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SAP supply chain Planning in wholesale
/distribution industry Jalil mousavi
SAP Logistic &MM Consultant
https://ir.linkedin.com/in/jalil-mousavi-b1564756
© 2011 SAP AG. All rights reserved. 2
Agenda:
Wholesale & dist.
Aggregate planning
SOP
RRP
Sale forecast
Demand management
DRP
MRP for logistics
MD
MPS
RCCP
MRP
CRP
Detailed scheduling
PAC
SAP Planning and best practice for FMCG
© 2011 SAP AG. All rights reserved. 3
Wholesale Distribution are those companies acting as intermediaries between Manufacturers and consumers.
The wholesale distribution industry includes companies that sell products to retailers, merchants, contractors,
and /or industrial,institutional,and commercial users ,however ,do not sell in significant amounts to ultimate
household consumers. Specific sub industries represented in this segment are divided into durable goods (60%)
and nondurable goods (40%) distribution.
Wholesale Distribution
© 2011 SAP AG. All rights reserved. 4
Wholesale/distribution industry types:
Large ASSORTMENT
Distributors sell a Varity (broad-line) of products , allowing customers
minimize the number of faces-to-customer , transactions , and deliveries .
Small Quantities
Distributors sell a small number of units very frequently . Customers want to
hold little inventory and purchase only in useable quantities.
Short lead times
Distributors sell products that need to found and obtained quickly with low
customers sourcing costs. The times between ordering and delivering can be
measured in hours
Value added services
Distributors provide special unique services that include , sorting , packaging
, labeling , kitting , assembly , installation service , etc
© 2011 SAP AG. All rights reserved. 5
SAP(ERP,SCM,…)
High Performance Reporting and analytic platform
High Performance(Demand Planning , Distribution Planning , etc)
Sale and operation planning
Financial Planning
Strategic
Operational
Tactical
Execution
What? • Supply policies (service levels) • Network design • Strategic sourcing
Daily
planning
Now–2
weeks out
Quarterly or yearly planning
1–10 years out
Weekly planning
Up to 3 months out
Monthly or quarterly planning
3 months–1 year out
Planning Timeframe Objectives
When? Where? • Schedule, monitor, and adjust
plan • Order and inventory tracking
Execute • Order fulfillment • Material
transport
Strategic
planning
Supply chain integrity and strategy levels with sap
How?
© 2011 SAP AG. All rights reserved. 6
Sap best practice for FMCG & WH & Dis
Demand planning
MRP
Strategic sourcing
Purchase order mgt
Investment buying
Supplier rebates
Cross docking
Master data management
Invoice verification
Commissions
Inventory management
Profitability analysis
Credit management
Free goods
Mass price maintenance
Price protection
DRP & Deployment
Inbound logistics Outbound logistics internal processing
© 2011 SAP AG. All rights reserved. 7
supply Sale Distribution production
Lo
ng
R
an
ge
M
ediu
m r
ang
e
Sh
ort
ra
ng
e
Strategic planning
Sale forecasting
Material
Requirement Planning
Contract management
MPS
CRP
RCCP
DRP Demand Planning
Available To Promise
Inventory
Replenishment
Transportation management
Safety stock
Production
planning
Production
activity control
Planned order
SCOR & SAP planning
Aggregate planning
SOP
© 2011 SAP AG. All rights reserved. 8 Figure 6.1
Demand
Management
Material
Requirement
Planning(MRP)
Distribution
Requirement
Planning(DRP) Master
Production
Scheduling(MPS
)
SOP
Capacity
Requirement
Planning(CRP)
Rough-Cut
Capacity
Planning(RCC
P)
Resource
Requirement
Planning(RRP)
Purchase &
planning
control
BOM
Long Range (More
than 1 year)
Medium range(6 to
18 month)
Short
range(Days/Week)
Production
activity control
Capacity level Material plan Planning horizon
SAP Planning level in FMCG & WH & Dis
© 2011 SAP AG. All rights reserved. 9
sop
Demand
management
Sale
forecasting Capacity
leveling
Master
production
schedule
RCCP
Planned
Production
order
Planned
PR.
Capacity
Req.
