Planning for the unknown

As I am working with clients on their planning system, we usually roll out planning horizons, planning hierarchies and planning strategies in order to provide a framework for the planners by which they can repeatedly anticipate actual demand and plan for it ahead of time.

However, at a worrisome rate, I find out all too often that such a system does not exist at all. Planners seem to think that because its impossible to figure out exactly what's coming, we better wait until it's happening. Especially when we're in the business of highly customizable products, we tend to hold off on planning capacity, materials and labor requirements until we have a better idea what the customer wants. That is dangerous and downright inefficient. Luckily, we're not in a life or death situation with these orders, so we'll get by without planning. It just costs us a lot of money and time.

But imagine the same thinking would be applied in more serious, life threatening situations. Put yourself on a flight from Newark to LA. You just boarded and settled into your seat when the captain and co-pilot engage with the board engineer and the crew in the middle aisle to discuss weight and balance of the airplane. The discussion might go something like this: 

Flight attendant: "Today we have 80 passengers, which fills the plane to 65% "

Pilot: "How's the weight distributed"

Flight attendant: "most of them are seated forward cabin"

Engineer: "if the weight isn't distributed evenly, we might crash into the forest behind the end of the runway because we can't take off... and if we take off we might have a real disturbing flight behavior by the airplane"

Co-Pilot: "yeah, I had that on a flight into Fort Lauderdale last year and we had to rig the airplane nose up for the entire flight, which burned so much fuel we almost ran out"

Pilot: "That's not good... so let's see how we can distribute the passengers a bit... how about the luggage below?"

Flight attendance: "that's done. I don't know where they put it?"

Pilot: "hey guys, that's really scary but we have to get these customers to their destination, otherwise we get a bad track record for on time delivery. Let's just go and hope for the best"

I don't think you would want to eavesdrop on a conversation like that. And don't worry, this kind of talk never happens on an airplane (I hope) because flight crews are obligated to plan ahead, anticipate what could happen and put policies in place for eventualities.

But why do we only do that when life is on the line? Can't we take financial and competitive situations seriously enough so that it warrants good planning?

I dare you to take a long hard look at your planning and compare it to that of a situation as described above. There is no excuse to not reserve capacity and to not balance the production line, spreading out the work (whether it comes in exactly like you anticipated or not) evenly... to put buffers in place (inventory, capacity and time) by which you quote delivery times... and work with a set of policies that get you to operate at the edge of your possible performance boundaries... no matter what exact situation plays out later.

Be prepared... it pays off whether lives are saved or (only) your customer service is improved.

implementing #S/4 HANA, #simplelogistics

In a previous blog post I got pretty enthusiastic about Hasso Plattner’s promise of making it easy to switch from ECC 6.0 over to S/4 HANA. Now, eight months later, I am spending Thanksgiving weekend at a client site which is struggling (like I have never seen before) to go live with “simple logistics” and other S/4 HANA applications. All I can help with is to define a process for the generation of a production schedule that they need to have ready before next Monday, when they plan to flip the switch. All the other technical problems I can’t help with as I am not familiar with the new S/4 HANA features (neither are any of the other consultants, I believe, as it’s a bit difficult to get documentation… to say the least). But even the stuff I know from ECC and all previous versions of SAP Logistics… a lot of it isn’t there anymore! It got cut out during SAP’s “simplification” efforts for S/4 HANA. And they “simplified” everything that wasn’t used much (not considering that the reason it might not have been used much was because it wasn’t known.

Ok… so let me understand this: good functionality was taken out in the new, “enhanced” (and more expensive) version of SAP software because it wasn’t used much? Because an MRP type V V was badly documented and very rarely taught to any user, you take it out of the feature list? Because no one was ever able to make good use of fantastic functions like picking from various scheduling levels in the production version (so that you can use different planning objects and different levels of detail in different planning horizons)… simply made unavailable? And because only few people could figure out how to use the grandiose sequencing board to schedule a flow line by takt, you disable that entire feature? How should I now schedule the final assembly line here at my client?

I find it very worrisome that for the first time in my 27 year SAP consulting carrier, I find myself dealing with a newer version that has less functionality than the old. And that is being called “Simplification”?

Oh well… as I am walking around the office, I run into (rather almost trip over) people that have spent the last 4 weeks working day and night… some going up to 4 days and nights on 3 to 4 hours of sleep. That is no “simple” feat at all!

Product Wheel Scheduling with SAP (Process Industry)

Product Wheel scheduling is a concept which allows for standardized, noise-reduced production of fast and slow moving products made to stock and made to order. It came about first as a tool to introduce ‘lean’ principle – which were thought out primarily in the automotive industry – to process manufacturers. Product Wheels find now widespread acceptance in the chemical, pharmaceutical and food processing industry as it allows for the scheduling of large batches and considers the difficulties with switching over from one product batch to another.

There are some specifics to be considered when using the product wheel in the process industries and, with this writing, I’d like to provide you with some ideas on how a product wheel could be configured into SAP.

