Business benefits of a PP/DS for SAP S/4HANA implementation
This blog should provide you a better understanding on the business goals in Production Planning and Scheduling in Manufacturing and describes how a SAP S/4HANA LoB Manufacturing implementation has a positive impact on the achievement of your business benefits .
The article gives an overview to costs and benefits of an SAP S/4HANA Extended Production Planning and Scheduling implementation.
The target of production planning and scheduling is to plan and schedule material, personnel and equipment to produce a product at minimum costs.
In general, the objectives of production planning and scheduling can be reduced to 4 basic targets:
- high capacity utilization
- low inventory / stock level
- on-time delivery
- short manufacturing cycle times / order lead-time
It is no possible to achieve all targets at the same time. In a customer-driven market short lead time and on-time delivery have the highest priority and high capacity utilization becomes secondary importance.
To prioritize the different business objectives depends on the targets of a company.
In the Semi-Conductor industry, for example, capacity utilization will not be graded as a secondary target due to the very expensive special machines. High capacity utilization is here the target with the highest priority.
A tool for an optimized Production Planning and -Scheduling is the SAP Line-of-Business manufacturing solution „Extended production planning and scheduling“ of the SAP S/4HANA System.
Picture SAP S/4HANA Manufacturing for planning and scheduling (embedded PP/DS)
SAP Solution Management Digital Supply Chain
“How SAP can help:
Create executable production plans and schedules that optimize your available resources and stabilize production to help you make reliable commitments to your internal and external customers. Seamless integration with other SAP solutions ensures that planning and execution are synchronized in real time so that everyone in the company can access up-to-date information.”
Picture: Overview Benefits of the Solution PP/DS
Evaluation of the costs and benefits of an S/4HANA implementation
In the next section the key benefits and key facts on overview level will be discussed and relationships between the business targets will be presented.
The implementation of new SAP S/4HANA solution does not directly create monetary benefits in manufacturing, as customers will have with the purchase of a new machine (for example, machine for wafer production or a CNC machines that produce a certain output)
The implementation of Extended Production Planning and Scheduling Solutions – PP/DS on SAP S/4HANA requires specific resources such as the use of personnel (business users, in-house and external consultants), hardware/system and software/license, but provides “only” information for production planning and control, which only have an impact on the objectives of manufacturing (lower manufacturing cycle times/lead times and lower stocks /WIP as well as higher on-time delivery and higher resource utilization) when the information is converted into a business decision or work instructions.
To be able to estimate the profitability of a S/4HANA manufacturing implementation, the cost and benefits have to be distinguished whether they are quantifiable or not quantifiable.
Some business values of an S/4HANA PP/DS usage have only indirect effects.
To roughly estimate the economic efficiency, a comparison of the costs and the monetarily quantifiable benefits follows.
Some benefits of Production Planning and Detailed Scheduling in S/4HANA have only an indirect effect.
Picture: Cost and Benefits of a Production Planning and Scheduling in SAP S/4HANA
Many benefits of an improved information situation, such as the high level of transparency by more timely and accurate data cannot easily be quantified and thus cannot be evaluated in monetary terms.
The consideration of the unquantifiable or difficult to quantify costs and benefits is very complex and can only be achieved with a relatively high effort.
To keep this blog simple, clear, and understandable, these factors and monetary quantifiable benefits with very little effect will not be considered in particular the to the cost-benefit analysis.
Also, labor / personnel cost savings are not considered in detail, since personnel savings are to be expected, but will be used to execute the core tasks of the business in future.
So, the non-quantifiable benefits are listed as advantages of Production Planning and Scheduling in SAP S/4HANA but not classified in monetary terms.
First, this blog will show how the benefits of an PP/DS implementation have a positive effect on the business processes and outcome of production planning and -scheduling in manufacturing.
The benefit analysis have to consider estimated expected values for benefits from studies of the cost-efficiency and/or experience from past PP/DS projects.