Planning
Detailed
Scheduling Production
activity control
Distributio
n Req.
Planning
Capacity
req.
planning
Purchasing
MRP
WH/SL.
SD MRP or MD
SAP Planning
Updated
© 2011 SAP AG. All rights reserved. 10
Aggregate Production Plan
Hierarchical planning - process that translates annual business & marketing plans & demand forecasts into a production plan for a product family (products that share similar characteristics) in a plant or facility leading to the Aggregate Production Plan (APP)
Planning horizon of APP is at least one year & is usually rolled forward by three months every quarter
Includes costs relevant to the aggregate planning decision include inventory, setup, machine operation, hiring, firing, training, & overtime costs
© 2011 SAP AG. All rights reserved. 11
Aggregate Production Plan
Three basic production strategies : 1. Chase Strategy - Adjusts capacity to match demand. Firm hires & lays
off workers to match demand. Finished goods inventory remains constant. Works well for make-to-order firms
2. Level Strategy - Relies on a constant output rate while varying inventory & backlog according to fluctuating demand. Firm relies on fluctuating finished goods & backlogs to meet demand. Works well for make-to-stock firms
3. Mixed Production Strategy - Maintains stable core workforce while using other short-term means, such as overtime, subcontracting & part time helpers to manage short-term demand
© 2011 SAP AG. All rights reserved. 12
Sales and Operations Planning
Sales and operations planning (SOP):
Input: sales forecast provided by Marketing
Output: production plan designed to balance market demand with
production capacity
Production plan is the input to the next step, demand management
Disaggregating the sales and operations plan
Companies typically develop sales and operations plans for product groups
SAP ERP system allows any number of products to be assigned to a product group
Sales and operation plan disaggregated
Production plan quantities specified for the group are transferred to the individual
products that make up the group
Sales & Operations Planning (SOP) is a universal planning and forecasting tool that
you can use to plan any area of logistics (for example, sales and distribution, production,
purchasing)
© 2011 SAP AG. All rights reserved. 13
Sales and Operations Planning
In SAP ERP, sales forecast can be made using:
• Historical sales data from the Sales and Distribution (SD) module
• Input from plans developed in Controlling (CO) module
• CO module Profit goals for company can be set Sales levels needed to
meet the profit goals can be estimated
© 2011 SAP AG. All rights reserved. 14 14-14
Sales and Operations Planning Process
Sales&
operations
planning
Capacity
constraints
Demand
forecasts
Company
policies
Strategic
objectives
Financial
/CO
MPS
Backlogs ,
backorder
Workforce and
inventory level
Customer service level
Demand management
Sales per month by
product family
Sales
Plan
Operation
plan
Monthly update
© 2011 SAP AG. All rights reserved. 15
Resource Requirements Planning (RRP)
Rough-cut planning profiles are used in resource leveling. In a rough-cut planning
profile, you plan the requirements of one or more of the following resources:
• Work center capacities
• Materials (typically, raw materials)
• Production resources/tools
• Costs
Capacity leveling is an important tool for creating realistic plans. It helps you
ensure that your targets are within capacity constraints. The following topic
describes how to use capacity leveling from the point of view of SOP.
SOP supports planning at any level of your organizational hierarchy from high-
level planning across national boundaries to the detailed planning of finished
products.
© 2011 SAP AG. All rights reserved. 16
Demand Management
The function of Demand Management is to determine requirement quantities and
delivery dates for finished products assemblies. Customer requirements are
created in sales order management. To create a demand program, Demand
Management uses planned independent requirements and customer
requirements.
To create the demand program, you must define the planning strategy for a
product. Planning strategies represent the methods of production for planning
and manufacturing or procuring a product.
Using these strategies, you can decide if production is triggered by sales orders
(make-to-order production), or if it is not triggered by sales orders (make-to-
stock production).You can have sales orders and stock orders in the demand
program.
© 2011 SAP AG. All rights reserved. 17
DM & SOP
You can pass on data planned in Flexible Planning or Standard SOP to Demand
Management.
