How can GPD improve Defense Manufacturing?

By Hank Schrandt

Aerospace and Defense Product Owner

SAP Labs

The Aerospace and Defense Industry is a contract driven market involving complex manufacturing processes that are highly regulated by the US government.  Reports and documents must be delivered to assure compliance to contracts and government standards.  Parts and services required to complete these contracts can get quite expensive and affects the contractor’s bottom line.

GPD (Grouping, Pegging and Distribution) is a software tool to optimize project manufacturing by grouping material requirements from multiple projects for purchasing and manufacturing parts.  Grouping common parts reduces the number of Purchase Orders and Production Orders.  Better pricing can be negotiated resulting in fewer minimum quantity purchases when collectively purchasing materials for multiple projects.  Also, fewer production orders with larger quantities yield greater efficiencies reducing the “per unit” cost.  A relationship table is maintained that defines which project WBS elements are allowed to participate in the Group.  Also, more than 1 Group can be used for the projects depending on the part number and the location on the BOM tree.  This will be discussed later.

GPD Pegging with the help of MRP Pegging defines which project WBS Elements share ownership of Planned Orders, Purchase Requisitions, Purchase Orders and Production Orders. MRP uses the stock quantities first to fulfil the earliest requirements and then uses FIFO to align the open orders to the remaining demand requirements.  GPD Pegging does the same.  Unlike MRP Pegging, GPD Pegging accounts for closed orders of parts no longer in stock to keep the Project Costs solution whole. These parts can be components one or more levels down on a WIP Production Order or waiting for a Planned Order yet to be converted to a Production Order.  If MRP Pegging sees a change to these open orders, GPD Pegging will see the same changes to these open orders and to all of their components below at all levels.

The GPD Pegging table is the road map as to how cost is distributed.  Not only does this table define the “MRP” Project WBS Elements that owns the costs for the parts by knowing the order numbers and quantities; this table can instruct GPD Distribution to direct the costs to go somewhere else via the value in the Break Point field, such as a WBS Element or Network.  This comes in handy when major subassembly costs are tracked separately.  For the sake of this white paper, I will treat project costs and GPD costs as non-valuated (actual costs which ignores costs on Material Masters and the General Ledger is unaffected) and gets expensed to the Project WBS Elements.

GPD is a tool to enable Project Manufacturing to operate like commercial manufacturing using MRP with the Production Planning module by combining project requirements.  Typical Project Manufacturing seldom looks beyond its project for purchasing and assembling parts.  Also, Project Manufacturing is performed in Project Systems within a project structure. When transferring parts between Project WBS Elements, a separate process is needed to move the associated costs which can take time gathering data and processing costs.  When transferring parts between Groups in GPD, the costs associated with the parts will be move automatically by GPD Distribution to the appropriate Project WBS Elements.

The key to GPD providing a smarter Project Manufacturing solution is the Grouping Strategy.  One must understand the cost reporting requirements and know how to build the Project and Group structures to support it.  Allow the system to provide the data flow and don’t try swimming across the current. 

First, need to understand the types of parts that are consumed in products across all contracts. The most common parts like nuts, bolts and screws can be treated as Valuated Plant Stock or Non-Valuated Common GPD Group stock (as a Common Group for several projects).  The costs of plant stock do not appear on the projects until the parts are issued to GPD relevant Production Orders and Distribution then moves the costs from the orders to the Project WBS Elements. Costs of Non-Valuated GPD Group Stock gets expensed to the projects at the time of the Goods Receipt or Invoice Receipt.  If costs cannot be billed to the customer until the parts are part of “WIP” (which means issued from stock), then recommend using Plant Stock (Weighted Average Cost or Standard Cost).  If costs can be billed but not claim as “Earned” for Earned Value, then the parts can be in a Common GPD Group and reporting can show that the costs are yet to be earned.

For other purchased parts that don’t figure into the Parameter Effectivity for Model Unit scenario, they can also be in a Common GPD Group Stock.  If costs cannot be billed to the customer until the parts are part of “WIP” (which means issued from stock), then recommend using Plant Stock (Weighted Average Cost or Standard Cost).  If costs can be billed but not claim as “Earned” for Earned Value, then the parts can be in a Common GPD Group.