What is Product Wheel Scheduling?

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

Also, in process manufacturing you may have by- and co-products; unfinished yield that may be re-introduced into the process. And you often can't predict what exactly comes out of the process. So you have to work with ranges (of specifications) and chemical formulas. All of that is provided with recipes and process orders in PP-PI. As "lean manufacturing" came primarily from the automotive industry, process manufacturers always asked the question if they can reduce waste as well. Why not? You cannot introduce 'one piece flow' but that's not the only lean principle. Why not heijunka level a production program or make every product every interval (EPEI)?

Peter L. King has written a book, “Lean for the Process Industries. Dealing with Complexity”, which beautifully translates all the 'automotive lean principles' to process manufacturing. One of the most interesting ideas is the 'product wheel' is that it represents heijunka for processed products. Products wheels allow you to schedule, capacity level and sequence your production program all at the same time. It is a mixed model scheduling concept which allows you to automatically fill a processing line to it's capacity, in a setup-optimized sequence, ensuring that the smallest possible lot size is processed as many times as possible within a planning cycle.

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

A planner will first identify how much time is available during a planning cycle to get around the wheel. If that time span is one week, we simply sequence the total forecasted quantity for all products on that line and for the week around the wheel. If, with that, we get 2/3rds around the wheel, then there is 1/3 available for MTO capacity and setup time. Peter L. King calls that open time PIT – Process Improvement Time.

The Product Wheel is a production scheduling method with its design based on average demand but it is executed to actual demand. The phases to use a Product Wheels are:

1.       Identify the location (line or line segment) on your production floor where the product wheel is to be used for scheduling

2.       Design a standard sequence using all the products which may be produced on the line

3.       Determine the lengths and periodicity of the cycle of the wheel

4.       Schedule or load the product wheel for the next cycle so that it meets planned demand

5.       Execute the schedule for the cycle according to the plan and fulfill incoming orders from inventory

The last point is of special importance as this provides adherence to the core philosophy of product wheel scheduling: produce to inventory according to a set plan in a frozen zone and fulfill actual demand from inventory which was replenished from the previous production cycle

Product Wheel scheduling brings with it transparency and insights that help to continuously optimize the way we produce. A uniform, level production schedule will maximize equipment and labor utilization, and smooth out requirements for raw materials. One of lean manufacturing’s major change in thinking is that we must take variable demand and find a way to distribute it evenly. Product Wheel scheduling does exactly that. It goes away from scheduling customer demand on an instantaneous basis, but rather integrates the variable demand into some longer time frame

 Implementing the Product Wheel with SAP

First  perform a segmentation to classify our products (the ones we manufacture) into four categories:

u  MTS high volume – every cycle - these are your front running items. You are are maintaining an inventory level which provides high availability (high service levels) to your customers

u  MTS low volume - every other cycle - these products are demanded less frequently and find their ray onto the product wheel only every other cycle or even on c, every third or fourth cycle

u  Only when inventory requirement is breached - here we are dealing with products which are demanded only from time to time. However, we cannot afford to wait with production until we have the customer order in place because our customers would no of accept to wait out the replenishment time but rather buyfrom some place else. This is why, for these products, we will keep some inventory and trigger more production based an A breach of a reorder point.

u  MTO - for products with infrequent demand which happen to be valuable, perishable and/or relatively short to replenish, we trigger production only when a customer order is present.

While performing the segmentation you’ll have to consider some determining factors that may be described as follows:

u  Cost of inventory – requires short cycles

u  Cost of change over – requires long cycles

u  Shelf life – requires short cycles

u  Short term product demand variability

u  Minimum practical lot size

Then, before you can use the product wheel for production scheduling you must define some standards. If you hold an annual strategy meeting, this is the best time to set the wheel’s cycle duration, performance boundaries and identify the places where the wheel is used for scheduling.

Once these decisions were made, one can implement the standard steps and sequence by which a planner may design and subsequently run or schedule the product wheel. Some of the steps to implement product wheel scheduling are given below.

1.       Value Stream Map – create an SAP value stream map with all master data, decoupling points and pacemaker / wheel locations

2.       Where on the floor? – decide the locations where you want to run product wheel scheduling

3.       Demand volume and segmentation – perform the segmentation as described above

4.       Sequencing – establish a changeover matrix

5.    Wheel time (cycle) – fastest, most economical, shelf life, demand variability, min lot size

6.    Wheel frequency for each product

7.    Distribute products across cycles - balance cycle to cycle

8.    Visualize wheel cycles – diagrams

9.    Calculate inventory requirements

To define the standard sequence (as suggested under point 9) proceed as follows:

A standard sequence provides a template for the actual sequence. In it we identify all products which could ever run on the line and provide a mechanism by which every actual sequence (with only those products on the schedule which are actually demanded in that cycle) will go by.

