waste of overproduction.

Sounds too simple to be true? I try to get into more detail in follow up blogs... but it works! with standard SAP!

Tuesday, June 10, 2014

moving my Harley Davidson from Las Vegas to Denver!

Last fall I had my bike serviced in Las Vegas and got so busy, that I wasn't able to move her around. Last Friday the opportunity arose from a gig in Portland, OR and I was able to free up 5 gorgeous days to move her to Denver.

Here are some impressions from the trip from Las Vegas to Denver. Sophie will stay in Denver for the summer, so I can come back and enjoy some trekking before heading her south for the winter...

Friday, May 16, 2014

Have we SAP consultants forgotten why we do what we do?

The people who read this maybe aren't the SAP using customer and therefore you might strongly disagree with me. But before you jump my throat, ask yourself: “Is what I do really helping the customer in their efforts to use SAP software for their core business?” (and don't get me wrong, there is plenty of very valuable work done to support the customer outside of their core business - but I am talking about why customer buy SAP software in the first place: to support their core business!)

To answer that question we should first identify what the core business is. The customer that I am talking about here, is a company that transforms raw materials into a finished product (or service) that they sell. So their core business is ‘transformation’ and they need to do that in the most effective way using stocks, resources and time.

According to that definition you might now say “we are selling extraordinary technology to do just that!” Great. You also installed that technology at the customer site and they have now mobile devices that foster a full inventory report, run MRP on HANA, can use scheduling heuristics and see graphics that show forecasts and sales activity.

But does the user know how to set a planning policy that drives great service levels and low inventories for that transformation? Does their SAP functionality support lean manufacturing? Yes it does, but no one knows how to use it.
I put out a statement here: “100% of all SAP using companies use the software’s capabilities to less than 80% and 98% of all SAP using companies use the software’s capabilities to less than 40%!”

Wow! If that is true, shouldn't we all shift our focus a bit?

And it is true in what I see when I visit customers: I NEVER come across a company that uses the availability checking rules correctly. I NEVER see a company that does automated policy setting. I have NEVER seen SAP production scheduling supporting ‘flow’… to just name a few.

I’d greatly appreciate any comments to get this conversation going

Tuesday, May 13, 2014

using a reorder procedure for inter plant stock transfers... whats the lead time?

Yes, you can use a reorder point procedure for inter-plant stock transports, but be careful what you put into the lead time.

When you source materials from one of your own plants, your lead time (in the field Planned Delivery Time  (in the delivering plant) should be the time it takes from the issue in the delivering plant until it arrives at the receiving plant. The only question is: Can the delivering plant issue right out of available stock?

If the delivering plant does not keep the product in stock but has to procure it also, then the total lead time until it arrives in the receiving plant will increase dramatically. But if you put that total time into the PDT, you will ask the delivering plant to issue way too early. Unfortunately the TLRT in MRP3 does not work with procurement indicator 'F', so what can you do?

I know people have played around with source lists and info records but if you want to use an automatic reorder point calculation (VM or V2) you need to put the total replenishment lead time into the PDT, because that is what the reorder point calculation uses. So you are stuck with a manual reorder procedure (VB or V1) and you will have to include the entire total replenishment lead time in your spread sheet calculation.

The SAP Add-On Tools (MRP Monitor and Reorder Point Simulation) give you added possibilities: Since the MRP Monitor also performs an EFG classification for lead time - and lets you pick the TRLT from the MRP3 screen - you can build a list of items which are feasible for an auto-reorder procedure (X - consistent consumption, C - low consumption value, E - short lead times). The Safety Stock and Reorder Point Simulator then lets you calculate and simulate various service levels for optimized reorder points and safety stock settings... and allows for a mass update of the policy.

for more info on the SAP Add-On Tools refer to the website or check out my YouTube channel.

Saturday, April 26, 2014

Effective Materials Planning with the MRP Monitor

The outcome of Materials Planning depends to a very large part on the policies you set for the individual materials. Supply chain optimizers in SAP teach a lot about policy... should you use a reorder point procedure, a PD pr maybe a material forecast to tell MRP when to order how much? They also go into what lot size procedure is fitting and how to determine a safety stock and in some other cases they suggest a dynamic safety stock calculation with a range of coverage profile.

Those are all valid and absolute necessary teachings, but the question is: what do you do with your portfolio once you understand all that and know what to set up? If someone tells you to go to the LIS to find out - for each material individually - if there is consistency in consumption, go to document evaluations to run a dead stock report that takes up hours, look in the material master what the replenishment lead time is and expects you to then set up policy for every one of your 5,000 materials... run! You should certainly not pay for that because as soon as they're gone you will find out that the materials controllers will give up on that impossible task.

Unfortunately, in SAP you can not perform an XYZ analysis for consumption consistency or a life cycle classification. And unfortunately, in SAP you can not update a group of materials with a common policy (except with the MRP Group on the MRP1 screen. But that record has only a limited amount of fields available and does not allow for the setting of a complete policy). So you would have to go to many different transactions to carry out your analysis and some things you would have to do in Excel.

