High-Level OP Planning and Demand Management EGS 5622 Enterprise Systems Integration Spring, 2016

Production Planning & Execution Version 1.0 Production Planning & Execution January 2007 Demand Management (DM) Forecasting Sales & Operations Planning (SOP) Sales Inf. System CO/PA MPS MRP/CRP Manufacturing Execution/SFC Order Settlement Procurement Process Tactical Planning Detailed Planning Manufacturing Execution CO – Controlling Module PA - Profitability analysis MPS – Master Production Scheduling MRP – Material Requirement Planning CRP – Capacity Requirement Planning SFC – Shop Floor Control The Rushmore Group, LLC

Operations Planning & Execution Version 1.0 January 2007 Operations Planning & Execution Major Players: Tactical Planning (at corporate level) COO, CFO, Controller, Sales & Marketing, Product Line mangers, Production Planner Detailed Planning (at plant level) Production Planner/Scheduler, MRP Controller, Capacity Planners Execution (at shop floor level) Production Line Workers, Shop Floor Supervisors, Buyers Sales Info Forecasting CO/PA Sales OP Planning Tactical Planning Demand Management Detailed Planning MPS MRP/CRP Manufacturing Execution/SFC Procurement Process Order Settlement Execution The Rushmore Group, LLC

Costing-Based CO-PA CM: profit margin CM: Profit margin

Costing-Based CO-PA CO-PA is profitability analysis, based on cost- of-sales accounting. CO-PA can be multiple dimensions, such as product, country, distribution channel, and customer) CO-PA data are collected from various areas, such as sales orders or billing data from SD, production costs and variance from PP, and values of overhead cost controlling from controlling.

Pricing and Costing for mfg. goods Cost components of mfg cost: Materials Costs Direct and indirect labor costs Equipment costs Strategies to reduce costs Lean manufacturing Systems approach

Sales and Operations Planning (SOP) Version 1.0 January 2007 Sales and Operations Planning (SOP) Information Origination Sales Marketing Manufacturing Accounting Human Resources Purchasing Intra-firm Collaboration Institutional Common Sense ERP systems ensure that there is only one forecast, based upon the principles of a single data repository used by all areas of the enterprise. A more recent proposal to fix forecast errors is to use collaboration. The idea is that if different parts of the supply chain collaborate on a common forecast and everyone plans based on that single forecast; then there is little need for one part of the chain to hedge based on the uncertainty of what is done in other parts of the chain. Intra-firm collaboration, you would think, would be common place – seems that a little common sense would dictate that everyone in a firm come together with a common set of forecast figures. But this is rarely the case. Marketing has a set of forecasts, so too does operations. Sales has their forecast and it’s possible that for budgeting purposes Finance uses still another. The advancement of enterprise resource planning (ERP) systems is helping ensure that there is only one forecast, based upon the principles of a single data repository used by all areas of the enterprise. Forecasts affect most functional areas of the firm and are the starting point for resource allocation decisions. For example, manufacturing must plan production on a day to day basis to meet customer orders, while purchasing needs to know how to align supplier deliveries with the production schedules. Finance needs to understand the forecasts so that the proper levels of investment can be made in plant, equipment, and inventory and so that budgets can be constructed to better manage the business. The marketing function needs to know how to allocate resources for various product groups and marketing campaigns. Forecasts also determine the labor requirements required by the firm so that the human resources function can make proper hiring and training decisions when demand is expected to grow. The Rushmore Group, LLC

Master Data - Product Groups Version 1.0 January 2007 Master Data - Product Groups Aggregate planning that group together materials or other product groups (Product Families) Multi- or Single- Level Product Groups the lowest level must be materials Bikes Touring Mountain 24 Speed 18 Speed Red 24T Blue 24T Red 24M Blue 24M Aggregate forecasts of a group of similar products are generally more accurate than individual forecasts of the individual products that make up the group. The Rushmore Group, LLC

Planning Levels Bikes Touring 24 Speed 18 Speed Red 24T Blue 24T Version 1.0 Planning Levels January 2007 Bikes 50% Touring 50% Mountain 70% 24 Speed 30% 18 Speed Red 24T Blue 24T 40% Red 24M 60% Blue 24M Planning at Product Group Level Planning at Material Level The Rushmore Group, LLC

Version 1.0 Demand Management January 2007 Link between Strategic Planning (SOP) & Detailed Planning (MPS/MRP) The results of Demand Mgmt is called the Demand Program, it is generated from our independent requirements – PIR (Planned IR) and CIR (Customer IR) Product Groups Bikes 50% Mountain 50% Touring Disaggregation Aggregating forecasts across multiple items reduces forecasting errors. A clothing store, for instance, might be able to estimate within a pretty narrow range what the demand will be for men’s dress shirts. But when that store tries to estimate the demand for individual styles, colors, and sizes of shirts, the accuracy of their forecasts will be considerably worse. Firms handle this kind of forecasting problem usually in one of three ways; they either forecast from the bottom up, from the top down, or they start in the middle and work both up and down. The “top down” forecast essentially estimates total sales demand and then divides those sales dollars level by level until the stock keeping unit (SKU) is reached. The “bottom up” method, as one might expect, starts with forecasts at the SKU level and then aggregates those demand estimates level by level to reach a company–level forecast. Another method, one might call the “in-between” method, starts forecasts at the category level (like men’s dress shirts), and then works up to determine store sales and works down to divide up the forecast into styles, colors and SKUs. 30% 18 Speed 70% 24 Speed 50% 18 Speed 50% 24 Speed 40% Red 24M 60% Blue 24M 50% Red 24T 50% Blue 24T Material What is the planned quantity for Bike group if you want to plant 100 of Blue 24T? The Rushmore Group, LLC