To set the standard sequence in SAP we are using the setup matrix with its fields SETUP GROUP CATEGORY and SETUP GROUP KEY. Configuring the settings to the fields in SAP’s customizing will enable us to define each product’s place in the sequence. This is done in the product’s standard routing or recipe. Go to the sequence of operations and from there drill into the details of the operation with your production line. In there you will find the fields  SETUP GROUP CATEGORY and SETUP GROUP KEY. Pick from the list of options those values which place the product you are maintaining into the right place of the sequence as shown below

For the routing displayed above we pick group “C” which places the product on top of the sequence. Next we pick the setup group key.

Value 2 is being picked here which places the product in second place within the third group “C” (which was picked as setup group category) of the sequence

If you keep on assigning setup group category (the group) and setup group key (the sequence within the group) to the routings of the materials you manufacture, you are, in fact, building a standard sequence by which these products fall into place should they be demanded and a planned order is present.

Next I’ll demonstrate how orders can be scheduled using this sequence by way of the Dispatch Sequence in SAP’s scheduling transaction CM25.

Product Wheel Scheduling with CM25

After all settings (changeover matrix, sequence schedule, routing data, material master policy) have been setup, we can now schedule the infinite supply plan, generated by the MRP Run, into a finite supply plan using transaction CM25.

As you can see below, all generated, unscheduled planned orders are visible in the order pool in the bottom window.

What we need to do is to pick the frozen zone period and schedule relevant (within the time period) orders from the pool onto the processing line. This must be done within the available capacity and in the correct sequence.

To determine the correct sequence we must use the dispatch key that uses the changeover matrix we configured in the system. This is done by way of the strategy profile.

You can now select all the relevant planned orders from the pool and push the dispatch button. This will distribute the orders in a given sequence, within the available capacity on the processing line.

The result can be seen here

Product wheel scheduling can run very automated in SAP if you put in some work upfront to set up all the relevant master data.

Production Scheduling (with SAP) for Managers - Pune, India February 25 and 26, 2017

I will be holding a two day seminar on production scheduling in Pune, India. For more info or registration please click the link below


Production Scheduling for Manager

bigbyte is hiring...

Are you passionate about SAP supply chain optimization? Do you love to solve problems with dynamic, all encompassing solutions in a team that is advocating on the customer's behalf? Do you understand what's really needed to make the supply chain flow?

To join bigbyte team’s you need to have unparalleled understanding of SAP’s standard offerings to help our clients understanding of their options and possibilities within their own system to keep their business performing competitively.

Our three areas of optimization are
- Effective Materials Planning
- Sales, Inventory, Resource & Operations Planning
- Factory Optimization

...all with companies running (and sometimes crawling or limping) on SAP.

We're looking for experts who understand:
- detailed knowledge of SAP supply chain functionality above and beyond the elementary implementation practices and scope.
- concepts like Demand Driven MRP, Lean Manufacturing, the Theory Of Constraints
- that the magic happens when an educated planner uses the right tools so that the factory performs to its maximum potential.

What we are not looking for are 'talkers', we're looking for 'doers'. We are not looking for people who have only learned MM and PP and SD by the book. We are looking for people who understand the dynamics of the SAP driven supply chain and can connect the dots and learn from our methodology. "Buzz modules", you know... that stuff everybody talks about right now, is not our priority or emphasis. We need people who can leverage SAP standard functionality and work with clients to help them make use of the SAP system they already own.

If this sounds like you, hit me up! Convince me that you're a good fit for our outstanding team. Send an email with your "call to action" to uwe@bigbytesoftware.com

SAP and Repetitive Manufacturing

As you are probably well aware, SAP functionality includes a model that's called Repetitive Manufacturing or SAP-REM. It's just that only few customers use it even though, I believe, it is a wonderful fit for many things managers would like to do. That is why for the past 10 years or so, I have personally invested a very large amount of time to figure out

1. how the REM module in SAP is functioning

2. what the developers had in mind and why they created it

3. why SAP using customers, large and small, use it only marginal or not at all

...and most interestingly to me... 4. why SAP, as an organization, has shown little, if any interest to get this great functionality out there to the user to automate, simplify and increase efficiency. 

You might say "we're not a repetitive manufacturer" and there lies one of the fundamental problems with the non-adoption of SAP-REM: a widespread mental model of believing that if a product is customized or has some sort of variants, its production can't be repetitive. I beg to differ.

The persistent objections I receive in years of pushing for REM, which was far ahead of all lean and agile ideas, has lead me to avoid the term 'repetitive'. I do not suggest anymore that my customer should activate their materials for 'repetitive manufacturing' anymore. Much rather I ask them if they'd like to run their production schedule by a 'takt' and pursue serialized manufacturing. Then I suggest a rhythm wheel, heijunka or drum, buffer, rope scheduling methods and all ears are wide open.

Yes, I know you can create a heijunka schedule with discrete orders and connect an assembly line with direct production and collective orders but why using a work-around when you've got the perfect tool in hand? Do you eat your soup with a fork?

If you want to know more about what SAP can do for flow, low wip, short cycle times and lean manufacturing look into SAP-REM. If you make one-off, engineered and highly customized, very large projects REM probably isn't for you, but for everybody else I take on bets, if you let me discuss it with you.

