Availability Check and Batch Management for a Process/Chemical Industry - A SAP R/3 solution approach

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Article: Availability Check and Batch Management for a Process/Chemical Industry - A SAP R/3 solution approach

Summary: Article describes the key points to consider while in the Availabilty-To-Promise strategy for a Process based or Chemical industry.

Author: Naveena Advani

Created on: 27th June, 2013

Author Bio: Naveen is Lead Consultant at Infosys and has over 9 years of professional work experience in SAP sales and Distribution. He has vast experience on various implementations and Rollouts for chemical, auto ancillary industry. His expertise is in processes in the Market to Sales, Order to Cash, Procure to Pay and Integrated Planning. Naveen is engineering graduate and post graduate in Management. He is alumni of Indian Institute of Technology – Roorkee. Naveen would like to thank his team members Vijay Vittal, Srinivas Kumar and Sajith Hari for their contribution towards this article

Introduction

The Prime benifits for a Chemical/Pharamaceutical  Organisations by SAP ECC implementations are listed as below

1. it assists in optimizing their business processes,
2. it is a full solution therefore reducing the time and effort required to develop such a system, and it gives companies a high level of return on their investment. 
3. Most common process based manufacturing practices around chemical industry developed a SAP R/3 solution that resolves some of the key chemical industry issues with SAP R/3 and increases the return on investment.

Key Issues/Challanges

• How can an organisation best manage multiple batch (lot) materials within SAP based ERP when there is no batch split functionality on the sales order?

• How do supply chain department determine true available to promise inventory when the products are overlapping specifications?

• How can Inventory management prioritize finished goods inventory and maximize its efficiency in order to best meet  customers’ requirements and expectations?

• How can Logistics execution ensure the warehouseis choosing the material best fit for customers and work on a first in first out (FIFO) basis?

• How to restrict certain batches only in certain countries due to varying regulations

The SAP run chemical Organisations normally develop or enhances the SAP ECC package to solve the above issues and meet the chemical industry’s specific finished goods batch management needs in order to best meet customer requirements.   The solution includes the following processes:

Receiving finished goods from production

• Testing and grading the properties of the finished goods
• Prioritization of inventory through material grading
• Recording the test/grade results on the produced batches
• Material movements associated with material testing
• Placing the product in the warehouse/tank farm
• Configuring PI (Process Instructions) sheets and integrating the PI sheets with RFID devices to record the results.
• True available to promise inventory on sales orders based upon classification characteristics (customer specifications) to prioritize inventory
• Picking the best product (batches) to meet the customer’s requirements at time of delivery
• Simplified warehouse movements through enhanced front end screens and SAP console devices to confirm WM movements.
• Creation of Certificates of Analysis and customer bar code labels out of SAP ECC

The key process is to allow availability checking on batch managed material based upon characteristics within the SAP ECC Classification system.  This enhancement allows organisations to determine their true available to promise position for a customer without hard allocation of batches to a sales order at the time of order entry.  Instead, through an enhanced inventory prioritization, availability checking, picking strategy and picklist, the batches are not allocated to the order until the shipment is picked for delivery.  This enhancement would have to be acheived utilizing user exits within the R/3 system.

Why the Solution is Necessary

The key to success on implementation of such solutions thorough gap analyis be performed. The gap analysis is to determine where further development was necessary to meet the business needs.  In assessment of the software/ERP application, a system agnostic, holistic end-to-end perspective must be carried out. It is very common gap in process based industry especially the problem on how R/3 allocated material to an order and performed the availability checking process for single material/multiple batch orders.

Although the standard SAP solution does include functionality to select material for a customer order based upon specifications; this functionality is limited when it comes to processing orders with multiple batches.  In fact, R/3 requires creation of a separate sales order line item for each batch that needed to commit customer.  This is partly due to the Sales & Distribution system(of SAP) not having batch split capabilities on the order.  Not only does this add time and effort to the process of order taking; it also hard allocates those batches to an order, limiting the inventory flexibility. In some organisations the orders are large(bulk) contract orders and batches are not known at the time of order entry.

Many Organisaitons in the chemical industry produce individual products that have different specifications for various customers.  Many of these specifications overlap or are subsets of another specification.   The standard SAP solution would choose any material within the customer’s specification with no regard for the priority or importance of the inventory.   Here is an example of that depicts the impact:

        Chem Industries produces a product with two specifications.  The regular specification that most customers use has a wide range for its key characteristics.  The other specification is a narrow, subset of the wide specification used by a single customer.  Using standard R/3, the narrow specification material could and would be shipped to regular customers without regard for priority.  This could leave without any material that a narrow specification customer could use. 

This is a type of situation that can be avoided by using the enhanced availability check solution.   With the solution, the above scenario would be:

     Chem Industries produces a product with two specifications.  The regular specification that most customers use has a wide range for its key characteristics.  The other specification is a narrow, subset of the wide specification used by a single customer.  Using the enhanced R/3 chemical solution, the inventory is prioritized. When a regular specification customer orders material, the material that meets only the wide specification is soft allocated at the batch level to the customer, leaving the narrow specification material for future orders from the narrow specification customer.  The narrow specification material will only be soft committed to a regular customer when the material outside the narrow specification is not available.