The solution is the SAP-developed MRP Monitor. It doesn't come with the standard sofware, but it is developed within SAP by SAP. The MRP Monitor runs every month and classifies your entire portfolio into six dimensions - ABC for consumption value, XYZ for consumption consistency, EFG for lead time, UVW for price, LMN for volume or size and life cycle class. Once the segmentation / classification is done, you hit a button and the class is saved in every material.

What a materials planner can do now, is to pick all the materials in one class and give it a fitting policy - to all of them at once. You can do that manually by filling in the according fields in MRP1 to MRP4, the work scheduling screen and the forecasting screen, or you save the policy in the provided table and let the system do the work. Following you can see the table with pre-configured policies that the MRP Monitor uses to update entire groups of materials

Now, you'll have to go slow with this type of mass update and make sure you understand everything that's happening here. In my engagements I sometimes suggest to break down the portfolio into three buckets:
- XX3 where you can put all materials with no consumption over the past 12 months - I then update these with the policy "PD with no safety stock" so that we don't hold inventory on any of them
- then there is bucket 2 - XX2 - in which all active items remain. You can the run the MRP Monitor and pick a class for which you know the policy. as an example pick all C (low risk), X (high consistency in the past) and E (short lead times) and provide all of them with the policy "V2 (auto reorder), FX (fixed lot size), forecast data (for reorder and saftey stock calculation) and MRP Controller XX1". That will update all these materials with a fitting policy and puts all of them into the bucket XX1
- now you can update the policy for the XX1 bucket automatically by saving previously mentioned "V2" policy in the table. as long as the criteria remains the same - C,X, E - we can calmy watch how the automatic policy update does its magic.

This way you can gradually move from manual activity (without the MRP Monitor), to focused analysis and  manual policy updates for groups (in bucket XX2) to fully automated and effective materials planning in bucket XX1.

Saturday, April 19, 2014

Lean Manufacturing with SAP-ERP

Companies perform lean projects all the time... and, at least per my experiences, very rarely do they connect the principles with their ERP system. This is probably due to the fact that lean gurus, consultants and prophets very often do not care about ERP and neither do they think that ERP is necessary. Is it really true that once you implement lean, you don't need an ERP anymore?

I think not. There must be some element to report cost back to an accounting or costing system and self-controlling systems with visual feedback on the shop floor are working in some cases but not in others. Besides, you'll have to plan some things... if you let Kanban control itself and let it create signals to replenish, you will have to make sure the raw materials are available and you have free capacity. One-piece flow seems like a nice concept, but not everybody is like Toyota and when you make fancy faucets, you'll have to batch the fabrication of components, because you can't 'flow' rivets one piece at a time. Some setup optimization and sorting in the schedule is mandatory.

Nevertheless, you can and should make an effort to 'lean' your shop floor if you want to stay competitive. Avoiding the waste of overproduction, manufacture to actual demand and flow with a 'takt' based scheduling system, 'pull' from supermarkets and introduce an inventory / order interface at the right location. Those are all lean improvements that can be handled in standard SAP-ERP.

SAP has the ability to execute takt-based scheduling, perform line balancing, pull with eKanban, level demand with a heijunka sequence and even  combine a planned, level sequence to reserve capacity and purchased parts, with a Kanban withdrawal from an actual demand signal.

The key word is 'repetitive manufacturing'! And there is a lot of confusion around it. Some people consider REM a production type and I fully agree if one would call it 'flow manufacturing'. In that case I would argue that you may have:

- the production type: 'discrete manufacturing' for complex routings and large batch production of discrete items (heavy machinery, turbines, job shop)
- the production type 'process manufacturing' for complex processing of 'active ingredients' (some chemical or other reaction is going on while your processing and you can only express that with a formula). In process manufacturing things are usually liquid or flowing and you can't go back to the raw state once your in the process. (chemicals, food)
- the production type 'flow manufacturing' (flow in a different sense than liquid flow) for simple routings on a production line. Flow manufacturing is defined by manufacturing lines where product flows along and moves through stations where value is added to the product. That kind of production you want to flow without too much interruption... and it really doesn't matter whether it's discrete or process.

Now, what I see often when people show me their factories, is production lines where raw material is introduced to a work station and value is added in a flow-like of ways until a finished good gets packaged and put into storage.

Then we'll go into SAP and find many production orders recording that process. Semi finished product is posted into inventory and issued again, scheduling and capacity planning needs to be performed at every inventory point and each production order is confirmed and costed individually... not very effective (or should I say 'not very lean'), lots of inventory of semi finished goods, very long cycle and lead times and very time consuming and work intensive procedures.