Demand Management determines the requirement dates and requirement quantities for
important assemblies and specifies the strategies for planning and producing/procuring
finished
products. The result of Demand Management is the demand program. The demand
program
differentiates planned independent requirements and customer independent
requirements.
© 2011 SAP AG. All rights reserved. 18
Demand Management & MPS
Links the sales and operations planning process with detailed scheduling and
materials requirements planning processes
Output: master production schedule (MPS)
Production plan for all finished goods
© 2011 SAP AG. All rights reserved. 19 19
Improvements with SAP FSCM:
Improve efficiency in credit & collection
processes
Ensure consistent company-wide credit
policy and process
Manage proactive credit risk management
Forecast cash levels more accurately
Increase transparency in dispute
handling and accounting
Gain insights to avoid future credit &
collection issues & disputes
Optimize the financial supply chain not only
within the company but also with external
business partners
Credit
Management
Biller
Direct
Dispute
Management
Collections
Management
Cash &
Liquidity
Management
In-House
Cash
Bank
Communication
Management
Treasury &
Risk
Management
SAP FINANCIAL
SUPPLY CHAIN
MANAGEMENT
Treasury
Mgt. of receivables
FSCM
© 2011 SAP AG. All rights reserved. 20
For the optimization of receivables most benefits can be reached by
implementing credit, collections and dispute management.
20
Cross department dispute resolution and integration of
workflows
Automated correspondence activities and internal
escalation
Support of various communication channels
Provision of daily collection work lists
Functions to process and view open receivables
Broad support of the collections procedure
Integration of dispute & credit management
Control and monitor customers credit limit and exposure
Uniform credit rules and automatic credit limit
adjustments
Use of external information about credit ratings
Source: SAP
The functionalities … … and benefits
Dispute
Management
Collections
Management
Credit
Management
All related information is within
the system
Resolve issues before invoice
due date
35% efficiency increase in
dispute management
Identify automatically customers to be called
Efficient and comprehensive information provided
40% efficiency increase in collections management
Focus sales on “good” customers
Comprehensive and up-to-date
information for credit checks
Apply company-wide credit policy
automatically
Overview of the credit, collections and dispute management
© 2011 SAP AG. All rights reserved. 21
Sales Forecasting
With the forecast, you can estimate the future progression of values in a time series on the
basis of past history. You do this either online or in the background.
In standard SOP, you can forecast the sales quantities of a product group or material. The
system bases the forecast on the historical consumption of materials. It then aggregates
these results to the product group level. Consumption data includes every kind of goods
issue, even goods that have been written off as scrap.
© 2011 SAP AG. All rights reserved. 22
Sales Forecasting (cont’d.)
SAP’s ERP system takes an integrated approach
Whenever a sale is recorded in Sales and Distribution (SD)
module, quantity sold is recorded as a consumption value for that
material
Simple forecasting technique
Use a prior period’s sales and then adjust those figures for current
conditions
© 2011 SAP AG. All rights reserved. 23 Figure 6.1
Demand
Management SOP
Resource
Requirement
Planning(RRP)
Long Range (More
than 1 year)
Capacity level Material plan Planning horizon
Level 0_planning
© 2011 SAP AG. All rights reserved. 24
Evolution of DC-Inventory Management
Traditional Replenishment Inventory: Lot Size/ Order Point Logic Single item focus Emphasis on cost optimization Long run, steady state approach
The MRP / DRP Approach:
Scheduling emphasis
Focus on quantities and times, not cost
Multiple, inter-related items and locations
Simple heuristic rules
MIT Center for Transportation & Logistics - ESD.260 17 © Chris Caplice, MIT
© 2011 SAP AG. All rights reserved. 25
Evolution cont.
MIT Center for Transportation & Logistics - ESD.260 18 © Chris Caplice, MIT
MRP / DRP have limited ability to deal with: Capacity restrictions in production and distribution “set-up” costs fixed and variable shipping costs alternative sources of supply network transshipment alternatives expediting opportunities Next Steps in MRP/DRP
Establish a time-phased MRP/MPS/DRP network Apply optimization tools to the network Consider cost trade-offs across items, locations, and time periods Deal with shortcomings listed above
© 2011 SAP AG. All rights reserved. 26
DRP?
