7 questions paraphrase

SAP ERP

1. Describe the Production Planning and Execution process (as implemented in SAP ERP) starting from sales and operations planning all the way to the receiving of the finished goods into stock. Use a diagram to show the linkages between the different modules.

The diagram above shows the role of the application functionality, Production Planning and Control, within the SAP ERP system. The Production Planning and Control application deals mostly with quantity and time-based planning and controls the production process. Within the Production Planning and Control system, various modules are interconnected to facilitate data exchange and document flow, and to increase functionality. The diagram below shows a breakdown of these main modules within Production Planning and Control.

Sales and Operations Planning contains some of the higher level planning. For example, it includes the overall planning at the company level. The main function of Sales and Operations Planning is to determine the quantities to be produced. To this end, Sales and Operations Planning is a forecasting and planning tool where sales and production goals can be set on the basis of historical, existing, and estimated future data. Consequently, Sales and Operations Planning is mostly useful for medium and long-term planning. Additionally, Sales and Operations Planning gives the user the ability to do rough-cut planning to come up with an idea of the different types of resources and production capacities required to meet the goals set by the Sales and Operations Planning function itself. Once the goals are set, and the production quantities are determined, it is time to utilize the next module, Demand Management.

The main function of Demand Management is to pick up where Sales and Operations Planning left off by calculating the independent requirements for production. To do this, once the data from Sales and Operations Planning is transferred to Demand Management, requirement dates and requirement quantities can be determined in accordance with planning strategy. The planned independent requirements will then, in turn, be given individual dates and will go on to facilitate production planning.

The next step in the process is Material Requirements Planning, or MRP. MRP is the main function of production planning. It will take the demand program that was created within Demand Management and integrate that information with things like lead times, lot sizes, and scrap quantities. MRP will create the planned orders at every bill of materials level to cover the requirements. The long-term planning part of this step is used to determine how a change in the planned independent requirements will affect capacity utilization, stocks, and external procurement.

The next step in the Production Planning and Execution Process is to create the planned orders that will ultimately be integral to the production process. It is important to know that the planned orders are not binding and will not trigger any type of procurement directly. However, it is necessary for planning purposes. Planned orders are procurement proposals that stem from MRP and they will eventually be changed into production orders or purchase requisitions.

Capacity Planning is a process where a production sequence can be created. It is in Capacity Planning that an economic use of resources throughout the production run can be achieved. In the process of doing this, capacity evaluation takes place. Capacity evaluation is the process of determining the available capacity and the capacity requirements for the production orders. They are then compared across the board and capacity leveling takes place. Capacity leveling is the process of selecting appropriate resources and ensuring optimal capacity commitment.

The next step is to create the production orders that will eventually be utilized. The production orders specify which material or materials to be produced, where they are to be produced, which operations will produce them, and the date that the production will take place. Additionally, this is the step where costs are to be settled. It is worth noting that this module will allow the end user to either create the production order manually or to create it by converting an existing planned order. Once the production order is in place, Production Execution can take place, which includes the issuance of materials for production, the confirmation of production orders, and goods receipt and inventory placement.

The final step of the process, as previously mentioned, is Production Execution, which covers the last three process modules in the diagram. It allows for the control and management of manufacturing and shop floor functions. It specifies the aspects of production, and it is here that materials can be withdrawn from stock for production, the production process is recorded and monitored, and the finished goods are received into stock. Production Execution is most likely the step where many people recognize the transparency and real-time visibility that SAP brings to multiple business functions. Lastly, now that all the planning has been done, Production Execution consequently enables the end users to make quick, informed decisions and helps optimize profitability. Lastly, the figure below which is taken from chapter 3.2 of Production Planning and Control with SAP ERP, by Dickersbach and Keller, shows a more in-depth illustration of the process overview, showing how some of the elements are concurrently connected. For example, it shows that sales orders contribute to MRP as well.

2. What is Master Data? Describe the different types of master data (with sample attributes) needed to enable production planning and execution.