Just recently I worked with a maker of power transformers which are made uniquely to each and every customer. In the end they're making power transformers and the steps to build one are the same every time. If you create a standard route and allow for a takt with enough time to allow for work to happen at each station, you can place any transformer in the schedule. Building aircraft is similar. Even though each A320 might have a different cabin configuration, to build one requires the same steps and approximate working time in each takt. So why not planning ahead, reserving time on the line (capacity) and letting the specific configuration drop into the schedule at the time the customer has defined it? 

It's serial (don't say repetitive) production.  Don't you agree? Yes, I know, that company that makes A320s (or the company that makes transformers) think of themselves as an engineering company. But they're also a serial (don't say repetitive) manufacturer of products with customized options. They have a department that engineers great products, however, when they start offering the product to the customer, they move into serial production - no matter how much customization they allow.

And serial (or should I say repetitive?) production is best flowing when you schedule it into a takt that matches your customer demand. Think about it the next time you're trying to figure out how to meet the customer promise date or when you walk through your plant and try tofigure out why you have all this WIP lying around.

Wouldn't you want to see your orders flow along a lean schedule?

scheduling Assembly Lines with SAP

Many of the companies which manufacture their product with assembly lines (packaging lines, final assembly. sub-assembly) and run SAP, do not use SAP's functionality to schedule the line. Even though in most cases people talk about takt, they still use discrete production orders and often do the scheduling in Excel.

The thought that SAP can't handle this type of scheduling is still prevalent and couldn't be farther from the truths.

In your company you might have one of two types of assembly line execution (there are many more, but here I'd like to focus on the ones that assemble customized products). Either you make everything custom to order and your feeder lines produce very specific, customized semi-finished parts or you have common products that you can use as a buffer in front of your final or main assembly line. In the second case you can use de-coupling points and manufacture to stock... then your assembly line pulls from that stock. This requires separate work orders for the feeder lines. Separate from the work order that runs through the main assembly lines.

For case #1, where everything is customized, this type of planning does not make sense as everything is specific and any buffer of customized parts lies around unused until the time comes for it to be finished for that very specific customer order. In that case the best choice is to create one, and only one routing that contains all the operations including the operations for the feeder lines.

Let's illustrate this point. For a company that makes products with an overseeable amount of options, like cleaning machines, you can work with inventory points in the value chain. Upstream of the final assembly line you may want to keep buffers of motors, wheels and seats from which your customer orders can pull into a final, customized assembly. 

This type of manufacturing might look something like this:

Airplane and automobile production is similar in this respect as you have a very deep Bill of Material with a manageable (and therefore stockable) amount of options on each level. 

Now imagine you're in the business of producing highly customized products where every finished product is ordered to a customer's very specific requirements. Examples of this type include specialty vehicles like ambulances, RV's or firetrucks, field power transformers (they are very different from one another but have very similar components) or traditional satellite production. In these cases the customization goes deep - meaning that you cannot stock the intermediates. On a transformer the bushing might be slightly different every time you pull it into the assembly line. So there is no point of stocking various bushings when each bushing can only be used for one specific assembly.

Therefore you want to manufacture those parts and sub-assemblies only when they can flow directly into the final assembly line and that process might look like the following sankey diagram.

Note that it is absolutely pointless to start production of a sub-assembly beforehand. What I have seen is that schedulers think it to be of advantage if they start a portion of the job before the customer has finalized their specification for the final product. What will happen is that the part is finished and will have to wait until it can be used for the final assembly. There is no way it can be used for anything else but that specific job. So why don't we wait until we have the final order and then start the job and let everything flow together? You might argue that the lead time is longer then. No, it's shorter becuase mothing has to wait and flows.

What you'll have to watch out for is that you define a frozen zone that is longer than the lead time to produce your product from the beginning to the end.

If you'd like to run the assembly lines by takt - and that is the only way you create flow then the best choice in SAP is to use Repetitive Manufacturing with its sequencing board and line balancing. However, you can also create 'takt' using a discrete order where every operation has the exact same lead time so that you move the product from one work station to the next at exactly the same time disbursement along the line (what you lose with discrete orders is the ability and flexibility to calculate and adjust the takt to changing demand).

Scheduling that way makes sure that things will flow and WIP doesn't build up on the line but you'll have to accept that there might be long idle times if the raw processing times vary widely from one station to the next. This is due to the fact that you should wait out the takt time before you move the product forward to the next station. That kind of thing is hard to execute on the shop floor as workers don't want to look idle. Management usually is also more concerned with high utilization and high efficiency as they are concerned with flow. But flow - even though slow flow - produces at much higher rates than high utilization of workers and work centers. This is simply due to the fact that when you have high utilization with variability than WIP will build up between the station. And the more WIP you have the longer your cycle times will be and the lower your output rate.

It's not very intuitive but if you run a line slowly with flow, it will actually run much faster than you think.