That's why SAP came up with REM - maybe not the very best name for a thing that can make a positive difference in your planners and schedulers work lives. When you use REM - or lean SAP - you can setup production lines with sort buffers and reporting points where product can flow along without being put in inventory.  In order to avoid WiP buildup, you can use Line Balancing to make the products flow (which, according to Little's Law and actual experiences also reduces cycle times). Line Balancing will also help you build a model mix and calculate a 'takt' by which you slow down or speed up the line so that you manufacture according to the takt aligned to actual demand and thus avoid the waste of overproduction. And based on that calculated takt you can use Sequencing to build a mixed model schedule according to the principle of equal distribution (every part every interval - EPEI or heijunka). REM also makes it easy to report actual production times and consumption (using backflushing at reporting points and run rates at the end of the day) and uses cost collectors to report cost as 'parts per period' (think about that for a while.... do you really want to cost every production order? don't your accountants think in period based cost reporting anyway?)

SAP-REM provides many opportunities to build your manufacturing process into the ERP system - just the way it happens on the shop floor. And if you build that model into SAP, you gain transparency and therefore the ability to constantly monitor, 'lean' and improve on the way you build.

Less inventory! Shorter cycle times! Higher throughput! Demand driven manufacturing! ... to just name a few...

 heijunka schedule in SAP-REM

Kanban Board in SAP: The view from the Work Center - a kanban signal looks for an existing order on the sequencing schedule.

Tuesday, April 1, 2014

Inventory Optimization: with or without the SAP Add-On Tools

As we are optimizing SAP supply chains sustainably, all over the globe and also distribute the SAP Add-On Tools (by SAP Germany), bigbyte ( supports a wide portfolio of SAP using manufacturing companies in the US, Europe and Asia.

Some of those companies use the Add-On Tools and some do not - at least not yet.      Man!... what a difference. Not that I want an easy play, but with the Tool-using companies we'll achieve better results in half the time. These tools simply near-perfect the SAP-ERP system (there are tools for APO too) and automate the work.

As an example... when optimizing your replenishment strategies, you have to analyze and classify your material portfolio into materials by consumption value, consumption consistency or predictability, lead times and life cycle (is the material new, obsolete, slow mover or regular) and then set up the master data (the four MRP screens) accordingly. PD for expensive, unpredictable and spotty items, consumption based strategies for predictables, reorder procedures for items you want to keep in stock, lot size procedures that go with the strategy and safety stock strategies.

If you work without the SAP Add-On Tools the process goes like this: Build a list of materials with high optimization potential using transactions MC.9, MC42, MC49, MC48, MC50, MD07, MCBA and much more... then analyze each individual material using historic, outdated graphics, LIS transactions, dual classification, slow mover reports, dead stock reports, MD04 timeline, table MVER and an XYZ analysis in Excel (all of this will take you about 4 hours per material). Then maintain the materials MRP 1 through 4 screens to the best of your knowledge.... repeat for each material... repeat for each material EVERY MONTH !! (things change, right?)

Using the MRP Monitor, you start the analysis for the entire Plant and the monitor classifies and performs a segmentation immediately into six dimensions - ABC for consumption value, XYZ for consumption history with a coefficient of variation, EFG for lead time, UVW for price, LMN for size or volume and Life Cycle. That is your analysis right there. In the Monitor result your portfolio is segmented into these 6 dimensions or classes and you will now select any given class and assign a pre-defined policy (the program reads the policy for the items marked as A,X,E and V and updates all material master with the respective MRP Type, Lot Size procedure, min maxes, safety stock settings, strategy group, consumption strategy and availability checking rule. And it does so every months.

Have a look at the MRP Monitor and the other SAP Add-On Tools... it certainly will be worth your while before you engage in a one-time, six month, loosely defined inventory optimization project.

Saturday, March 29, 2014

Inventory Optimization Summit, San Francisco

This years West Coast Summit, organized by Blue Harbors and bigbyte, took place at the Courtyard San Francisco Downtown and we just wrapped it up yesterday afternoon (March 28th).

It was a success in all dimensions. Marc Hoppe of SAP Germany presented and live-demonstrated very helpful SAP Add-On Tools that enhance the supply chain experience and increase effectivity, automation, profitability and transparency in the SAP supply chain. The customers present enjoyed and appreciated live demos of the MRP Monitor for automated policy setting with simulation and mass update tools for safety stocks and lot size procedures, an Inventory Controlling Cockpit for analysis and optimization with a superior framework of KPIs. The Service Level Monitor was demonstrated as well as the Replenishment Lead Time Cockpit that provides the user with a way to keep lead times accurate and measure variability. Great appreciation was also given to the Capacity and Production Controlling tools which help, like many of the other tools, to keep the data clean, improve on the process and increase automation.

Then Josh Riff, of Blue Harbors, talked about an integrated parcel shipping solution inside SAP that helps customers save time and money.

