Auto Cost and Penality Model

8/13/2019 Auto Cost and Penality Model

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Introduction

Features

Automatic Cost ModelGeneration for the

SNP and DeploymentOptimizer

ASM SCM

PTU Applications

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Introduction

SNP Optimizer working principle

Implicitly describe all feasible plans

Global search among all feasible plans for one with minimal costs

Compared to other SNP planning methods, optimizer behavior

heavily depends on maintained costs

Elementary plan properties have to be expressed by costs, e.g.

Non-delivery costs to trigger planning

Storage costs to trigger in-time demand satisfaction

Advanced business-logic properties have to be translated into costs

Transport, PPM/PDS costs to model priorities

Sufficient different storage costs to model push logic

Disadvantage compared to other SNP planning methods High entry-level for using the SNP Optimizer

Expert knowledge required for translating business logic into costs

To use the SNP or Deployment optimizer it is necessary to define cost. For instance, demandsare only satisfied, if penalty cost for non deliveries are maintained.

With the Automatic Cost Generation (ACG) it is not necessary anymore to maintain the cost forthe optimizer. The ACG generates the cost so that demands are fulfilled.

Additionally, the result of the SNP optimizer depends to a high degree on the cost values.Unfortunately, it is sometimes difficult to maintain the cost in the way that certain business rulesare respected. The ACG can use priorities (e.g. PPM or procurement priorities which are used bythe SNP heuristic, too) to derive cost according to the underlying business rules.

Please note that it is NOT necessary to maintain any properties in order to use the ACG.

As you can see, the advantage of the ACG is twofold:

Demands are satisfied even if no costs are defined -> avoidance of cost master data maintenance

Priorities can be used by the ACG to create cost in the way that the business logic is respected.


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Mission Statement

Goal:

Lower entry level for using the SNP/deployment optimizer by

providing functionality to automatically derive a cost model

Target Groups: Customers/Consultants

who want to try/use the optimizers but have insufficient

knowledge to translate the requirements

who quickly want to setup a cost model and possibly want to

refine it afterwards


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Automatic Cost Configuration: Requirements

Automatic generation of cost model consisting of

Storage costs

Production (PPM) costs

Product-specific transport costs Procurement costs

Safety stock penalty

Non-delivery penalty

Late-delivery penalty

while

Allowing expression of business logic

In terms of business, not in terms of optimization

Keep functionality simple

Ensuring certain cost model properties

Avoid anomalies

Stability with respect to small differences in the planning problem

Reasonable cost model ( in terms of economical interpretation)

The ACG derives the cost mentioned above. The functionality is kept simple, and the resultingcost ensure that the model is stable and reasonable. This will be explained at the end of thisdocument in more detail.

First, let us have a look how the cost are derived.


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Introduction

Features

Automatic CostModel Generation

for theSNP and DeploymentOptimizer


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Expressing Business Logic

Idea:

Let customer describe planning behavior of optimizer in terms of

business (and not in terms of Operations Research)

Keep functionality simple focus on preferences / priorities

source priorities

transportation priorities (lane)

production priorities (PPM/PDS)

demand priorities

Demand priority classes

Location-product priorities

On the next slides it is explained how the ACG uses the priorities to express certain businessrules.Please note that the ACG can also be used if no priorities are defined. Then, for example, eachsource has the same priority, or each demand has the same importance.

The ACG can use priorities to define the cost values. Regarding sourcing decisions, thetransportation and production priorities are used. For distinguishing between demand classes(sales orders, corrected forecasts, forecasts, and safety stock), priorities can be defined for thesefour categories. Furthermore, it is possible to use the location product priorities to distinguishbetween different location products.

Please note that priority 1 is always the highest priority, then priority 2 and so on.


