Enterprise Systems Optimization Introduction EGN 5346 Logistics Engineering (MSEM, Professional) Fall, 2013

Course Objective Supply chain management (SCM) concepts, modeling, configuration, integration, data transfer, and supply network planning and optimization. Hands-on with SAP

SCM Scope Single facility SCM Multiple facility SCM Increased planning capabilities for a single facility Finite-capacity scheduling Multiple facility SCM Integrated planning for the entire supply chain network Multiple plants and distribution centers Multiple vendors Multiple customers Multiple transportation options

ERP Operations related to SCM Related ERP Modules Materials Management (MM) and Production Planning (PP) modules Sales and Operations Planning (SOP) Forecasting Master Scheduling Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) Order release and receipt

ERP & SCM Basics (SAP View) SAP ERP: Holds master data for materials, plants, customers, vendors, purchasing information records Holds transactional data (e.g., sales orders, planned orders) Is where plans get executed SAP SCM: Is where “advanced planning” happens Imports master and transactional data from ERP Sends plans back to ERP for execution ERP SCM Core Interface (CIF)

SCM Exercises Plan with GBI v 2.11 Review Master data APO Demand planning Planning in SCM Supply Network Planning (SNP) Heuristics Deployment and Transport Load Builder (TLB) Capable to Match (CTM)

Modules related to ECC and SCM The products and modules involved in the SCM exercises are: ERP (ECC 6.0): MM, PP, SD SCM 7.0: DP (Demand Planning), SNP, and Deployment

Work Flow in SAP SCM

Work Flow for our Exercises

Introduction to SCM and SAP APO Theories & Concepts

The APICS-Standard Planning Framework APICS –former name: American Production and Inventory Control Society, current name: Association for Operations Management

Intro to Supply Chain Materials Supply chain Any commodities used directly or indirectly in producing a product or service. Raw materials, component parts, assemblies, finished goods, and supplies Supply chain Flow of materials through various organizations from the raw material supplier to the finished goods consumer.

Supply Chain Management Definition All management functions related to the flow of materials from the company’s direct suppliers to its direct customers. Functions included: purchasing, traffic, production control, inventory control, warehousing, and shipping. Two alternative names: Materials management Logistics management

Supply Chains Definition A supply chain is the network of organizations, people, technology, activities, information and resources involved in the production of a product or a service Includes suppliers, manufacturers, transporters, warehouses, retailers and customers Production System A manufacturing subsystem that includes all functions required to design, produce, distribute, and service a manufactured product. A Supply Chain consists of one or many production systems that work together in the fulfillment of a customer order Best viewed as a network

Supply Chain for Steel in an Automobile Door MINING COMPANY Mines iron ore STEEL MILL Forms steel ingot STEEL COMPANY Forms sheet metal Iron ore Steel ingots Sheet metal AUTOMOTIVE SUPPLIER Makes door AUTOMOBILE MANUFACTURER Makes automobile CAR DEALERSHIP Does preparation Car door Car Prepared car FINAL CONSUMER Drives automobile

Supply Chain Management in a Manufacturing Plant Receiving and Inspection Raw Materials, Parts, and In-process Ware- Housing Production Finished Goods Ware- housing Inspection, Packaging, And Shipping Suppliers Customers Materials Management Purchasing Production Control Warehousing and Inventory Control Shipping and Traffic Physical materials flow Information flow

Logistics Logistics usually refers to management of: the movement of materials within the factory the shipment of incoming materials from suppliers the shipment of outgoing products to customers

Movement of Materials within Factories The typical locations from/to which material is moved: Incoming Vehicles Receiving Dock Quality Control Warehouse Work Center Other Work Centers Packaging Finished Goods Shipping Shipping Dock Outgoing Vehicles

Analyzing Shipping Decisions The “Transportation Problem” Problem involves shipping a product from several sources (ex. factories) with limited supply to several destinations (ex. warehouses) with demand to be satisfied Per-unit cost of shipping from each source to each destination is specified Optimal solution minimizes total shipping cost and specifies the quantity of product to be shipped from each source to each destination

Warehousing Definition Warehousing activities: Warehousing is the management of materials while they are in storage. Viewed as distribution center (DC) Warehousing activities: Accounting Ordering Storing Dispersing

