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© 2009 Wellesley Information Services. All rights reserved. Implement SAP ERP Consumption-Based Planning Functionality for Your Non-Critical Production Materials Isaac Mazliach S.D.M. Consulting

2 In This Session... The purpose of this session is to tackle Consumption-Based Planning (CBP) from its business perspective as it pertains to differing MRP methodologies. And then — go through its configuration settings.

3 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

4 General CBP is a branch of MRP dealing with all those materials whose planning is a function of their consumption, as opposed to how much is currently needed for production or to fulfill customer demand In accordance with the above, we will use CBP for less expensive, less critical components. That is, those less expensive components that we usually purchase from external vendors (e.g., nuts and bolts).

5 MRP Process

6 MRP Procedures Here you can see the main areas of CBP

7 A Word About SAP Supply Chain Management (SCM-APO) When should you use CBP and when should we use SCM-APO?

8 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

9 Categorization Categorization of products is about defining the delivery time and the delivery service for each of the products in the product program. Categorization of the products is made from a categorization of the customers and the products they buy. Subsequently the categories for the finished products are then linked to the semi-finished and the raw materials respectively, and later also to suppliers With categories at each level it is possible to create a very efficient supply chain Product Categorization gives a superb basis for implementing Lean Manufacturing, by clearly showing the product priority when it comes to flow, inventory, planning, etc.

10 ABC Approach One of the common practices for categorizing materials is the ABC approach In principal, the ABC approach says: Categorize your materials according to the following simple rule:  A – “A” materials are the most expensive and critical materials in your organization  B – “B” materials are the less expensive, less critical materials in your organization  C – “C” materials are the non-expensive, non-critical materials in your organization

11 When to Use CBP CBP deals primarily with the “C” materials that we purchase One of the purposes of CBP is to create Purchase Orders as automatically as possible in order to reduce manual intervention in the purchase process It is possible to use transaction MIBC (ABC Analysis for Cycle Counting) as a basis for ABC categorization. However, it does not take into account the criticality of the material, and therefore manual work must still be performed.

12 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

13 General Reorder point planning should be used with relatively constant consumption materials If the material’s consumption is not constant over time, this method might result in excess stock (the need to keep high safety stock) or stock shortage (fluctuations)

14 Methodology Reorder point quantity includes safety stock. The PO quantity depends on the lot size (e.g., fixed).

15 Calculation MRP compares the quantity in stock + PRs + POs to the reorder point. There is a shortage if the total quantity is lower than the reorder point.

16 Chart

17 Forward Scheduling CBP calculates the availability date depending on lead times from today’s date

18 Add External Requirements to MRP calculation

19 Planning Based on Past Consumption Planning based on past consumption should be used for materials whose future behavior can be predicted by their past consumption Materials with short life cycle would therefore probably not be a good choice for planning using this method Good candidates for planning using this method might be materials with relatively many consumption periods

20 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

21 General Time-phased planning should be used for materials that are delivered on specific dates This method works similarly to reorder point planning — the difference is that specific delivery dates are taken as parameter To run this method, a specific calendar must be created and maintained

22 How Time-Phased Planning Works

Methodology Time-phased planning works almost the same way as reorder point planning, only with specific GR dates

24 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

25 General Forecasting can be used to:  Predict future consumption values from old ones  Calculate safety stock  Calculate reorder points

26 Forecasting Methods

27 Selection of Forecasting Methods Selection is done in the Material Master

28 Uses of Forecasting

29 How Forecasting Works

30 How Forecasting Works (cont.)

31 Backward Scheduling Forecasting calculates the date when we should start purchasing according to the requirement date

32 Using Forecasting for Reorder Point Planning Calculation

33 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

34 Plant MRP and MRP Areas

35 Example 1

36 Example 2

37 Example 3

38 Types of MRP Areas

39 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

40 Configure CBP Forecast Views: Start by Activating the Material Master MRP

41 Configure CBP Forecast Views: Start by Activating the Material Master MRP (cont.) There are other IMG activities for all that is on the screen, but all can be configured in a one-stop shop

42 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

43 Effect of MRP Types

44 Effect of MRP Types (cont.)

45 Effect of MRP Types (cont.)

46 Effect of Lot-Sizing Procedures

47 Effect of Lot-Sizing Procedures (cont.)

48 Effect of Lot-Sizing Procedures (cont.)

49 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

50 Tasks to Perform When Activating MRP Areas

51 Tasks to Perform When Activating MRP Areas (cont.)

52 What We’ll Cover … Main differences between MRP and CBP Materials categorization — the ABC approach Reorder point planning; planning based on past consumption Time-phased planning Forecasting Plant MRP and MRP areas Illustration: Customizing plant parameters Illustration: Customizing MRP types and lot sizes Illustration: Customizing MRP areas Wrap-up

53 Resources SAP courses –  SAPSCM - Supply Chain Management Solution Overview  SCM525 - Consumption-Based Planning and Forecasting  Consumption-Based Planning (MM-CBP)  1c454011d182b40000e829fbfe/frameset.htm Product Categorization (ABC categorization) 

54 7 Key Points to Take Home Categorize your materials Use CBP for your “C” components Materials with relatively constant consumption should be planned with reorder point planning Materials with numerous consumption histories may make use of forecasting to predict their future consumption Materials with specified delivery dates may use time-phased planning Forecasting may be used also to calculate safety stock and reorder points according to past consumption figures Creating a new MRP type can be useful to control customized planning methodology as combination of “standard” methods

55 Your Turn! How to contact me: Isaac Mazliach

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