Hello all, this is Ashutosh Bansal. I am Founder & CEO of GitaCloud. I have implemented SAP IBP at multiple customers. This post is based on my experiences from an active customer engagement, where GitaCloud is implementing IBP Order Based Planning OBP: Response Planning with Priority Heuristic. Confirmation Run is being used to both generate a finite production plan and confirm sales orders. This post is focused on a key enhancement that I have implemented within IBP OBP: to reschedule firm supply in IBP in order to prevent redundant supply proposals.
As you may be aware, IBP OBP Priority Heuristic tries to minimize sales order confirmation delays. As a result, it will generate planned supply proposals (planned orders, purchase requisitions) to meet requested date on independent / dependent demands. IBP OBP will ignore firm supply elements (production orders, firm planned orders, purchase orders, firm purchase requisitions) to the right of requested dates, as pegging to these firm supply elements will result in sales order confirmation delays.
Although, this standard behavior looks logical, it makes a key assumption that the current availability dates on these firm supply elements are firm and cannot be expedited to meet the requested dates on demands. In reality, suppliers provide conservative lead times to ensure high On-Time Delivery performance and Procurement team can work with Suppliers to expedite purchase orders most of the time. Procurement team at my client prefers to expedite current purchase orders, as opposed to having IBP generate new purchase requisitions in front of already open purchase orders. To the extent, minimum lot size (MOQ) can result in excess quantity on the Purchase Order, this becomes an issue of managing excess inventory, not just minimizing number of open purchase orders. The business requirement is simple: expedite firm supply elements (purchase orders, production orders, etc.), to when they are needed to support demand. Create supply proposals (purchase requisitions, planned orders) only after all the firm supply expedites have been taken into account. This blog post is intended to articulate the solution approach GitaCloud team took to meet this requirement.
Let’s use an example to understand this business scenario better. Let’s use a procured component COMP1 in location FACTORY1 with the following planning parameters: Rounding Value (Order Multiple): 20, Procurement Type: F (External Procurement). Let’s assume zero planned delivery time to procure components to simplify this example.
See the table below to understand both the demand/supply equation as well as projected stock. Let’s assume two Purchase Orders are currently open: PO1 in week 3 from today for 20 units, and PO2 in week 7 from today for an additional 20 units. Let’s also assume we have dependent demand on this component COMP1 in 9 of the next 15 weeks for a quantity of 10 each to make the example easier to grasp.
As you can see, IBP OBP Priority Heuristic in Confirmation Run generates purchase requisitions in week 1, week 5, and week 14 for a quantity of 20 each. This makes sense as IBP needs to cover 10 units of demand each in week 1 and week 2, for which pegging with week 3 PO will result in delays. The first PO in week 3 is sufficient to cover both the week 3 and week 4 demands. Next, IBP generates a purchase requisition in week 5 to cover for the week 5 demand. Given the rounding value of 20, IBP now carries excess stock in week 6 for 10 units. Also, given the second PO in week 7, IBP now carries excess stock of 20 units from week 7 till week 9. This projected stock of 20 at the end of week 9 is sufficient to cover week 10 and week 11 of demand (10 units each). IBP also creates the third and last purchase requisition in week 14 to cover demand in week 14. This is standard behavior and results in redundant purchase requisitions and excess supply in business environments, where the firm purchase orders can be expedited working with the suppliers.
Let’s evaluate next how the procurement planners / buyers would like IBP to propose purchase requisitions if firm PO supply could be expedited, as needed. See the table below to understand how IBP generated purchase requisitions change when firm supply is rescheduled, as needed.
Note how firm supply rescheduling has moved PO1 from week 3 to week 1 and PO2 from week 7 to week 3. With this new supply availability picture, IBP OBP priority heuristic sees the first 4 weeks of demand is covered by the firm supply (the two purchase orders). The first purchase requisition is now raised in week 5, which is sufficient to cover week 5 and week 7 demands. Next purchase requisition is generated in week 10 to cover week 10 and week 11 demands. The last purchase requisition is generated in week 14 to cover the demand in week 14.
GitaCloud team has also enhanced IBP for periodic lot size, to enable Procurement team to have a single purchase requisition of 60 units in week 5, if the order consolidation period is defined as 6 weeks: buy when you need to buy (week 5) for the next 6 weeks worth of cumulative demand. This enables Procurement team to get better pricing without incurring excessive risk on inventory levels. The final picture looks as per the table below.
As you can see, this enhancement to IBP OBP leverages firm purchase orders to cover short term demand, minimizes the risk of excess stock, and enables Procurement team to confidently process purchase requisitions knowing any supply proposals from IBP are incremental supply on top of existing firm commitments to buy.
IBP OBP priority heuristic does not address this requirement out of the box, but this enhancement was delivered based on the following capabilities:
- Extract pegging data to analyze new need dates on firm supply elements.
- Update the dates on firm supply elements in IBP Add-On for S/4HANA by using a BADI extension: to switch dates from current availability date on PO in S/4 to the Rescheduling date (new need date based on pegged demands).
- Use Maximum Distribution Receipts Key Figure to control where IBP OBP can generate purchase requisitions in sync with the order consolidation period from the first instance of net demand post firm supply expedites.