Demand Management Forecast Sales Planned Independent Requirements Version 1.0 Demand Management January 2007 Forecast Sales Planned Independent Requirements Customer Independent Requirements Demand Program MPS / MRP The Rushmore Group, LLC

Transfer from High Level to Detailed Planning Version 1.0 January 2007 Transfer from High Level to Detailed Planning Bikes 50% Touring 50% Mountain 70% 24 Speed 30% 18 Speed Red 24T Blue 24T 40% Red 24M 60% Blue 24M Demand Planning Data Planning at Material Level Disaggregation Planned Independent Requirements At Material and Plant Level Transfer Operative Planning Data Planning at Group Level The Rushmore Group, LLC

Enterprise Strategic Planning SAP Implementation

Version 1.0 Planning Strategies January 2007 Planning strategies represent the business procedures for Planning of production quantities, and Time periods SAP offers a range of PP strategies From those for MTS (Make-to-stock) To those for MTO (Make-to-order) Planning strategies represent the business procedures for the planning of production quantities and dates. A wide range of production planning strategies are available in the SAP R/3 System, offering a large number of different options ranging from pure make-to-order production to make-to-stock production. Depending on the strategy you choose, you can: Use sales orders and/or sales forecast values to create the demand program Move the stocking level down to the assembly level so that final assembly is triggered by the incoming sales order Carry out Demand Management specifically for the assembly The Rushmore Group, LLC

Version 1.0 Planning Strategies January 2007 Multiple types of planning strategies based upon environment Make-To-Stock Make-To-order Driven by sales orders Configurable materials Mass customization Assembly orders Planning strategies represent the business procedures for the planning of production quantities and dates. A wide range of production planning strategies are available in the SAP R/3 System, offering a large number of different options ranging from pure make-to-order production to make-to-stock production. Depending on the strategy you choose, you can: Use sales orders and/or sales forecast values to create the demand program Move the stocking level down to the assembly level so that final assembly is triggered by the incoming sales order Carry out Demand Management specifically for the assembly The Rushmore Group, LLC

Planning Strategies in SAP Version 1.0 Planning Strategies in SAP January 2007 Planning strategies represent the business procedures for the planning of production quantities and dates. A wide range of production planning strategies are available in the SAP R/3 System, offering a large number of different options ranging from pure make-to-order production to make-to-stock production. Depending on the strategy you choose, you can: Use sales orders and/or sales forecast values to create the demand program Move the stocking level down to the assembly level so that final assembly is triggered by the incoming sales order Carry out Demand Management specifically for the assembly The Rushmore Group, LLC

Planning Strategy for Make-to-Stock Version 1.0 January 2007 Planning Strategy for Make-to-Stock Planning takes place using Independent Requirements MTS Strategy Types in SAP The Rushmore Group, LLC

Planning Strategy for Make-to-Order Version 1.0 January 2007 Planning Strategy for Make-to-Order Planning takes place using Customer Orders Sales are covered by make-to-order production MTO Strategy Types in SAP The Rushmore Group, LLC

Forecast : Historical Data Version 1.0 January 2007 Forecast : Historical Data January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC The Rushmore Group, LLC

Forecast : Parameters Set up Version 1.0 January 2007 Forecast : Parameters Set up January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC The Rushmore Group, LLC

Forecast: Models Forecasting Models Selecting a Model Trend Seasonal Version 1.0 Forecast: Models January 2007 Forecasting Models Trend Seasonal Trend and Seasonal Constant Selecting a Model Automatically Manually January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC The Rushmore Group, LLC

Forecast Example: Trend-Seasonal Forecast Version 1.0 January 2007 Forecast Example: Trend-Seasonal Forecast January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC The Rushmore Group, LLC

Sales and Operations Planning (SOP) Version 1.0 January 2007 Sales and Operations Planning (SOP) Flexible forecasting and planning tool Usually consists of three steps: Sales Plan Production Plan Rough Cut Capacity Plan Planned at an aggregate level in time buckets The Rushmore Group, LLC

Transfer SOP to Demand Management Version 1.0 January 2007 Transfer SOP to Demand Management January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC The Rushmore Group, LLC

Demand Management Version 1.0 January 2007 The Rushmore Group, LLC January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC The Rushmore Group, LLC

Transfer from High Level to Detailed Planning Version 1.0 January 2007 Transfer from High Level to Detailed Planning January 2007 (v1.0) © 2007 by SAP AG. All rights reserved. SAP University Alliance. The Rushmore Group, LLC The Rushmore Group, LLC

Lab 1: (Due date: 2/10/2016) Display Product group Review work center and assigned capacity Create consumption values (forecast) for finished products Create sales and operations plan (SOP) Check stock/requirements list Transfer SOP to demand management Review demand management Run MPS with MRP Review stock/requirement list