SAP Add-On Tools Info Days in Florida, February 15th and 16th

Systems Thinking for the supply chain

Thinking in Systems is a concept that has beenaround for many years. Names like Jay Forrester, Donella Meadows, John Sterman and Daniel H. Kim are coming to mind when you're thinking in systems.  If you want to know more about this very interesting approach to problem solving in your every day life or the supply chain in particular, google those names or read their books. You'll find a wealth of information and maybe a new obsession to effectively solve problems... not only in your supply chain.

In fact we are dealing with systems all the time, whether you're aware of it or not. Your family is a system, the toaster in your kitchen, a football team or ... Anything that has interaction going on and can be described by interrelated and interdependent components (which by itself might represent yet its own system) is a system. And a system differentiates itself from a collection by these relationships and interactions. A database of parts and product information is a collection but as soon as you start buying these parts to consume them or put them into inventory you are operating within a system.

If we are now starting to think in systems we look not only at the parts in a collection but at its 'whole' and its relationships and dynamics. Traditionally, most of us take an analytic, reductionist view on our problems. We take things apart to investigate sources and outcomes. In systems thinking you put things together, look at behavior over time and, maybe most importantly, consider delays and their effects (which we mostly disregard in the analytical view).

Delays is what confuses us when we try to do the best we can but don't understand what's going on or why it's going on. As perfectly described by the beer game (which teaches students what happens if you have demand variations in a supply chain), if you ignore delays you will end up with inexplicable outcomes that are counter to your intentions. The beer game's major insight is that when customers start purchasing a little more or a little less than before, the delay that occurs between ordering from the supplier until they deliver the goods will then causes wide swings in inventory holdings. You first end up with too much and then too little and then too much again. What is even worse is that if you have an interconnected system of 'consumer - retailer - distributor - manufacturer' over multiple levels, the demand swings are exponentially propagated throughout the chain and looks like a bullwhip as the swings get bigger and bigger towards the manufacturer who ends up with total chaos.

As you probably know this is the Forrester Effect, or otherwise known as the Bullwhip Effect.

An analytical, reductionist approach to solving this problem makes it very hard to see what went wrong. If you look separately at the retailer, distributor, manufacturer you won't see the dynamics between them. What ends up happening is the blame game when, in fact, it is no ones fault that the distributor sits on large inventories at one time and has back orders at other times. The problem lies in the dynamic of the system structure with its delay between orders and deliveries. But this cannot be understood if you look at just one part of the system and forget its interactions with other parts. In many cases one doesn't even look at the distributor as a whole but only at its parts (sales department, purchasing department, materials planning).

When you start thinking in systems you may use tools like causal loop diagrams, stocks and flows and value chain mapping to visualize structures, dynamics and eventually get to the core of the problem. Systems Thinking also provides you with archetypes - templates of repeating structures and behaviors - that you might use in supply chain management. 'Shifting The Burden" is one such archetype. In this type of a situation the problem symptom is not addressed by the long term solution but with a quick fix. The quick fix solves the problem for now but has negative consequences in the long run.

In our example we have part shortages in front of the assembly line. The problem is solved with 'heroic' expediting efforts described by balancing loop B1.

The shortage goes away - for now. In the long term though, the problem is not solved. A sustainable solution would be to improve the effectiveness of materials planning through the use of standard and proven replenishment policies after portfolio segmentation. Because the burden is shifted to expediting, there is an unintended side effect: our heroes feel good and get a pad on the shoulder every time they 'quick fix' the problem. This does not fix the problem at hand but increases the need to expediting further. Additionally, because delivery delays to the customers occur more frequently, the customers compete with each other to grab demanded product not sufficiently available and induce even more crisis on the production lines.

Thinking in systems allows you to see the dynamics resulting from quick fixes,  from not using the effective fix, delays and subconscious actions committed by players who aren't aware that they cause problems. There is a wide variety of archetypes which were developed over the years. If you're in the business of optimizing supply chain dynamics and producing better results it may make sense to dive a little deeper into the world of Systems Thinking.

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.