...on Demand Driven MRP

Demand Driven MRP is a new concept coming up on the heels of Orlicky's original MRP. the people from DDMRP have written a multitudes of books - each single one of them I wholeheartedly recommend to anyone interested in improving supply chain behaviour. Most prominently is "Demand Driven Performance: Using Smart Metrics" by Debra Smith, Chad Smith. It has a very interesting section on the perils of development, serialization and getting to market Boing's Dreamliner. But it also does a very nice job getting the concepts of the new MRP across.

I write in my blogs and the documentation on our optimization projects about "The old paradigm and the new..." by which I suggest, in a nutshell, to use buffers instead of a static safety stock. And using some Factory Physics insights we know that three buffers develop when variability is present - no matter what you do! You have two choices to deal with variability: either you wait until it comes and deal with the buffers that will develop then or you plan ahead and build a combination of the buffers time, inventory and capacity so that the incoming variability can be absorbed... to the extend of the service level you have set. Demand Driven MRP has taken an approach to further define these three buffers and how you can plan for them. At bigbyte (www.bigbytesoftware.com) we have then taken their approach and made it our focus to find away to use this concept in our system of Effective Materials Planning

Let's first look at the inventory buffer:

The inventory buffer is the one we think about the most.  If your vendors have long lead-times and a lot of lead time variability or your customers order very erratically, you may have a large buffer of safety stock.  That way, when orders come in, you can ship them on time and your customers don’t have to worry about your unreliable vendors. To identify too little, too much or the range of 'just about right', DDMRP uses a traffic light system as show above. With it you can always see whether you're doing well or not (bi-directional - stock outs / superfluous inventory). 

So how do you display this in SAP? well you can use a traffic light system there too: transaction MD07. You might say "but I can only define traffic lights for the entire portfolio of mterials' and you're right. However, if you apply a SAPnote (LOG_PP_MIS: Enhancements in the Collective Displays of Material Requirements Planning ) you can set the traffic lights for each materials separately. 

An even better solution is to use the SAP Add-On Tools MRP Monitor and Inventory Controlling Cockpit and use the classification to set your control limits to something like this...

this way you can check daily on your inventory levels and take action if necessary.

Capacity Buffer

A capacity buffer can take on many shapes. If your unreliable vendor usually ships to you via ocean containers and you don’t buffer with enough inventory, you can use emergency air shipments when you run out of product.  Think of the air shipments as extra (and expensive) shipping capacity.  Or, if your unreliable supplier is actually your own plant, you can use overtime or extra lines to meet unexpected demand.  The capacity buffer may be more expensive than holding inventory.  But, in a make-to-order environment, it may be a good choice.

The capacity buffer can also be setup in SAP. You can use the scheduling marguin key (on the material master's MRP2 screen) to use a float before and a float after production. With a reduction key you can use these floats then in scheduling and capacity planning in the graphical board (CM25). More detailed you can also use with shift sequences (in the work center record) to open up additional shifts on a Saturday for example.

Time Buffer

 The time buffer is usually the buffer you end up with if you don’t create other buffers.  If your supply chain has variability (and it does), and you don’t buffer with inventory or capacity, then when your demand is higher than expected or a vendor shipment is late, your customers simply have to wait.  Even though you promised the delivery in three weeks, it may be five weeks before you ship.  This buffer avoids the expense of extra inventory or capacity, but comes with the big downside that your customers may take their business elsewhere.

The time buffer is the least intuitive to set up in SAP. You'll have to carefully evaluate how you want to set up your lead times (In-House Production Time, Planned delivery Time and Total Replenishment Lead Time) as, on one hand, if your lead time is too long you'll raise your inventory levels and on the other when the lead time is too short you're generating tons of exception messages.

Get service level agreements with your management and set them rigorously. This is another big discussion point which exceeds the capacity of this blog but nevertheless very important.

Optimizing your SAP supply chain

When looking at today's SAP supply chains in various firms, I almost always come across three distinct shortcomings: SAP's functionality is only used sparingly,  goals associated with the implementation are rarely achieved and sustainability in the long run is not happening. The percentages displayed in the graphic below is, of course, a wild estimation and might stray widely from your own company's situation. However, in over 20 years of consulting in the field of SAP supply chain management I have not seen an installation that exceeds these numbers.

To effectively improve on these issues and effectively optimize your SAP supply chain, I strongly believe that you'll have to focus on three things:

1. getting your planners to work with SAP functions instead of spreadsheets and 3rd party tools. This can be done through a series of workshops executed by some experienced SAP consultants who understand the full set of functionality that comes with SAP. In another blog post I suggest the use of a spider chart with specific activities to improve on the use of SAP functionality for materials planning.
2. getting closer to achieving your goals and targets with a focused set of KPIs and putting together an improvement program like I described in yet another blog post on performance targets and measurements.
3. to improve on sustainability you must get your planners, schedulers and buyers certified on the use of the new concepts learned and the functions and standard operating procedures defined. Such a certification program should be managed through an LMS (Learning Management System) so that you can pinpoint through the entire organization where you need to do more sessions and improve on the competence level.