I myself, talked about Effective Materials Planning, Sales Availability Checking and Transfer of Demand and how to model and measure a scheduling system with SAP value stream mapping. All using standard SAP ERP software, enhanced by the SAP Add-On Tools.

It was the first IO Summit for the SAP Add-On Tools and the large attendance and appreciation of the customers present motivates us to organize many more. 

I am frequently blogging on the SAP Add-On Tools and you can get more information on my YouTube channels and the SAP, Blue Habors and bigbyte websites.

Wednesday, March 26, 2014

Inventory Optimization Summit - San Francisco

Should you be in San Francisco tomorrow, March 27 and March 28th, drop by our IO Summit at the Courtyard San Francisco Downtown.

We will be presenting some really exciting AddOn Tools by SAP for Inventory and MRP Optimization. Keynote Speaker Marc Hoppe of SAP Germany will be there as well as Josh Riff, Thorsten Raab of Blue Harbors and myself from bigbyte.

We'll present some software functions but there will be lots of time for discussions and mingeling with other SAP users and customers.

more info at

Monday, March 24, 2014

why setup optimization is NOT the only thing you need to worry about

I don't get it! For some reason, wherever I go, people want 'setup optimization'. Consultants use that term in every capacity - literally! - and lead their customers down the path of 'manufacture your products to the best possible sequence of setups !' Is that really what production sequencing is all about? What happened to demand driven scheduling? or lean processes that reduce the waste of overproduction?

One particular consultant once stated: "Optimize your setups so that you spend less time setting up and more time producing."

That is not what I would recommend to my customers. ...more time producing what? Product that lies around in inventory because no one cares for it? Shouldn't we rather figure out how to produce as close to what the customer is demanding, rather than freeing up capacity without thinking about what that free capacity will be used for?

Yes, setup optimization frees up valuable capacity, but it does so building huge batches or lots of 'like' products. It is directly counter to the lean principle of small lot sizes. I am not promoting 'batch size of One' here, but I do want to warn of the 'quick fix' for your capacity scheduling problem that so many people present in your SAP optimization program.

Have 'setup optimization' in your toolbox. there are situations when it makes sense and in combination with other strategies it can be very effective. But do not work with it in an isolated fashion as the 'fix it all', just because that's all your adviser knows about effectively scheduling a line.

The Sales Order Availability Check: With or Without Total Replenishment Lead Time ?

If you look at the 'Scope of Check' that was setup for your Sales Order Availability Check, you'll see a choice that says: 'Check without RLT?'

Besides the question being a bit confusing (when I check it on, is it with or without RLT??), the decision has many, some hidden, implications. First off: when the choice is checked, your availability check performs its routine without the Total Replenishment Lead Time.

So what is the difference between the two? Let's look at an example:

Assuming you have nothing in inventory today and a customer orders 100 pieces with a desired shipment sometime in the near future. There are 50 pieces coming from the production line BEFORE the customer wants to pick up 100, and 50 coming in AFTER the customer wishes to pick up 100 - the last 50 are coming after the end of the Replenishment Lead Time.

If our sales availability check performs with Total replenishment Lead Time (the option in the 'Scope of Check' is unchecked), the following happens:

The system checks ONLY within the Replenishment Lead Time and ignores all receipts outside of it. It also assumes unlimited availability at the end of the TRLT. Therefore 50 pieces can be confirmed to the customer's requested delivery date and 50 are confirmed just after the end of TRLT.

This has the following implications: First, the sales order will confirm ANY quantity, no matter how crazy the request is, right after the TRLT, and second, it confirms quantities that are not on the schedule or even on the plan at that moment. Only after MRP is run, there will be a planned order to meet the new demand. This is a very unreliable and noisy way to do business and, in my personal opinion, only makes sense of you run MRP every day, or in a Make To Order situation, where there is no stock, nor any receipts.

On the other hand, when you check without Total Replenishment Lead Time, the system checks the entire planning horizon for receipts, but doesn't let you confirm if there aren't any.
Doing this right is imperative to business success, leveling demand, reducing noise in the production program and increasing visibility on what's demanded for the production scheduler and what's available for the customer sales representative.

Sunday, March 9, 2014

Postponement and SAP value stream mapping

Please see a video on Postponement and the introduction of an Inventory / Order interface to increase agility, flexibility and decrease the waste of overproduction.

The video also explains SAP value stream mapping

SAP Postponement and value stream mapping

Sunday, February 9, 2014

Simulations with the SAP Add-On Tool 'Safety Stock and Reorder Point'

Once you set your supply chain policy, you will have to fine tune your master data setup so that it drives good service levels with low inventories. The SAP Add-On Tool "Safety Stock and Reorder Point Simulator' lets you perform an optimization and update material master records collectively

Video: Safety Stock and Reorder Point Simulation

Saturday, February 8, 2014

Inventory Optimization with the SAP Add-On Tool 'Inventory Controlling Cockpit'

Here is an effective way to optimize and analyze your inventories in SP: Use SAPs Add-On Tool Inventory Controlling Cockpit to build hitlists, sort, filter, analyze, graph and optimize .... all in one powerful transaction.

