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.