A cost-/benefit analysis has also taken into account the scope of the S/4HANA project and the scope of the solutions.
If the implementations runs as a Greenfield / new implementation or as a Brownfield Project as well as SAP S/4HANA Manufacturing with Production Planning in S/4HANA Core / Basic-PP and with or without Extended production planning and -scheduling solutions in PP/DS on SAP S/4HANA.
Picture: Expected values for benefits
You will find the relationships between the benefits in the following picture
Picture: Relationship between benefits in manufacturing
This Blog describes the benefits of a Greenfield implementation of SAP S/4HANA LoB Manufacturing Production Planning in the Digital Core and Production Planning and Detailed Scheduling (PP/DS) of Extended Production Planning and Scheduling.
The cost of an S/4HANA implementation have to be distinguished between one-time fixed costs, recurring fixed cost savings, and variable costs.
This Blog doesn’t consider the Software/license costs of S/4HANA pricing nor the ‘Hardware’ cost.
For Pricing SKU´ PP/DS see: “S/4HANA on prem – SAP S/4HANA Manufacturing for planning and scheduling (7019872)”
- Production planning
- Detailed scheduling
- Scheduling optimization
- Interactive simulation capabilities
- Industry-specific planning processes
- Alerts management
- Analytics and reporting
- Supervision and control
- Production order management
A major part of the cost for SAP S/4HANA implementation are the cost for personnel of the project team such as business- , internal project team of the in-house consulting and project management, IT and external consulting services (technology consulting, developments for interfaces and additional reports, business process consulting, program / project management)
This Blog will not calculate a cost-/benefit analysis with standard cost values due to the fact that the scope of a S/4HANA LoB Manufacturing implementation (business solutions for Basic Production Planning w/ or w/o Extended Manufacturing Planning & Scheduling) and the approach of the project (Greenfield, Brownfield) various from customer to customer.
if you want to calculate a cost-/benefit analysis for a S/4HANA Implementation at your company first determine the detailed costs for your individual implementation scenario.
Following you will see the values of the individual benefits in manufacturing evaluated according to experience of an SAP implementation in a Backend Engineering department of a Semi-Conductor manufacturer.
Calculation of the benefits
Key figures area IC backend IC (integrated circuit)
Semi-Finished Goods Stock 778.000 ICs PC / Month
Standard Costs 3.390.000 €
Internal interest rate 6,5%
costs of working capital 220.350 €
material costs accounting 91%
Daily output 196.000 ICs PC/Day
As-Is- Lead Time IC Backend 3,9 Days
capacity utilization 86%
Calculation of the benefits:
Reduced cost of capital via a fixed expected value.
Reduced inventory / stock Semi-Finished-Goods 10%
Picture: Reduced cost of capital via a fixed expected value.
Reduced cost of capital via reduced order cycle time / lead time.
Reduced lead time per order/operation 15-20%
Picture: reduced stock-level and so reduction of capital commitment via reduced order lead time
More output due to Increased capacity utilization
Increased capacity utilization 3-5%
Picture: more production output by increased capacity utilization
Saving costs for labor/ personnel time
Savings in personnel times usually do not result directly from the implementation of PP/DS on SAP S/4HANA, but the time savings can be used for the core functions of the users in the business processes and any “overtime” that may arise, can be saved.
As an example of the saved labor/personnel time, a regular/daily status meeting on the shop floor between Production Planner and Production Scheduling / Shop Floor Planner, typical in the manufacturing industry, can be considered.
With the integrated planning in PP/DS with the Product View and Graphical Planning Board an overview of the end-to-end production plan is provided. Priorities on orders are set via the PP/DS tools in the Product view and are visible on the shop floor via the Graphical Planning Board.
Since the costs for labor / personnel resources are regionally very different and also depends on the industry a rounded example value will be used.
Cost for Production Planner / Production Scheduler 50 € / h
1 Week 40 h
The calculation of the cost savings for labor / personnel is an example of the reduction of routine activities.