SAP Add-On Tool Inventory Controlling Cockpit

Thursday, January 30, 2014

Getting more Value out of your SAP supply chain

What I recommend to do, and what not to do, when you engage in an SAP Supply chain optimization

So you want to embark on an optimization effort to get more out of your investment in the world’s greatest application software for enterprises?  Great thinking! For many SAP using companies, Go-Live is the end of their efforts to configure and customize the applications. Upgrades and the implementation of new modules is all they think about. There are usually many functions in standard SAP that are untapped and not used during the implementation and sometimes there are mistakes being made and a sub optimized setup results. Training is not finished yet and the competence in the use of the software is low. It’s all human and comes with the territory. You can’t go live with the perfect SAP setup.
That is why you should undertake an effort to get more automation, increase your flexibility in the manufacturing process, enhance visibility into the supply chain and keep your inventories low with great service levels.
But watch out: an SAP supply chain optimization comes in many different facets and in order to get value out of the effort, you must be careful to undertake the right steps, use the right tools and partner with the right consultant.
In the following I have listed Do’s and Do Not’s that come from a long history of optimization work and engaging with many clients from many industries. I’ll break it down into the different parts of an optimization effort.

Defining the Optimization

First and foremost you need to define the individual activities that should lead to value for the business. For that to be possible you will have to measure the existing supply chain, uncover weaknesses and sub optimized states, select the areas of operation, build a sequence of activities and set a benchmark so that you can measure progress.
Do take a benchmark measure before you start the optimization. Know where you are standing, list your inefficiencies and potentials, be honest about your company’s competence with SAP, see how much automation you get out of the system, measure your inventory performance and service levels, evaluate the level of visibility and transparency in the supply chain and try to increase flexibility from the level you are at right now. A good consultant should be able to quickly lay out that benchmark and direct you towards an effective optimization program.
When I start to engage with a new client, I offer them a free visit to personally meet and discuss their SAP and process setup on location. This helps me to understand what they are doing and gives me the opportunity to make some preliminary suggestions, so that the customer may quickly evaluate my level of competence. This helps them to feel comfortable with me… or not.
Do Not buy a so-called wellness assessment that lasts for a week and costs you an arm and a leg. If you get it for free, go for it, but only if they don’t tie up your staff. Exercises like that only help the consultants to sell you on more work, but are of no value to you. It allows the consultant to learn more about your way of using SAP (shouldn’t they know how SAP works best?) and getting paid for it too. They can also find out what they can sell you later down the road. A good, experienced consultant knows what you need to do, by engaging in a conversation with your users. Since experienced consultants know how materials planning, production scheduling and an automated procurement process works best in SAP, they do not have to spend a week at your facility, poking around your productive SAP system without supervision and possibly stirring up emotions and introducing friction when they present pre-mature and possibly false insights into your SAP supply chain to the executives.
Do engage in a modeling exercise to establish a point of reference. Models – I use lego – are a great way to design future, optimized states. You can grab a lego brick and move the inventory / order interface tangibly down the value stream and see the impact. A good model is your best companion throughout the initiative.
Do engage with a partner that is there for the long haul. The people you work with for their deep knowledge with SAP functionality need to learn as much as possible about your business and when they do, you want to have the ability to ask them more questions and bring them in for another week or two to help you with more optimizations. Before you sign up with the consultants, check their ability to sustain relationship with clients for a long time. Beware of the Optimizer who goes from project to project – most of them last for three to nine months before the client sees through the BS – and very rarely gets an added engagement. You want to work with the consultant who has many clients and those clients call upon them over and over again. Make sure you get some references and when you talk to the reference, ask if the consultant is still there and has completed and delivered successfully on optimizations before. Be also aware of the selective reference provision. A good place to start is at the consultant’s website. They usually list all the customers they worked with in the past on a ‘customer reference’ page. Pick 5 to 8 of those listed and ask for references form those companies instead of letting the consultant select the references.
Do not engage with someone who wants to optimize your process – except if you are looking for a process optimization consultant to optimize your business process.  Be clear what you’re looking to do here! This is about getting the most out of SAP functionality and not to completely change your way of business. If your process doesn’t work, chances are you wouldn’t be in business. Now it’s time to evaluate how much manual effort you have to come up with to run the process on SAP, to reduce that effort and make things go smoother and more automated with an increased level of competence… That is what this is all about. And when that advisor tells you that you will have to change your organizational structure or buy the book ‘Who moved my cheese’, then it’s about time to tell them to start their own company and put their money where their powerpoint presentation is.
Most importantly: Do Not engage in a gain share program where you hand the consultant more money based on an inventory reduction! Some of these programs border on fraud in my mind. First of all; an inventory reduction is not always a good thing. Especially when it leads to stock-outs and failed availability checks. Also, there are so many external factors influencing your inventory holdings, that when the value goes down, it’s very difficult to identify whether your consultant deserves credit for it. Maybe the inventory value goes down, because someone in the warehouse scraped obsolete stocks. The parameters with which a gain share is defined, are mostly shady to say the least and often set up in a way, that the consultant has some ‘wiggle room’ when it comes to report on the results. Taking a bunch of materials with inventory out of the MRP Controller key, or including the obsolete items in the initial report but taking them out for the final measurements, are common practices that sometimes happen because the consultants involuntarily mismanage the selection criteria, and sometimes because of a lack of competence when they compare apples with bananas. Sometimes, however, it is downright cheating.
Beware of anyone who wants to make more money that way, and work with those people for whom better inventory levels are a natural by-product of an SAP supply chain optimization.
Do check on the proposed team, resources and consultants! I’ve seen it so often; the sales staff comes in with a team of ‘great talkers’. They sell you an optimization and then you’ll meet a lot of new people at the kick-off meeting and during the project. The bad ones keep on rolling off, only being replaced by worse. Not only may your project be staffed with inexperienced SAP ‘experts’, but on top of everything else they throw in Project Managers, Business Maturity Managers, Thought Leaders (whose thoughts are they leading? And leading where?) and Account Managers.
Do you really need someone to manage these efforts? Do you need all these people? They cost a lot of money for sure. How about consultants that have vast experience with SAP, optimization efforts, understand supply chain theories and principles and know how to effectively apply them… and can manage all the efforts themselves and in collaboration with your team? Do you really need to pay someone an SAP premier consulting rate who does nothing but schedules meetings and manages change or business maturity? Your change? Your business maturity? In an SAP supply chain optimization?