Warehousing Record keeping within warehousing requires a stock record for each item that is carried in inventories. The individual item is called a stock- keeping unit (SKU). Stock records are running accounts that show: On-hand balance Receipts and expected receipts Disbursements, promises, and allocations

Common Supply Chain Processes VMI: vendor managed inventory

Common Time Horizons for SCM Processes VMI: vendor managed inventory

Level of Detail and Time Horizon for SAP APO Modules

SCM Processes in SAP APO Modules DP: demand planning TP/VS: transportation planning and vehicle routing SNP: supply network planning VMI: vendor managed inventory PP/DS: production planning and detailed scheduling

SAP APO System Structure and Integration with SAP ERP LIS: logistics information system: transportation data CIF: core (information) interface: master data ATP: Available to promise

Characteristics of the SC Network Each node may consist of a production system of its own Links in the network represent a business relationship between two nodes e.g. transportation of a product between two nodes The number of levels in a supply chain varies and depends on the complexity of the product Flows can skip levels by that: Supplier ships direct to DC Manufacturer ships directly to customer The decoupling point is the shift occurs from make-to-stock to make-to-order The decoupling point is not fixed to one level of the supply chain and is influenced by postponement strategies (e.g. Dell)

Characteristics of the SC Network Multiple Products, each with possibly different Bills of Material and multiple configurations Multiple Suppliers for raw materials, parts or subassemblies Multiple Subcontractors Multiple Plants possibly containing a wide variety of equipments Multiple Warehouses Distribution centers, local, regional and factory warehouses Different means of Transportation (air, sea, rail, FTL, LTL) either leased, owned or contracted Different information systems and communication channels People with various skills at all levels of the organization FTL – Full Truck Load LTL – Less than Truck Load

Example of Costs and Revenues in the Supply Chain Production and purchasing costs Setup or changeover costs Transportation and handling costs Hiring and firing costs Overtime costs Inventory costs Promotional and advertising costs Renting and leasing costs Subcontracting costs Overhead Capital investments and depreciation Taxes and duties Revenue Customer is the only source of revenue From sale of products, spare parts, materials or service

Example of Constraints Productivity constraints Equipment capacity constraints Labour availability Technological constraints Inventory constraints Purchasing, manufacturing and distribution lead times Demand uncertainties and seasonalities Service requirements Budget Regulations and other constraints

Categories and Attributes of a Supply Chain - Reproduced from Fleischmann B., Meyr H, Hierarchy and Advanced Planning Systems, Handbooks in OR and MS, Chapter 9, Elsevier, 2003, pp 457-523

Types of Production Systems Pure Inventory Systems Simplest form of logistic system Only procurement activities with no production or complex distribution processes Example: wholesale or retail operations where items are purchased Continuous production Systems Manufacturing of a few families of technologically related products in large quantities Example: Assembly lines or fabrication lines Intermittent production Systems Batch production of many products which share several processing centers Project based systems Production of a unique complex product such as a ship or a bridge

Production Strategies Make to Stock Production is based on forecasted amounts for stocked items Make to Order Production of a product is made for a customer order in the quantity specified by the order

2. Hierarchical Planning Hierarchical planning was first introduced by Robert Anthony in 1965* as a three level management framework that consists of: Strategic or long-term planning Tactical planning (or management control) for mid-term planning Operational planning for short term planning The results of one each level are considered as an inputs to the lower level planning Effective implementation and control of the plans requires: An execution layer that captures the events as they occur Feedback loops at all levels * R.N. Anthony, Planning and Control Systems: A Framework for Analysis, Cambridge. Mass., 1965

Hierarchical Planning Framework Procurement Production Distribution Sales Material programs Supplier selection Cooperation Plant location Production systems - Subcontractors Physical distribution structure - Transportation strategy Product program - Strategic sales planning Long term - Personnel training - Contracts - Material Requirements Planning - Master production Scheduling - Capacity planning - Distribution planning - Mid-term sales planning Mid term - Personnel scheduling -- Material ordering - lot-sizing - operations scheduling - shop floor control - Warehouse replenishment - Transportation planning - Mid-term sales planning Short term EXECUTION Flow of goods Information Feedback

