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

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 www.bigbytesoftware.com website or check out my YouTube channel.

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.

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.

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 (www.bigbytesoftware.com) 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.

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.

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 http://iosummit.com/

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.

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