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Express Business Logic: Source Priorities

Production:

Use Priority field at

PPM/PDS master data

Transport: Use priority field of procurement area of

lane master data

lane-product specific priority

Translate source priorities into costs


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Express Business Logic: Source Priorities

Resolving Priorities

No global priority space: For a location-product, production priorities

dominate transport priorities (same as for SNP Heuristic)

Time dominates source:

Bucket

Demand

Source1 Prio 1

Source2 Prio 2

1 2 3 4 5

100

Time dominates source

Higher prioritized sources will get lower costs

(for production resp. transport)

In-time fulfillment of

demand is more important

than sourcing from the

higher prioritized source

If we have both, a PPM priority and a lane priority, the cost are derived in the way that theproduction priority is more important, i.e. will have lower cost. The same behavior is true for theSNP heuristic.

Additionally, it is more important to deliver a demand in time than sourcing from the morepreferred source.

The optimizer tries to fulfill all demands in time with receipts of all available sources in this period(according to the sequence defined in the sourcing priorities). If this is not possible, the optimizerwill use receipts of previous periods, or even later periods, if late deliveries are allowed. Pleasenote that it cannot be guaranteed that the optimizer keeps the sourcing sequence according tothe priorities, when early or late receipts have to be used.


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Express Business Logic: Demand Priorities

Translate location-product and demand priorities into costs

1. Demand Priority Classes

Assign priorities to

Customer demand

Corrected forecast

Forecast

and Safety Stock

Demand and Safety Stock

may have same priority

The ACG derives the non and late delivery cost for the three demand categories customerdemand, corrected forecast, forecast and additionally the safety stock violation cost.

You can define in the ACG Tab of the optimizer profile which demand class has highest priority,second highest and so on. You can even say that all four classes have the same priority.

Please note that these cost are only derived if there is a demand for the corresponding locationproduct in the planning horizon for the optimizer.For example: if you have a sales order for location product A, and a forecast for location productB in the planning horizon, then only non delivery / delay cost for customer demand for A and nondelivery / delay cost for forecast for B are derived. For all other demand classes, no penalties arecreated.


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2. Location-Product Priorities

Use priority field of location-product master

Grouping of location-products (3 partitions)

A location-product (highest priority)

B location-products (medium priority)

C location-products (lowest priority)

-> to be defined by the user

-> reduce complexity

Additionally to the demand classes, the ACG can consider the location product priorities toderive the non and late delivery penalty cost for the three demand categories customerdemand, corrected forecast, forecast.

In the priority field on the SNP 2 Tab of the location product you can define priorities from 0 to255 (priority 0 is lowest priority). In the ACG Tab of the optimizer profile you can define whichlocation product priorities have highest priority (e.g. up to priority 10 you have A products),second highest priority (e.g. up to priority 50 B products) and the remaining ones (larger than 50)will have lowest priority.

Now the question is: which is more important the demand priority classes or the location productpriorities?

This can be defined by the user. It is explained on the next two slides.


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Modes of combination for resolving priority: Demand priority classes dominate location-product priorities

Location-product priorities dominate demand priority classes

Mode is configurable

Example:

Demand

Class 1

A Location-products

P1, P2

Demand

Class 2

Demand

Class 3

B Location-productsP3, P4, P5

C Location-products

P6, P7

Demand class dominates Product Priority

The default setting is that the demand class is more important than the location product priority.This means that the penalty cost are derived in the way that the cost for demand class 1 for Aproducts are highest, followed by the B and C products. Then, the cost for demand class 2 and 3are determined accordingly.


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Modes of combination for resolving priority: Demand priority classes dominate location-product priorities

Location-product priorities dominate demand priority classes

Mode is configurable

Example:

Demand

Class 1

A Location-products

P1, P2

Demand

Class 2

Demand

Class 3

B Location-productsP3, P4, P5

C Location-products

P6, P7

Demand class dominates Product Priority

Demand

Class 1

A Location-products

P1, P2

Demand

Class 2

Demand

Class 3

B Location-products

P3, P4, P5

C Location-products

P6, P7

Product Priority dominates demand class

If you define that the location product priority is more important than the demand class, then thepenalty cost are derived in the way that the cost A products are highest, followed by B and Cproducts. If you have defined different priorities for the demand classes, then of course thedemand class with the highest priority will get the highest cost etc.