Master data is data that contains the most important information on sites, vendors, and customers as well as things like materials that the company procures, produces, stores, or sells. Master data also includes pricing and cycle control data and is stored in the system as master records for retrieval when the user processes business transactions. Maintaining correct and accurate master data is one of the most important elements in the administration of an effective SAP system. If used correctly, it will dramatically reduce the time required to process transactions. This is because, as previously exemplified, various modules and functionalities of SAP will share the data cross-functionally and will draw from the master data, automatically copying it into relevant fields.

There are different types of master data such as Site, Business Partner, Article, Merchandise Category, and Conditions Data. Site data is mostly time and place data. For example, included in Site Data are pieces of information such as addresses, sizes, opening hours, control information, classification information, departments, merchandise categories, and receiving points. Business Partner Data is data about the various vendors and customers of the business. Examples of vendor data include name, address, type of currency the vendor uses, and the vendor number assigned to the system. As for customer data, addresses, sales data, and accounting information such as the customers’ bank names, routing numbers, and account numbers

Article Data is data on things that the company procures, produces, stores, or sells. The Article Data contains information such as descriptions of the items and their units of measure, for example. The Merchandise Category Data helps to group the articles into merchandise categories and facilitate inventory management and logistics. This data can be used to coordinate things like price structures and advertising. This is because it can be used to group different products of a business into the different categories, for example making groups of textiles and perishables for a supermarket that sells both. Lastly, Conditions Data contains information on arrangements used for pricing in purchasing and sales. For example, Conditions Data can include things like the terms of payment that are negotiated with vendors.

3. Discuss how Master Production Scheduling might be carried out in an Assemble-to-Order environment. What planning strategies does SAP ERP offer in this area?

Assemble-to-Order is an environment where a product or service can be assembled after the receipt of a customer’s order. Consequently, there exist various types of components used in the Master Production Scheduling that work toward this objective such as semifinished goods, subassemblies, fabricated goods, purchased goods, and so on. Due to the nature of Assemble-to-Order, it can make good business sense to stock these and other types of components ahead of time in anticipation of a customer order. Additionally, due to the nature of Assemble-to-Order, it is the receipt of the customer order that will trigger the assembly of the customized product. Therefore, in an Assemble-to-Order scenario, the Master Production Scheduling would be carried out in such a way where common components could be quickly procured and assembled in response to a sudden customer order from a large selection of possible end products. Additionally, in the instance of Assemble-to-Order, space would be required to store these parts until the customer orders are received.

Assemble-to-Order generally requires a Master Scheduling approach that is intermediate to the types required by Made-to-Order and Made-to-Stock. This is because with Assemble-to-Order, products of both standard and special design are produced according to the previously mentioned customer product selection process. The scheduling approach should also accommodate changes in the product mix. In summarization, the SAP ERP system can offer the ability to optimize this type of setup. Since the production process would involve drawing from a large array of standardized components, SAP would be able to help because of the advantages in how it populates master data across business functions. Additionally, the ability to utilize the sales and operations planning function and categorize the product mix would help with inventory management for the subassemblies and other parts. The cross-departmental functionality SAP would bring would also help to reduce lead times, which is a key component of Assemble-to-Order. Since SAP naturally operates in this way, it could also be assumed that it might give some insight in planning strategy for a company with a lot to learn about Assemble-to-Order.