You might argue that you don't need to do this as you'll achieve those goals and sustainability without using the full functionality in SAP (Excel and 3rd party work-arounds may give you the same degree of success?), but as per my experience that is simply not the case. You're kind of doomed to use as much of SAP as possible since you're company has taken the step of acquiring it. Working outside of SAP simply destroys integration, data quality, flow and efficiency. And if you think that a 'best-of-breed approach is the better choice then you should first convince your executives and IT to switch gear. But as long as your company's strategy is SAP, you're stuck.

But don't despair. Turns out that once you're finding out about all the neat and exciting functionality that often lies hidden under the surface, you'd be surprised what you can do with this phenomenal system that was developed over so many years with a real smart group of developers and experienced supply chain enthusiasts. All you have to do is to dive in and formulate a sound approach and the magic might just happen.

Benchmarking your performance targets

In another blog post I talked about benchmarking your degree of using SAP functions as opposed to spreadsheets and 3rd party tools. Today, I'd like to discuss how we can measure to what degree we achieved the performance targets that we hoped to get out of an SAP implementation.

Clear, concise measures and targets are not always provided to the team members of an implementation effort. During an implementation or a subsequent optimization you should focus on evaluating your degree of functional efficiency, data cleanliness, process performance and overall system setup first. Then one can set attainable targets and put forth activities to reach them in time.
The progress can be measured in a spider diagram as shown below. This allows the team to never lose focus on the important tasks at hand and ensures success. Improvement efforts without clear and concise direction and focus on performance key performance indicators are doomed to fail and usually end up in confusion, frustration and a general lack of accomplishment.

In the example we put forth the KPI we'd like to improve on and set a benchmark and actual targets we'd like to achieve. as you go forward on improving, the red line on the graph depicts progress and positive deviation on each individual target. The more the line moves to the outside, the closer we’re getting to the desired state.

Of course you'll have to customize the graphic if you'd like to use it.

Benchmarking the degree of your usage of SAP functionality

So you're running on SAP. You have spent a considerable amount of money on software license, hardware, maintenance, upgrades and predominantly on implementing this monster. Do you ever ask the question: Are Your planners operating with and inside SAP functionality or transacting with MS Excel spreadsheets and 3rd party work-arounds?

to answer this question with substance is not quite as easy. In most cases I get the answer "we are using too many spreadsheets" or "we needed to buy third-party software because SAP functionality needed was not there". Well, I'd like to challenge this statement. there is a lot of functionality in SAP and not always (actually in only a few cases) are you being shown all the things that are possible. In my opinion companies are too quick to jump on solutions outside of SAP instead of searching for the solution within.

As you have been using SAP for quite a number of years now, I'd strongly suggest you do some sort of detailed benchmarking to figure out how far you're operating outside of SAP. Following is a suggestion of a spider graph that you could use to do so. This one is specific to Materials Planning with SAP.

as you can see there are a number of questions around that graphic that must be answered. Of course, these questions would have to be customized to your specific industry and business but they should represent a general set of issues you might have. as you answer the questions you should provide a rating and the more you do the function in SAP the lower the rating should be, so that when you're finished - and you find the graphic with a lot of blue stuff - then you are not using a lot of SAP functions to run your business. If however the blue area disappears within the inner SAP circle, your business runs on SAP.

Of course just doing this exercise to know where you are is only a fraction of its intended use. The idea is that you're generating a number of activities to get you into running your business integrated, efficiently and profitably on SAP. For example: implement 'bucketizing' your materials portfolio in MD07 or use buffering strategies with a range of coverage profile or calculate safety stock values in SAP instead of Excel or perform strategic materials planning with SAP.

Why should I do this you might ask? Why and what for did your company invest so much money in SAP software you could answer?

The old paradigm and the new...

in this post I'd like to write about historic development of MRP systems and most planner's pursuit of “The Holy Grail” to Improve Forecast Accuracy.
From Orlicky’s early MRP system through today’s Advanced Planning Systems there were lots of advancements from a technical point of view. With new databases like HANA we have now so much computing power that an explosion and net requirements calculation of a Bill of Material – no matter how deep or wide – is a non-issue. Integration was also accomplished. First, through MRP II’s addition of capacity and resources leveling as well as a material availability check. And with the dawn of ERP systems, notably SAP’s R/3 the assimilation of HR, Sales, Finance and much more was accomplished. Eventually, the Advanced planning Systems (in SAP that was APO) took center stage and promised full automation.  However, it was forgotten that complex, non-linear supply chains afforded much more from organizations that had to stay competitive. Noise-laden, constantly expedited production programs wrecked havoc on purchased parts requirements and materials planners still today are chasing forecasts and ever changing demands with loads of variability in the hope that they can expedite and manual correct infeasible plans. So... Over the years the tools have developed and grown technologically but not really delivered results
Additionally, demand fluctuations being propagated from consumer behavior upstream through the supply chain define the bullwhip effect. In fact, the increase of fluctuation is quite large as we go ‘backwards’ towards the source. Research indicates a fluctuation in point-of-sale demand of +/- five percent will be interpreted by supply chain participants as a change in demand of up to +/- forty percent. Much like cracking a whip, a small flick of the wrist (a shift in point of sale demand) can cause a large motion at the end of the whip (manufacturer’s response)