More Effective Materials Planning

Materials Planning is at the heart and soul of the SAP supply chain. It’s where you set up your master data for automation and so that the MRP Run can generate a supply plan with optimum lot sizes and receipt dates from a pure demand point of view. Fine tuning of these supply proposals happens in Purchasing and Production Scheduling but a good setup of your master data and policies will set you up for success with a good basis.
Do learn about policy setting. It is the most important, game changing, cost saving, automating piece of an SAP optimization puzzle. Without regular policy setting you don’t stand a chance in this ever changing world… unless… all your competitors don’t do it either. But you want the advantage and not just go with the rest, right?
Do Not work with someone who tells you that collective updates are bad and you should never get Add-On Tools. SAP has white spots in its functionality and to ignore that, is simply bad. You can’t do an XYZ analysis in standard SAP. Instead of using a spreadsheet, why not using a totally integrated, SAP native MRP Monitor that lets you update the policy as well? Nobody, except for someone who does not want you to succeed and is only interested in their own gain, can possibly deny that the SAP Add-On Tools are absolutely essential for effective Materials Planning.  
Do educate your users in all aspects of effective materials planning, inventory optimization and the way the SAP master data drives automation, integration and visibility or transparency. Run them through hands-on workshops that are driven by experienced consultants and make sure that the knowledge transfer happens. Your users need to come out of this with a feeling of empowerment and not frustration because someone taught them how to set up one materials… and now they’re left with thousands more.
For Inventory Optimization Do Not put all your eggs into the LIS basket. The Logistics Information System is still available in your SAP-Enterprise software. I am not discounting it, since it has a lot of good reports and KPIs. However, it is a product of the 1980’s. It is simple nonsense to build an inventory optimization program around the LIS only. You would have to call up too many transactions, copy and paste data, move it to a different location, create an insanely big number of variants and setup customized info structures to manage data. On top of everything, it is very slow and SAP will never advance it, or ever speed it up with HANA. SAP says: “We do not support the LIS anymore!”. You can still use it, but there will be no new releases or any efforts to make it easier to use. It’s the poor mans (or the ‘stuck in the 80’s ’ mans) reporting and evaluation system.
Some consultants however, still promote it fiercely and try to make you pay… for them to build an inventory evaluation package that will embarrass you when you tell the user that they will have to use this from now on. Do Not, I repeat, Do Not pay someone to move you backwards in time and efficiency in your efforts to get a handle on your inventory controlling. It’s all they know… that’s why they do it.
Do make use of the SAP Add-On Tool MRP Monitor for automated policy setting. It has been proven that effective materials planning, prioritized portfolio management or continuous inventory optimization is not possible without the MRP Monitor. You can simply not keep the most effective replenishment policy updated if you have to manage more than 500 materials. With the MRP Monitor you can classify and segment your materials portfolio and set policy for entire classes. That ensures manageability and saves the materials planners a lot of frustrations.
Do have a look at the Add-On Tools Safety Stock Simulation and Lot Size Simulation. Especially the latter one has an incredible ROI. It allows you to periodically check on the lot size procedure which is used for your purchased or produced parts. It then simulates – for any given demand situation – which lot size procedure produces the least cost to replenish and compares it to the lot size procedure in use. This saves you money every day and it’s easy as pie.