Integrated Solution Approach

As mentioned in the introduction, this solution for the chemical industry starts at the end of the production line, and goes through product testing, warehouse putaway, sales, picking and delivery.  It includes the following R/3 Modules and Applications:

CA – Cross Applications Functions

·         CA-CL                  Classification System

MM – Materials Management

·         MM-IM                Inventory Management

·         MM-WM              Warehouse Management

SD – Sales & Distribution

·         SD-SLS                 Sales

·         SD-BF                   Basic Functions (Availability Check)

·         SD-SHP                Shipping

QM – Quality Management (optional)

·         QM-QI                 Quality Inspections (including QM-IDI Interface)

·         QM-QC                Quality Certificates

The typical chemical industry solution includes the following functions:

Data collection integration –  An external interface receives production data from factory/shop floor data collection system and creates the appropriate movements within the R/3 system as well as collecting key production information for the classification system.  This also includes integration to warehouse putaway if you plan to utilize the Warehouse Management application. PP/PI integration with WM is a great functionality SAP offers.

Quality data integration– with or without LIMS (laboratory information management system) and with or without the QM module –  Depending upon laboratory system and decision to use R/3’s Quality Management module, this piece of the solution either uses pre-configured standard SAP functionality or a customized interface to get your production quality data into the SAP ECC Classification System. 

Warehouse putaway strategies and screen enhancements – The solution includes the ability to utilize any of the standard warehousing strategies within SAP.  In addition, screen enhancements would be of a great value and provides rich user experience in warehouse processing.  These enhancements include the ability to easily move multiple batches on a single screen.  It is also set up for integration to bar code scanning equipment.

Availability checking enhancement– This type of enhancement will allow availability checking to the “grade” (customer specification) or classification characteristic level.  This enhancement does not replace the SAP standard availability checking functionality, but instead works in conjunction with it to add functionality.

Like the standard availability check, the ATP quantity (ATP = Available To Promise) is calculated from the warehouse stock, the planned inward movements of stock (production orders, purchase orders, planned orders) and the planned outward movements of stock (sales orders, deliveries, reservations).  This type of check is performed dynamically each time, taking the relevant stock and planned goods movements into account with or without replenishment lead time. The additional functionality of the enhancement is that it classifies the inventory by “grade” and passes each order requirement against the classified inventory “on the fly”.

The availability check enhancement does not “commit” any batches to the order, yet still reserves the inventory with the best fit for that customer order.   This commitment is executed using an algorithm that keeps the higher priority and multi-grade material for the customers that require it.  This “soft commit” allows warehouse flexibility and facilitates the improved warehouse picking described in the next section.

Some of the key features of the enhanced availability checking include:

·         Intelligent (manual) prioritization of inventory based upon customer specification requirements and capability to produce

·         Prevents “wrong reservation” of inventory by Customer Service Representatives from a committed order without supervisor approval

·         Allows real-time commitment to a customer over the phone that their order can be filled with inventory that meets their specification.

Warehouse picking strategies, forms (picklist) and screen enhancements –

The warehouse picking strategies and picklist work very much like the enhanced availability checking functionality.  It uses the same algorithm as the availability check to create the picklist.  The enhanced picklist automatically generates a group of batches to pick for a particular order based upon criteria such as batch “value” and age.  By generating a group of batches from which to pick and not specific batches, you can reduce the warehouse effort of digging for batches while still meeting your customers’ requirements.

In addition, simplified warehouse data entry screens can be developed to streamline the process of entering the picked batches into SAP ECC.  Within these screens, validation would be recommended to ensure that the batches that were picked are either on the picklist or at least meet the customer’s requirements.  When a batch selected does not appear on the picklist (but does meet customer requirements), an exception handling needs to be implemented.  This process not only allows flexibility in warehouse processing, but also enforces discipline.

Delivery strategies and forms(Certificate of Analysis, Bill of Lading, Bar Code Labels) – This kind of design allows  to print quality certificates out of LIMS or SAP, depending upon the preference.  It also includes customized Bill of Lading forms and customer bar code labels printed from SAP.

Uses of the Solution

This solution can add value to a batch managed Organisation.  This section describes the situations in which the specific programming enhancements described above (availability check, warehousing, and picking) are designed to be used.  It is in these situations that this solution fills in “gaps” in SAP R/3’s functionality.

Multiple, overlapping product/customer specifications–  As described above, it allows availability checking to the customer specification level based upon inventory prioritization.  These companies will also get the full benefit of the improved picking and warehouse functionality.

Single material/multiple batches per sales order line item – The solution also add value to companies with single material/multiple batches that do not have multiple specifications.  In this scenario, enhanced availability checking is no longer required.  The material is either good or outside of the specification limits.  With only one specification, standard R/3 availability checking is sufficient with proper quality data integration.

The added value is in the improved inventory and warehouse management.  The solution prioritizes inventory to be delivered to customers using optimal date and location algorithm processing.

Assumptions

There are several assumptions associated with this type of solution.  These assumptions include:

• The definition of a batch matches SAP’s definition . A batch is a quantity of material produced during a given cycle of manufacture.  The essence of a batch is therefore its homogeneity (according to Good Manufacturing Practice Guidelines). A batch is a non-reproducible unit.  It is characterized by unique features. In current scenario, 1 batch = 1 pallet or 1 tank or 1 container.
• Batch is client specific and is unique to the material
• The solution utilizes the classification system as a database for the finished goods batch quality data.
• The solution includes business process designs, configuration and programming.
• The modules included in the solution are MM (with WM), SD, CA – Classification and QM.  There is also a solution without the QM module.