This phenomenon still holds true today in most supply chains. Companies driven by MRP, MRPII, ERP or APS systems and their inherent deterministic planning place pressure on planners. These are faced with sheer insurmountable tasks to keep high service levels to the production lines with low inventory holdings in the face of variability. The only remedy seems to improve forecast accuracy which is nearly impossible as the future still can’t be predicted with certainty. It is time to rethink and revive this very important department. Years of negligence due to excitement about new technologies have taken a toll on its performance and effectiveness. The Bullwhip Effect is getting the better of us and, in many cases, destroys cash flow and profitability

The new paradigm centers on variability and its detrimental impact on the bottom line. Variability is anticipated and part of the plan. Only then can you plan strategies to either reduce or absorb the enemy number one of any value chain. A reduction of variability directly translates into a reduction of required inventory levels, a lift of availability and with it the service levels and shorter cycle times

Instead of ‘single order related replenishment’ – which is a prevalent planning method in many of today’s organizations – our method is mostly demand neutral and plans with buffers to fulfill any actual requirements… within its defined performance boundaries and set service levels. This will make your system liberated and independent from demand swings and cuts out the uncertainty in forecasting.

Like a seawall holds of surges of water, the new paradigm provides protection from the bull whip effect and ensures noise-reduced and leveled replenishment and inventory management of your purchased parts, ingredients or materials. What we suggest is... Instead of creating a detailed plan for a single situation that will never occur… 

...create a set of policies that work for a range of situation, using the buffers time, inventory and capacity. The buffers Time, Capacity and Inventory are an integral and important part of our system of Effective Materials Planning as they serve as the basis for the construction of replenishment policies. As described in the award winning book Factory Physics® or the teachings of Demand Driven MRP, the right combination of buffers to counter variability is key. It reduces noise, increases transparency and automation, allows for integration and helps to align the plan with a company’s supply chain strategy. It even helps to drive awareness for the need of a strategy and the definition of performance boundaries and general user or planner guidelines.

Buffer Strategies help to standardize your Planning and Execution and provide standard operating procedures to help planners, buyers and schedulers to align their activities to achieve a large increase in performance and profitability.

How do you construct these buffers into SAP? That answer requires a bit of an elaborate discussion but in a nutshell: for the inventory buffer... instead of the static safety stock (which drives a bunch of dead stock) your using a dynamic safety stock with a range of cover profile. For the time buffer, you fix the availability checking rules and work with safety time (On MRP2) and to use capacity buffers you must set up your value stream and production scheduling methods in a way that your bottleneck work center runs below 100% utilization.

thoughts from SAPPHIRENOW 2016

I had the pleasure again to visit SAPPHIRENOW again... not sure how many times I have been there yet, but the first one I attended was at the Embassy Suites in Orlando in 1992. 300 people were there... a stark contrast to the roughly 30,000 this year.

There was the usual show floor with all the partner exhibits, lots of presentations, all the ASUG seminars and keynotes from Bill McDermott and Steve Wozniak. But my personal highlight - as it is every year - was Hasso Plattner. He still has is, so I think, the driving force behind SAP and to a very large degree it is his genius that makes the SAP story an absolute awesome success.

HANA is his latest achievement and with it he is probably breaking any barrier there is. HANA has been around for a while but his speech made me finally understand what the possibilities are. They are enormous and I see an incredible amount of excitement for it. In a few years everybody will be running on HANA - first as a database for the suite of software available today, then on the new suite S/4 HANA.

It looks like a bright future for business software and there will be incredibly sophisticated apps and features running businesses more effectively and fast... if ! and that is still the crux of the matter: you fix the process first and use the tool as it was intended. Planners still have to understand how to move through the planning horizons and when to use rate based planning or takt-based scheduling... It won`t help you to move your production scheduling to S/4 HANA if you run your lines by access database clculations today or your buyers replenish with spreadsheet lists.

Fix and clean up your old ERP first and then use the cut-over transaction Hasso presented in his speech. It´s a fantastic way to go to HANA if you´re ready for it.

Hasso is ready and covered all the bases... did you?

Make To Stock Planning done right - are you doing it?

The topic of MTS versus MTO comes up often and people have their own opinions about the definition, but it's actually a very straight forward thing... isn't it? Let's review.

The definition that makes most sense to me goes as the following:

In a Make To Stock environment production is triggered BEFORE an actual sales order comes in and any receipt from the production line is put into inventory from where customer orders are fulfilled.

unfortunately, this does not make everything clear and concise. What if I get a customer order three months before I have to deliver to it? In that case you can enter the SO and it will show up in (SAP transaction) MD04. But we're still not producing to it when we're operating in MTS. It simply reduces the forecast that we produce to and gives us additional information about what we'll actually have to deliver, but it does not trigger production.