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Priorities Settings in Optimizer Profile (ACG Tab)

Consideration of Priorities

You can define priorities from 1-4 for three different priority classes of the demand and the safety stock. 1 is thehighest,4 the lowest priority. You can also assign the same priorities for two or more priority classes.

The standard setting is that all priority classes and the safety stock have the same priority.

Consideration of Priority of Location Products

If you set this indicator, the system considers not only the priority for the priority classes of the demand, but also thepriority of the location products. You define this priority in the master data of the location product on the SNP 2 tabpage.

You must also subdivide the product priorities into three product classes with A, B and C. Otherwise all productswill have the same importance.

The optimizer can consider the product priority together with the demand priority. You can define which priority is moreimportant and should be considered by the system first, by setting the Prio.of Loc.Prod. more important than Prio. ofPrio.Classes indicator. Otherwise, the demand class priority is more important than the priority of the location product.

Consideration of Procurement Priority of PPMs/PDS

If you set this indicator, the system considers the procurement priorities of production process models (PPMs) orproduction data structures (PDS). You define this priority in the master data for PPMs or PDS.

Consideration of Procurement Prio.of Transportation Lanes

If you set this indicator, the system considers the procurement priorities of transportation lanes. You define thispriority in the transportation lane master data in the Product-Specific Transport section.

Consideration of Costs of Products without Input Products

To calculate the product value, the system automatically accepts the value 1 as the value of raw products (products

without input products). If you set this indicator, the system bases the calculation on the actual storage costsinstead. You define the storage costs in the master data of the location product on the Procurement tab page.


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Cost Model Properties

Avoid anomalies

Optimizer should not transport or produce without demand

Ensure supply close to demand date

Prevent non-delivery if demand can be delivered delayed

Safety cost should be higher than storage cost

Stability

Numerical stability

-> avoid big differences in the numbers (in terms of orders of magnitude)

Independence of transactional data

Independence of bucket granularity

Independence of discrete constraints (optimizer profile settings)

The resulting properties of the cost model ensure that anomalies are avoided. This means thatthe optimizer should not transport or produce without demand:

No transport should be activated due to cheaper target location cost

No production should be activated due to cheaper output location-product cost

No transport should start to save storage cost on the truck

No production should start to save storage cost by production in progress

Additionally, the supply should be triggered just-in-time, and non deliveries should onlyoccur if late demand fulfillment is not possible.

Moreover, the resulting cost guarantee that the model is stable.


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Cost Model Properties: Reasonable Cost Model

Economical interpretation desired

Transport/production costs increase proportionally to their duration

Value of products increase with production depth

Possibility to reflect different location-product values

Derive reasonable location-product values ( storage costs) Two modes are possible

All raw location-products have value 1 (default) ( to minimize

configuration)

Respect maintained costs for raw products

Regarding the storage cost. they can either be read from the master data (location product onthe Procurement tab) or they have a value of 1 (as default setting).Please note that even with the default setting, the storage cost increase with the value of theinput product. For instance, if you need two items of an input product to produce one item of theoutput product, the storage cost for the output product are 2 APO-$.


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Automatic Cost Configuration: Limitations

No cost model completion

No saving of generated costs to master data .

No generation of

Cost functions (production, transport, procurement)

Costs for means of transport

Costs for resource utilization

Costs for increasing resource capacity

Costs for minimum resource utilization

Some limitations are also valid for the ACG.

It is not possible to complete an incomplete cost model. For instance, if you already havemaintained production cost (in some PPM or PDS) and transportation cost (at some lanes), thenthe ACG will not consider these cost when the missing cost are derived. The ACG does notconsider any existing cost (except the storage cost, if this is desired).

It is not possible to save the generated cost into the corresponding master data. The cost arestored in the result log of the optimizer. Thus, they are available on the database in thecorresponding table.


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You want to seehow the ACG is

working in the

system?

Please check out

the SAPTutors inthis Learning Map


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Auto Cost and Penality Model