DRP provides the basis for integrating supply chain inventory information and physical
distribution activities with the Manufacturing Planning and Control system.
Managing the flow of materials between firms, warehouses, distribution centers.
DRP helps manage these material flows. Just like MRP did in Manufacturing.
Links firms in the supply chain by providing planning records that carry demand
information from receiving points to supply points and vice versa.
© 2011 SAP AG. All rights reserved. 27
DRP Role
DRP coordinates material flows through the physical distribution system
Effectively managing the flow of goods and inventories between the
firm and the market
Planned timings and quantities for replenishing inventories throughout the
physical distribution system
Provides information to the master scheduler in a format consistent with
MRP records
© 2011 SAP AG. All rights reserved. 28
DRP in the Supply Chain
DRP links firms in the supply chain
Planning records carry demand information from receiving points to
supply points and returns supply information to the receiving points
DRP integrates key linkages in the supply network
DRP can be linked to the MPC systems of the manufacturer, customers,
and suppliers
Spans the boundary from internal to external MPC
© 2011 SAP AG. All rights reserved. 29
Distribution requirements planning and the logistic system
Vehicle loading
Vehicle capacity
planning
Warehouse
receipt planning
Vehicle
dispatching
Distribution
requirement
planning
Master Production
Scheduling
Demand
Management
© 2011 SAP AG. All rights reserved. 30
A Multi-Echelon Inventory System
MIT Center for Transportation & Logistics - ESD.260 3 © Chris Caplice, MIT
plant
RDC1 RDC2
LDC3 LDC4 LDC1 LDC2
R7 R8 R6 R5 R4 R3 R2 R1
Higher than expected demand Lower than expected demand
SHORTAGES EXCESS
© 2011 SAP AG. All rights reserved. 31
DRP & Demand Management
Demand management is the connection between mfg. and the marketplace. Plans derived from the DRP information and shipping requirements are the basis for managing the logistics system. Continually adjusts changes in the demand, sending inventories from central warehouse to distribution centers where they are needed.
DRP is connected to the logistics system
By helping determine vehicle capacity planning.
Helping loading.
Developing vehicle dispatching.
Determining warehouse capacity.
Provides the data to accurately say when availability will be improved and
delivery can be expected.
© 2011 SAP AG. All rights reserved. 32
DRP and MPS
DRP greatest payoff is from integrating records and information. Crossing the area of inter firm MPC systems means negotiating with supply chain partners for sharing costs and benefits. DRP permits evaluation of current conditions to determine if mfg. priorities need to revised. Provides the master scheduler better info to match mfg. output with shipment needs.
© 2011 SAP AG. All rights reserved. 33
MRP / DRP Integration
Purchase Orders
MRP
MPS
DRP
Product
CDC
RDC
Retail Retail Retail Retail
Sales/Marketing Plan
MIT Center for Transportation & Logistics - ESD.260 16 © Chris Caplice, MIT
© 2011 SAP AG. All rights reserved. 34
34
DRP Benefits
Helps improve customer service
Provides a better and faster understanding of the impact of shortages and/or promotions
Helps reduce costs Inventory Freight Production
Provides integration between the stages in the supply chain
© 2011 SAP AG. All rights reserved. 35
35
Master Production Scheduling
Controls the timing and quantity of production for products or product families
Primary interface point for actual customer orders
Coordinates forecasted demand and actual orders with production activity
Serves as tool for agreement between marketing and operations (but at a
different level than SOP)
More detailed than SOP
weekly versus monthly
specific products versus “average”
must satisfy the needs of marketing
must be feasible for operations
© 2011 SAP AG. All rights reserved. 36
36
Master Scheduling Process
Master
Scheduling
Beginning inventory
Forecast
Committed
Customer orders
Inputs Outputs
Projected inventory
Master production schedule
ATP: Uncommitted inventory
© 2011 SAP AG. All rights reserved. 37
37
A Final View of Master Scheduling
SOP
MPS
Marketing Operations
Rough-Cut Capacity Plan
© 2011 SAP AG. All rights reserved. 38
Rough Cut Capacity Planning (RCCP)
Compares the master production scheduling resource requirements to the capacity
available in critical work centers. You use RCCP to determine if you should revise
the master schedule to create feasible work loads or improve utilization of limited
resources.