What if I get a large order today and do not have enough inventory to fulfill it? you'll have to wait until the next period produces enough product and tell the customer to wait. Because... what is produced this period is for customer orders requesting product in the next period. This is an important point to make... look at the following example:

in the graphical display of MD04 we can see that there is a forecast for the next five months. We can also see that the MRP Run has created orders to fulfill those forecasts. Not that MRP generates orders with their latest possible delivery date standing just before the forecast is due (it does assume unlimited capacity).

As we all know there is a another step necessary before we can start producing: the orders (standing all on top of each other at the latest delivery date) will have to be sequenced, leveled and scheduled into the previous period, so that we can build up inventory for next months' fulfillment of sales orders

This situation becomes visible in the next graphic. Orders were distributed and scheduled (according to the capacity situation) for the next two months. What is not displayed here is how the inventory is consumed by incoming sales orders. that is because we're looking into the future here and the system doesn't know how the sales orders come in (if you had sales orders in the system for the second months, it actually would be displayed by a red bar going down and the green line (inventory) going down as well)

Now what's really important here is that when all inventory forecasted for a period is exhausted and an additional sales order comes in (over and above what was forecasted), that sales order can only be fulfilled by safety stock or the customer will have to wait until the next period.

Do not change the production schedule to fulfill the order if the order is part of a Make To Stock strategy !

and this is where many processes and setups fail. A sales order for an MTS part triggers changes in the production schedule and the whole plan falls apart. Set a strategy periodically, know it and stick with it!

Do you know transaction MFS0? Do you perform mid-term planning?

As was discussed in another one of my blog posts, I deem it extremely important that the planning horizons are respected and specific activities are carried out in specific zones. Along those lines I'd like to refer to the mid-term planning horizon where one can execute stimulative MRP. SAP calls the simulative planning module LTP (Long Term Planning, which is a bit confusing as I would only use it for mid term planning).

With SAP-ERP's LTP you can create planning scenarios and attach different versions of a demand program to it. That way you're holding true to still only managing demand in the mid-term and once you find a fitting demand program, you can release it into operative MRP.

To plan these different versions of a demand program or forecast, a simulative MRP Run (the LTP Run with transaction MD02) is carried out and the result can be evaluated and planned in transaction MFS0. You probably never heard about about transaction MFS0 as it is hard to find any mention of it. But it is the mirror transaction to MF50 in operative MRP.

MF50 is often misunderstood and most people think it can only be used in conjunction with repetitive manufacturing. Nothing could be further away from the truth. MF50 is a tabular planning table, perfectly suited to balance supply with demand for any period you choose to look at. It can do so for detailed planning, rate-based planning (which makes it perfect to deal with in the mid term) and even sequencing. Additionally, there is a graphical planning screen available too (like in CM25)

As you are simulating in SAP-LTP you will find that everything is attached to a planning scenario (that's why you will find that object in MS04, MS07 (mirror transactions to MD04 and MD07) and many other LTP transactions. And when you look to plan as in MF50, the planning scenario with its associated demand version, it can be done with transaction MFS0.

Give it a try and have a look... MFS0 is the perfect planning transaction for rate-based, mid-term planning... but only if you use it in the context of an overall system of planning with planning horizons.

The Difference between using a Reorder Point Procedure or a PD with Safety Stock

Have you ever wondered why planners tend to rather use a safety stock with MRP Type 'PD' to buffer variability, as opposed to a reorder procedure? Oftentimes PD is used across the board and no one wants to bother with another MRP type. However, with SAPs standard configuration the safety stock doesn't serve as a planning buffer and the additional inventory ends up being dead stock.

Consider the following scenario: a safety stock of 30 pieces is set and a production order asks for 10 pieces on April 15. A deterministic planned material (PD) would replenish the inventory up to 40 pieces just before April 15. If, for some reason, the production order would increase the required quantity to 15 pieces two or three weeks before its start date, the MRP run (which excludes safety stock in the net requirements calculation) would generate an additional order proposal for 5 pieces. In that case, the inventory on April 14 would be 45 pieces... even though 40 would be plenty (25 more than needed). Simply speaking: safety stock is taken out of the planning efforts and the entire safety stock remains unused (...becomes dead stock).

A far better solution, in my opinion, is the use of a reorder point method. If we're taking the same example, we'd set the reorder point to 30 pieces and thge MRP run would only replenish if the inventory level is lower than 30. During the replenishment lead time these 30 pieces serve as a true buffer and are consumed by regular consumption. Any safety stock that is set, is only used as a signal (exceptional message) when inventory gets really low. As you can see in below graphic, this method is a true buffering strategy.

Switching your policy from a PD with safety stock to a reorder point procedure will instantly reduce your dead stock and bring average inventory holdings down. If you're concerned about stock-outs, increase the reorder point. That is much better than never dipping into safety stock.

(note: if you're adamant about using PD. you can customize SAP so that at least a portion of the safety stock is considered as a buffer for planning)