Optimizing Production Scheduling

Do create an SAP value stream map and model your manufacturing environment! Models are a great reference point. And you can touch them and move things around. Once the model is build you can keep on using it forever. Any changes or improvements are documented in the SAP value stream map. Be careful to work on this with someone who has done this before and knows what is important in a value stream map so that you can get the most out of it. In my values stream map I add boxes with SAP information to it. As an example, everywhere there is inventory, there must be an SAP material master record to manage that inventory. Very often we were able to eliminate one of these inventory holding points because we introduced flow with a better scheduling system and the right lot sizing and setup strategies. Those are measurable, real savings and general improvements for your supply chain and very difficult to realize if you don’t model and document your value stream.
Do Not let anyone tell you that you should use only one scheduling system in your value stream. SAP has a number of very effective scheduling options and it is absolutely no problem if your packaging line is run repetitive with a heijunka load leveling profile, while the final assembly line is a takt-based, balanced ‘pull’ system and the fabrication work cells are run with discrete production orders based on reorder levels or even Kanban.
Do work with people who know manufacturing; not only from an SAP perspective. They should know what the difference between ‘pushing’ and ‘pulling’ is (and not only stating that ‘pull’ is better). They should be able to explain the Theory of Constraints and how ‘Drum, Buffer, Rope’ may be used. Buzzwords like ‘heijunka’, ‘takts’, ‘load leveling’ and ‘line balancing’ are used too often, without really understanding when and how to employ them effectively. Dig deeper in your interview to find out if they really know what they are talking about and don’t forget: Your users may need to change the strategies long after the consultants are gone. So either get a good knowledge transfer or team up with consultants that you can, and want to, engage with over a long time… when you need them.
Do use the Add-On Tool ‘Lot Size Optimization’ to find the perfect setups. The tool is mostly understood to produce the least cost replenishment lot size for purchased parts, but it also does find the least cost setup arrangement for produced or fabricated parts.
Do perform scheduling, capacity leveling, sequencing and a collective availability check before you release your order to the production line. Otherwise the hang around unprocessed and hog up capacity and components that could be used much more profitably otherwise. This kind of behaviour destroys flow.
Do Not try to solve ineffective production scheduling with the purchase of APO PP/DS. PP/DS has very good and effective scheduling heuristics but very often a heuristic is not what gives you the optimal sequence for a demand driven production program. Heuristics are approximations and often do not provide the solution to your problem. In most cases that I have seen, the problem lies in the fact that no capacity scheduling, leveling or sequencing is done after the MRP run produces a supply plan under absolutely no consideration of production constraints. The solution to that problem is easily done in ERP, which does by no means insinuate that APO PP/DS isn’t a wonderful scheduling and supply management tool. You just need to implement it for the right reasons.

Automating Purchasing

Do automate your procurement transactions. There are many functions and features in the SAP procurement model that allow you to go above and beyond what you learned or were able to implement at the time of the initial Go-Live.

Sales & Operations Planning in the Integrated Supply Chain

Do evaluate SAP-ERP’s Sales & Operations Planning. With its standard and flexible SOP it provides a multitude of functions that might give you everything you need. Often I hear people say that it runs way too slow. Sometimes there is an easy solution to that problem. It might be that the info structure constantly aggregates and disaggregates up and down the hierarchy because it’s set up with ‘consistent planning’. That costs a lot of resources and takes forever. Using an info structure with delta aggregation solves that problem and makes the planning much easier to handle. All I am saying is that you should see through the maze of opinions about ERP SOP and build your own. It might provide you with a quick and cost effective solution to your planning with the software you already own.
Do perform a rough resource check on your production capabilities and important raw materials availability, before you hand the planned demand into MRP or demand management. If you neglect to do this, you will overwhelm your production scheduler with infeasible quantities and dates.

Try Not To build your planned demand in Excel or an external system. If you must do that, find a way to roughly resource check the planned demand quantities and dates before they become VSFs or LSFs in MD04.

Wednesday, January 22, 2014

cleaning your materials portfolio with the Add-On Tool MRP Monitor

Since I have come across the SAP Add On Tools last spring, we have rolled out many of these tools at 5 very happy customers, whose supply chain runs on SAP. At the center of it all is the MRP Monitor with its invaluable capabilities of segmentation and policy stratification. But there is so much more you can do with it and I wonder every day:

"How can anyone perform effective materials planning without it?"