For make parts that don’t figure into the Parameter Effectivity for Model Unit scenario, they can also be in a Common GPD Group Stock, Common GPD Mfg Group Stock or any other GPD Group which can be shared by multiple contracts.  Truly common parts in Common GPD Groups would not be for specific contracts but in a pool to support all participating projects.  A truly common part should meet the criteria of having the same Form, Fit and Function.

When dealing with parts that are controlled by Model and Unit Parameter Effectivity and to assure that parts for specific Model and Unit has the appropriate difference/changes as defined by the Change Document; these parts should be in a “Project Level” GPD Group to assure that the costs postings to the project reflect the hardware being provided to the customer as the screen shot below shows by the RED square.. If a “Common” GPD Group was used, there are no assurances that the parts with the changes will be pegged to the appropriate project to receive the correct costs.  Parameter Effectivity does not support GPD which is why those BOM levels involved should be handled within the “Project” Group.

Another option to Parameter Effectivity is to use WBS/Material BOMS and WBS/Material Routings.  Since there is no getting around “Project” Groups, the Project Group WBS Element can have its own set of BOMS and Routings for the same Assembly Material Numbers and is a less complicated process.  There is an MRP configuration setting to include WBS related master data.    

GPD Grouping Strategies.png

This graphic above shows different Grouping Strategies that can be used.  Each oval represents a GPD Group WBS Element.  One strategy not shown is the ability to have Assemblies at the top of the BOM tree to be executed and completed in Project Systems using Network Activities or Production Orders with a Project WBS Element on the Account Assignment in Production Planning module.

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The Parameter Effectivity example above shows changes to multiple parts depending on the customer. Having a pool of parts in a Common GPD Group WBS Element makes it impossible to insure that the  costs for the changed parts gets pegged to the Project that received the hardware.

GPD Strategy Graphic.png

This image represents how Valuated Plant Stock supports GPD Grouping strategy.  GPD can have one or more Group WBS Elements supporting parts along the BOM tree.

GPD Strategy Graphic 2.png

The above image shows non-GPD BOM nodes at the top of the BOM structure.  Recommend using Project specific GPD Group at the top of the BOM including Parameter Effectivity BOM levels in the event when parts need to be transferred between projects so that their costs can be automatically moved via GPD Distribution.

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It is recommended that project specific GPD Group WBS Elements be included in the Project Structure so that Parameter Effectivity, Parts, Production Orders, Purchase and Part reservations with their dates, statuses and costs can appear on standard Project Systems reports used by the Control Account Managers in the Program Offices.  Recommend placing the Project specific GPD Group WBS Elements not under the Billing WBS Element.  Only GPD Distributed costs should be billed to the customer. The Group WBS Elements should have zero costs after GPD Distribution is run, but may not if there are problems.

In summary:

  1. The GPD Pegging Strategy is the foundation to optimize project manufacturing.  Work smarter and don’t swim across the current.
  2. Know the manufacturing cost reporting requirements to the projects.  This defines the Project WBS Elements which MRP will see and where Break Points need to be defined.
  3. Know the parts in the BOM structure.  Which parts are critical to the product and may be subject to Parameter Effectivity (PE)? They should be in project specific groups.  Recommend using WBS/Material BOMS and Routings for Change Control instead of PE for easy processing.
  4. Are the costs of purchase parts sitting in stock allowed to be billed to the customer?  If no, these parts should be in a pool as Valuated Plant Stock.  If yes, these parts should be in a pool as non-Valuated Common GPD Group Stock if not project specific Parameter Effectivity parts.
  5. Include Project GPD Groups in the Project structure not under Billing WBS Elements. Common GPD Groups can be part of a Common GPD Project Structure which is usually owned by the Manufacturing Organization.

I can be contacted at 215-704-6075 if you have any questions or would like discuss ideas on the use of GPD.

Hank Schrandt

A&D Indusrty Solutions Product Owner

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1 Comment

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  1. Young Hwan Oh

    Hello, Hank.

    I have one Question for GPD..
    SAP recommended non-valuated stock for using GPD (Especially Cost distribution)..
    One of my customer want see current all stock quantity and value in the storage not only plant stock.
    (For the legal purpose)

    Hence, they consider valuated stock without GPD for this reason.
    They should have reporting to DoD / DCAA with CAS for US project.

    Do you have any idea for using GPD with non-valuated stock and can see the existing stock value?

    Thank you. 
    BR Young.


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