Use output from master production scheduler (quantity and due dates)
Use a bill of resources which has times for each part type on each resource
Compare with resource time capacity over planning period
Quick check on capacity of key resources
• Use Bill of Resource (BOR) for each item in MPS
• Generates usage of resources by exploding MPS against BOR
(offset by lead times)
• Infeasibilities addressed by altering MPS or adding capacity (e.g.,
overtime)
© 2011 SAP AG. All rights reserved. 39
Figure 6.1
Demand
Management
Distribution
Requirement
Planning(DRP) Master
Production
Scheduling(MPS
)
SOP
Rough-Cut
Capacity
Planning(RCC
P)
Resource
Requirement
Planning(RRP)
Long Range (More
than 1 year)
Medium range(6 to
18 month)
Capacity level Material plan Planning horizon
Level 1_planning
© 2011 SAP AG. All rights reserved. 40
Material Requirements Planning (MRP)
Uses the master production schedule, open
orders, the bill of materials, and inventory
records to Calculate time-phased net
requirements for every item,and creates a plan
for covering material requirements.
End ite
m
Com
ponent
R
aw
mate
rial
R
Time
Time
Time The MRP approach
© 2011 SAP AG. All rights reserved. 41
MRP inputs and outputs
© 2011 SAP AG. All rights reserved. 42
MRP COMPONENT
Component Description
Bills of material •The components and relationships required to produce a parent item. Use
bills of material to: Maintain many configurations for an item without creating
additional part numbers
•Define quantities of intermediate products in any unit of measure as they
progress through the manufacturing process
•Enter similar items by copying bills of material, routings, and processes
Routings •The operations required to produce the parent item. Use routings to: Define
each step of the manufacturing process with allowances for anticipated yield
and scrap
•Add alternate operations to routings
Work centers •The facilities on the shop floor where the routing operations occur. Use work
centers to: Define work center number and description
•Define the number of operators or machines
•Define setup, labor, machine, and overhead rates
•Define information for Capacity Planning
Engineering change
orders (ECOs)
•The document that you use to define and implement changes to your
products structure. Use engineering change orders to: Control item changes
from a single source
•Incorporate approved changes to bills of material
© 2011 SAP AG. All rights reserved. 43
Lot Sizing in MRP Systems
• Lot-for-lot (L4L) ordering policy
• Minimum order quantity (Ex: Min 250)
• Multiple order quantity (Ex: X100)
• Economic order quantity (Ex: 350; annual demand: 4 200)
• Periodic order quantity (Ex: 2 months)
© 2011 SAP AG. All rights reserved. 44
Capacity Requirements Planning (CRP)
Compares the material requirements plans to the capacity available in all work
centers. You use CRP to determine if you should revise the material requirements
plan to create feasible work loads or improve utilization of limited resources
• Uses routing data (work centers and times) for all items
• Explodes orders against routing information
• Generates usage profile of all work centers
• Identifies overload conditions
• More detailed than RCCP
• No provision for fixing problems
• Lead times remain fixed despite queuing
© 2011 SAP AG. All rights reserved. 45
PP: detailed scheduling
Detailed plan of what is to be produced, considering machine capacity and
available labor
One key decision in detailed production scheduling How long to make the
production runs for each product Production run length requires a balance
between setup costs and holding costs to minimize total costs to the company
© 2011 SAP AG. All rights reserved. 46
Production Activity Control
Responsible for executing the:
• Master Production Schedule (MPS)
• Materials Requirements Plan (MRP)
At the same time:
• Make good use of labour , machines and materials
• Minimize work-in-process inventory
• Maintain customer service
• Manage day-to-day activity and provide support
© 2011 SAP AG. All rights reserved. 47
PAC Input / Output Control
Input Rate Control
Output Rate Control
Queue (Load, WIP)
• Control the work going into and out of a work
center: Input/output control
• Set the priority of orders to run at each work
center
© 2011 SAP AG. All rights reserved. 48 © SAP 2008 / Page 48
Thank you!