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.