The interface between the Sales and Production departments
is a critical one. Very often the two departments work in silos. All strategies
discussed here, are at the crossroads between demand and supply. It is a goal
to be agile and fulfill every customers wish on time and on quantity, but it is
also important to minimize waste and enable smooth replenishment and
production. Proper use of the planning strategy helps achieving both goals.
A big problem, one that I encounter a lot, is that products
are not optimally set up for either one of these strategies. Either the wrong
assignment happens, or Production has a different idea than Sales, about what
the product assignment should be. Additionally there is the need to
periodically analyze the product portfolio because what’s MTO today might be
MTS tomorrow.
The ultimate achievement, one that both Production and Sales
strive for, is to have the right product at the right place in the right
quantity at the right time. Planning strategies are one of the most important
drivers to achieve exactly that.
Make To Stock Planning
When your product is a commodity that can be sold out of a
catalog and is defined and specified through a master record, it can be planned;
if it is somewhat predictable. A steady consumption in the past helps
predicting the future, however, there may be events in the future which require
a more forward-looking planning process.
In any case, if you can somewhat predict what will happen,
you may consider a Make To Stock strategy. Even if it is hard to predict the
future, but the customer does not accept long delivery times, you might be
required to make some of your product to stock.
Making to stock means production without actual
requirements. The Sales Order does not drive the production program but the
forecast does. Incoming Sales Orders use existing inventory for the delivery
which keeps the customer lead time to a minimum.
Once your product is identified as a ‘Make To Stock’ the
availability check in the Sales Order must
look for inventory and not place additional load in the production program. If
there is no stock your service level degrades and the customer needs to wait
for the next receipt from production.
Disconnect between
Sales and Production #1: the “customer is king” paradigm does not have
any validity in an MTS scenario. If you want to make the customer the king you
need to make your product to that customer’s order.
Make To Order Production
This strategy still is for standard products which have a
clearly defined specification. Other than MTS, there is absolutely no forecast
on products which are made to an order from a customer. You start production after the customer’s request comes in
and not, like with MTS, beforehand.
When you identify a product to be made to order, the availability
check in the Sales Order needs a lead time; the time it takes to replenish or
produce the product from soup to nuts. Therefore when a customer requests the
item, no freely available stock to fulfill the order can be found. Everything
is made from scratch and takes its time.
Disconnect between
Sales and Production #2: You cannot plan for a 100% (or more!)
utilization on the production line and allow for the free flow of orders, which
were set to MTO, into the production schedule. All too often there is pressure
to fully utilize the line; and that can only be done with orders resulting from
a forecast. If MTS fills the line and MTO orders drop on top, they fall into
backlog and the quoted lead time to the customer is a farce.
Assemble To Order or Finish To Order with placement of the Inventory/Order
interface
This type of strategy allows for a placement of a stocking
point, the inventory/order interface, at the most effective spot in the product
structure. What this means is that you can decide at what point in the BoM,
material is kept in stock readily available for further processing. Therefore upstream
of the inventory/order interface we are making to stock and downstream from it
we are pulling to order.
This also means that downstream from the I/O interface we
have lead time to the customer whereas the availability check does not need to
consider time for the processes upstream from the I/O interface.
ATO provides flexibility, speed and helps reduce waste.
Other people would say its agile and lean at the same time.
Disconnect between
Sales and Production #3: Assembly strategies have the capability to
generate a production order to assemble the finished product right out of the
sales order. As this happens, the system can also check on component
availability and if there is a shortage, it can provide a reasonable date for
when the finished product can be delivered. If that date is not fixed, and I
have not seen a Sales person fix a date yet, production scheduling is burdened
with a demand for today… and tomorrow for tomorrow… and so on and so forth.
Please take a moment to think about what is done here: the Sales Rep agrees a
date with the Customer who would be quite happy to get the product on that date
in the future. However, that same Sales Rep tells the Production people that
the product needs to be available right away. Consider how many orders there
are and that this pressure pops up every day from now on until the order is
delivered, you can easily see that there is room for improvement in the communication
department.
Configure To Order
When a standard product has variations in its specification,
one needs to answer the question whether to create a material master record
number for every variation or to make use of the variant Configurator. In case
the VC is used, an underlying structure will have to be build, which allows you
to configure a variation of one (configurable)
material number based on features and options. The underlying structure has optional
values and characteristics that have dependencies and limitations. Be cautious to know that In the same way that
there is a line where it becomes more efficient to use options and
characteristics to build a spec, there is also a line where it becomes more
feasible to use a whole new project to build a complex product which has never
been built before; or in other words: to build the underlying structure with
features and options and dependencies becomes far too complex.
So there is an upper limit as well as a lower limit in
complexity where Configure To Order has its right to exist.
Configure To Order is a strategy that closely resembles MTO
or ATO for the finished product and components can be made to stock using a
forecast based on probability factors maintained for options and features.
Engineer To Order
The Variant Configurator most always fails when that fine
line was crossed where ETO should have taken over! It is not the lack of
functionality and features of the VC which make it fail, it is mostly that the
VC is used for a structure where projects and work breakdown structures would
much better suit the handling of the complex product or structure in question.
Engineer To Order is used when complex structures are build.
In most cases these projects organize many tasks and follow a long timeline to
produce large, highly customized products to specific customer specifications.
The finished product, and also many components and subassemblies, have never
been built before and receive brand new product codes. Work Breakdown
Structures and Projects are used to structure and manage the procurement of
long lead-time purchased parts, the dependencies in production and procurement
and cost and timely delivery of the final product.
All of these strategies have many variations. What was
discussed above is just a generic description. A more detailed discussion is to
be had around SAP planning strategies where there are countless combinations
and opportunities.
…so here is a summary of my view on these strategies on a
very generic level.
MTS: standard
product made to a forecast before
any committed orders come in
MTO: standard
products not held in inventory and made after
a committed order comes in
ATO: standard
product where some components are held in stock and the finished product is
finished after the order comes in
CTO: The standard
product has variations; as many as not to justify the creation of a part number
for every variation but not as many as to make the underlying structure too
complex to handle
ETO: complex structures and customer
specified projects which were never built before and make it impossible to be
handled with standard variations
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