Differentiating Factors by Planning Levels Factor- Level Strategic Tactical Operational Purpose Supply chain design, resource acquisition Planning resource utilization Operation scheduling and execution Implementation instruments Policies, objectives, capital investment Budgets Schedules, procedures and reports Planning horizon Long: 3-5 years Medium: 6-18 months Short: daily, weekly, monthly Scope Broad corporate level Medium plant level Short floor level Level of Management Top Middle Low Frequency of re-planning Low: every few years Medium: monthly or quarterly High: weekly, daily or as required Source of information Largely external External and internal Largely internal Level of aggregation - product data - time High Product families years Medium Product groups Month Low individual products continuous Degree of uncertainty Medium Degree of risk

Introduction to SCM and SAP APO SAP Implementation

SAP Business Suite SAP ECC SAP NetWeaver SAP SCM SAP PLM SAP SRM SAP CRM SAP ECC

Planning with SAP ERP & SCM Basic Components of SAP SCM SAP ECC ERP SAP SCM (includes SAP BW) Core Interface (CIF) Demand Planning Supply Network Planning and optimization Production Planning with capacity considerations ATP CTP Detailed Scheduling Deployment Transportation planning Vehicle routing and scheduling Mater data Materials Locations Partner Plants Info records Transactional data Customer orders Production orders Purchasing orders Execution

Planning at Supply Chain Level SAP ECC 1 Core Interface SAP SCM SAP ECC 2 - Planning may be done centrally SAP ECC n - Each SAP ECC component covers one or more locations In the network

SAP SCM Functionality OLTP – online transaction processing THEORY AND PRACTICE OF ADVANCED PLANNER AND OPTIMIZER IN SUPPLY CHAIN DOMAIN by Sam Bansal

SAP SCM Modules THEORY AND PRACTICE OF ADVANCED PLANNER AND OPTIMIZER IN SUPPLY CHAIN DOMAIN by Sam Bansal

Two planning Scenarios for SAP SCM Alternative Scenario Base Scenario SCM 7.0

SNP Location Heuristics If you select Location (heuristic), the system plans the specified products at the specified location. The system explodes dependent demand for one BOM level at the production location in the planning direction. However, dependent demand is neither fulfilled nor further propagated through the supply chain. The system only uses this information to generate planned orders.

Network Heuristic If you select Network (heuristic), the system plans the specified products at all specified locations in the network to which the selected product is assigned. The system explodes dependent demand for one BOM level at the first production location encountered in the planning direction. However, dependent demand is neither fulfilled nor further propagated through the supply chain. The system only uses this information to generate planned orders.

Multi-Level Heuristics If you select Multi-level (heuristic), the system plans all products specified at all locations, whether they are finished, intermediary, or purchased goods from the highest level down to the lowest BOM level. In other words, the system plans all products specified, including all dependent demand. The multi-level heuristic is performed across all locations to which the selected products are assigned, as well as across all locations to which dependent products are assigned.

Cost-Based Optimization Cost or price driven Mixed integer programming Must define all sourcing, production, transportation, inventory costs and constraints

Supply Planning Tasks and Output for SCM Identify sources for finished products Plan and consider safety levels in any location Distribute production over plants Choose production resources in plants Explode bill of materials in plants Identify sources for supply of raw materials and components Outputs Purchase requisitions Stock transport purchase requisition Planned production orders

SAP APO Architecture

PDS/PPM and Resources PDS: production data structure PPM: production process model

Section 1A: Planning and Execution in ERP Emphasis on walking through much of the standard APICS planning framework Good “refresher” to get everyone on the same supply chain page Intermediate-term goal: seamless integration with ERP and SCM labs.

SAP Access through SAPGUI SAPGUI Download The latest SAP GUI release posted on SAP @CSU, Chico web server http://worker.cob.csuchico.edu User = sap; Password = sapgui4me. This GUI works on Windows 7 systems, as well as Vista and Windows XP.

SAPGUI Download Instruction

SAPGUI Setup SAP ERP

SAPGUI Setup SAP SCM

SAP ERP/SCM Clients, Userid, Password Userid: gbi-024 to gbi-048 Initial password: SAP4US SAP APO

Exercises: (Due date 11/23/2013) 1. Review Global Bike International (GBI) company dataset 2. Change master data in ERP to prepare for SCM 1) Distribution centers 2) Material types 3) Assign transportation zone to customers 3. Add & change master data to prepare for SCM 1) Create production version for materials in ERP - Define distribution key - Create production version