So let me first address and explain my definition of effective materials planning:

"Effective Materials Planning is the process of maintaining the basic data of a materials portfolio so that it supports automation to keep optimal inventories that provide great service levels at any time under changing conditions"

To perform effective materials management with SAP you should perform tasks in four areas

- Portfolio Management where the planner needs to set up 'swimming lanes' and keep transparency and manageability
- Policy Setting which I consider the heart and soul of any planning system. Maintaining the right policy drives automation and the right inventory levels with optimized replenishment.
- Exception Monitoring to counter variability and the Unforeseeable.
- inventory Optimization to constantly capitalize on opportunities for lowering of cost and increase of availability and service level.

...and without the MRP Monitor
You can’t do selective portfolio management
You can’t set policy for more than one material at a time
Exceptions are not meaningful without good policy and selective portfolio management
Inventory optimization becomes an impossible undertaking

So here I am... In a very cold state, building an effective materials planning system with a client who installed MRP Monitor, Lot Size Simulator, Inventory Controlling Cockpit and the Service Level Monitor... All SAP native Add-On Tools.

The client runs their supply chain on SAP since the mid 90s and has undergone various optimization efforts with various degrees of success. The last one had cost them the price of a Learjet and delivered the value of a holiday trip to Elizabeth, NJ in January. The consulting company promoted and taught exception management with MD06 and a subsequent 'rule' setup in the material master... One item at a time! The fact that each materials controller had to manage about 5000 items didn't deter the 'thought leaders' from the opportunity to run a 6 months, revenue generating 'value' project (value for whom?).

To make a long story short... There were endless workshops on MRP types, lot sizes, safety stocks and various other fields in the MMR - all very important stuff - but nothing that helped managing a large portfolio and setting policy for optimized inventories or great service levels.

Then the client acquired the MRP Monitor! Now we're in the position to get the materials planners to take control over their parts. The first thing we did was to use the MRP Monitor and it's valuable KPIs to sort out the more important parts from the lesser to the least important parts to watch on a daily basis.  First we utilized the Monitors Life Cycle classification to list all items marked for deletion and moved those items into the MRP Controller bucket 'obsolete'. The MRP Monitor has a function with which you can update policy for many materials at the same time. You can also use that function to mass change a large number of materials - as an example: to move all items marked for deletion into the MRP Controller OBS.

the portfolio already shrunk from over 5000 parts to less than 2000.

Then we took one planner's MRP Controller key, listed all items and selected those which did not have one single movement over the past 12 months. (number of movements is a KPI in the MRP Monitor). Out of this list we excluded the 'new parts (again... this is a class provided in the Life Cycle analysis of the MRP Monitor). These non-movers we moved into an MRP Controller bucket "least important items to look at".

Then we moved all items with movements less than 80 per year into another MRP Controller bucket "less important items to look at" and everything else was left in the "important" MRP controller bucket, which by now included less than 500 items.

Now the fun began: Policy Setting! First we called up the MRP Monitor for  the "least important item" - about 3000 parts that had no consumption over the last 12 months. No need for overthinking on policy. Take everything of consumption driven policies to a PD and scratch all safety stocks. As mentioned before, the MRP Monitor allows for mass updates and we simply selected all items in that bucket, set PD, initialized (meaning we set that field to zero) the fields safety stock, safety time and Range of Coverage and so updated 3000 materials with a policy that instantly eliminated all exception messages and plans them only if there is demand. The Materials Planner will look at that bucket only once in a while and more is really not necessary.

Now we went into the bucket "less important items" that contained about 1500 items. Still a lot but manageable. What's of note here is that all the items that can not be classified (and had no movements) are out of the way, so whats left here is not super important but needs to be looked at. Good news is that all these materials have movements and are classified, which means we can set policy by class and segmentation.

And that we did. Now you take your high consumption value, consistent consumption, short lead time items and update them with a reorder policy and a fixed lot size - easily updated with the policy update functionality ion the MRP Monitor. Within hours we updated over 1500 materials with a fitting policy before we directed our attention to the 500 most important parts for that specific Materials Planner.

Again we called up the MRP Monitor Result, this time for the 500 most important parts, parts that have a lot of movement and are classified according to ABC for consumption value, XYZ for consumption consistency, EFG for lengths of replenishment item, UVW for price, LMN for volume or size and a life cycle classification (New, Regular, Obsolete, slow mover, marked for deletion, or dying). Now we will have to pay more attention, these are our movers and shakers and we can look at one segment at a time... and update any policy we'd like. to keep these parts optimized will take longer than before. But that's ok since these are the important parts. we'll also check on these more often and that's ok too. Because they are important.

And that is what Effective materials Planning is all about: separating the important movers and shakers from the bulk that can be set up with a policy that automatically takes care of them. These important 500 materials we need to tweak and pay attention to. they will make our planning or break it.

isn't this so much better than having to look at 5000 items every day? in MD06 or MD07? by the way... when those 'thought leaders' had finally optimized 300 materials after 6 months, the policy didn't fit anymore, the parts were discontinued and there were still 4700 materials left to be optimized.

effective Materials Planning without the MRP Monitor is not possible ! No matter how much money you spend on 'thought leaders'...