Picture: Saving costs for labor time by reduction of routine-planning activities
The saved personnel times should not be assessed in monetary terms, as it will be used for the core business activities on a department.
Due to the contradicting business targets, not all business benefits can be realized at the same time.
Production will continue to strive to fully utilize the cost-intensive capacities. In this way, the reduction in inventories will have its limits where it jeopardizes the maximum capacity utilization.
When assessing the benefits of an S/4HANA manufacturing solution, the utility values should therefore not be quantified with the maximum possible value.
According to the estimated effort for an SAP S/4HANA implementation as greenfield approach and project lesson learned / experience in implementation projects of SAP S / 4HANA Manufacturing – the benefits in Production Planning & Detailed Scheduling could only be expected at least six months following to the productive usage / GoLive; RampUp and KnowledgeTransfer efforts should also be taken into account due to the complexity and necessary change management due to changes business processes so that the full range of benefits of SAP S / 4HANA Production Planning and Scheduling (ERP-PP, PP / DS) cannot be expected straight away from GoLive.
Therefore, an efficiency of 50% should be included in the utility value for six months of productive use in the first year
The cost of an SAP S/4HANA implementation are very customer-specific and depends on the scope and complexity of the implementation of SAP S/4HANA Business solutions,
the scope of the production planning scenario and the personnel resources for SAP Experts in project and business. So it is not possible to estimate a standard expected value for costs of an SAP S/4HANA implementation.
See following an overview and calculation of the costs (here no values) and benefits from expected key figure values.
Picture: overview and calculation of the costs (here no values) and benefits of S/4HANA LoB Mfg
Even if the values for the business benefits are only expected values or a rough estimated key fact and the comparison is static, (the expected positive impact of S/4HANA on sales or production output have not been taken into account) you see the impact of SAP S/4HANA to the benefits of PPS and can easily compare them to your individual efforts and costs.
In this example to calculate cost (with no values) and benefits of SAP S/4HANA at a Semi-Conductor manufacturer the greatest potential benefits are caused by a higher capacity utilization, which results from an optimal setup in order scheduling and the possibility of a short-term capacity planning using the production scheduling tools such as the PP/DS Graphical Production Planning Board.
For business benefits that cannot be quantified in monetary terms, the improved on-time-delivery due to planning with PP/DS have to be highlighted as it is one of the basic business targets of PPS and has a positive effect on the company’s success via customer satisfaction.
The order cycle / lead times can be maintained in detail in the SAP master data and adapted to the latest capacity situation, so customers can be promised a realistic delivery date. (ATP)
The possibility of reducing lead times also leads to increased readiness for delivery and better on-time delivery.
Basically, the implementation of production planning and production scheduling in SAP S/4HANA creates an integrated information flow over the entire end-to-end supply chain in production planning within one SAP S/4HANA system.
In addition to an integrated SAP S/4HANA solution for production planning and scheduling the following organizational measures also have a positive impact on the target values of production:
The reduction of the order cycle time / leady time by
- detailed and reliable production order scheduling and order/operation
- defined and exact dates of dispatched order and avoidance to start orders early
- short term and controlled dispatching of the work load
- prescribing the order/operation sequence on the shop floor
- fast response to capacity failures (e.g. unexpected downtimes) and order scheduling deviations
To meet the order due dates (on- to deadlines)
- fast response to capacity failures (e.g. unexpected downtimes)
- intensive tracking of order due-dates
- order/operation Interruption for orders of higher priority should be avoided.
- (Higher set-up costs, disruption in the production flow)
To maximize the capacity utilization the
- the orders / operations on the resources should be sequenced in prescribed order.
I hope you enjoyed this blog and gained an overview on how ‘Software’ and ‘information’ of SAP S/4HANA Manufacturing solutions can have a positive affect to the business goals in Production Planning of your company.
Maybe this information supports you when you do a Proof-of-Concept for business scenario runs with S/4HANA and as resume of the PoC you have to estimate the cost and benefits of an implementation.