4. Explain the meaning of the following terms (as used in SAP ERP):

a. Planning Time Fence and the Firming Type

The Planning Time Fence is basically the period where no changes to the plan can happen automatically throughout the MRP run. This is the time period where no automatic changes can be made to the master plan. Only manual changes are allowed during this period. It is worth noting that the Planning Time Fence is only used for materials that are planned using an MRP type which includes a firming type. A firming type determines how order proposals are to be created or scheduled within the planning time fence. There are five firming types, 0, 1, 2, 3, and 4, which has various meanings. Basically, the Firming Type selected determines the course of whether the system would automatically “firm” and “unfirmed” planned orders that are outside of the Planning Time Fence as they move inside it as time goes by.

b. In-House Production (Time)

In-House Production Time is the time that is needed to produce a material in-house. This time is used to determine the planned dates of the planned orders in material planning.

c. Reservation

A Reservation is a request to the warehouse or stores to keep a material ready for issue at a future date for a specific purpose. Essentially, it is to “reserve” a material and ensure that it is available when required.

d. Backflushing

If a material component is Backflushed, the SAP system will only post the withdrawal of the material upon confirmation of the operation. After which the withdrawal will be posted automatically. Whenever a material is withdrawn during order processing, the goods issue needs to be posted. This can be done either concurrently at the time the goods are issued, or it can be done when the operation is confirmed, in which case any associated goods would then be posted.

5. Contrast the following terms:

a. Variant BOM vs. Summarized BOM

A Variant Bill of Material will group together several Bills of Material that describe different articles or products that have a high proportion of identical parts. In other words, a Variant BOM would most likely be used in situations where mapping of articles of products with similar product structures is desired and there exist variants in only a few BOM items. This approach can minimize storage and maintenance requirements in this situation because the type of grouping it uses helps to circumvent the need to create a complete, individual data record for all of the different variations. The Variable BOM will detail the different variations of the products, showing all of the components and assemblies included. In contrast, the Summarized BOM offers a complete listing of the assemblies and individual components in a product structure. It will present a listing of all types of subassemblies and materials without structure information for them in the BOM header.

b. Dependent Requirement vs. Independent Requirement

An Independent Requirement is the demand for a particular product or material that is independent of any other demand. In other words, it is the demand for a product or material that is not based on the demand for another item. On the other hand, a Dependent Requirement is the opposite. Here, the demand for a product or material can stem from the demand for another product or material.

c. Scheduled Receipt vs. Planned Order

Essentially, the Scheduled Receipt represents a commitment and the Planned Order is only a plan. The Scheduled Receipt means that a purchase order has been readied. Of course, this makes the Scheduled Receipt more difficult to change than the Planned Order and Planned Orders explode to gross requirements for components and Scheduled Receipts do not. This is because in using Planned Orders, the components still could be available for other uses. A Planned Order is a request created in the planning run for a plant to trigger the procurement of a plant material for a certain quantity for a specific date. Scheduled Receipts are exiting replenishment orders for the item due in at the beginning of each period.

d. Safety Stock vs. Safety Lead Time

Safety Stock is a quantity of stock to be held to prevent material shortages from occurring. It takes into account the risk of a shortage for the specific material in question and the desired service level the business wishes to keep. In contrast, Safety Lead Time is done to plan goods receipts to be received in advance in a specified time period. The time period specified is considered Safety Lead Time. In this case, the danger of stockout is mitigated as a function of days supply, rather than actual quantity of supply.

e. Forward Scheduling vs. Backward Scheduling

Forward Scheduling and Backward Scheduling both deal with the calculation of deadline dates. In Backward Scheduling, the start date of the production order is based on the latest finish date, which is the order finish date of the planned order. In Forward Scheduling, the finish date is determined based on the earliest start date, which is the order start date of the planned order.

6. Describe several (say 4-5) of the lot sizing methods used in SAP ERP (e.g. EX, FX, etc.)

The Lot-for-Lot Sizing Method is a static lot size procedure where planning is carried out per required quantity. With this, the system will create an order proposal in each case where there is a required quantity. Planning is carried exactly for each day. In the case of a material shortage, it will use the exact shortage quantity as the order quantity.

In the Fixed Lot Sizing Method, the order quantity must equal the fixed lot size. In the case of a shortage, the quantity of the fixed lot size that is assigned would be used.

In the Period Lot Sizing Method, the system will group several quantity requirements within a specific time interval. Consequently, this summation will form the lot size. This is generally done in periods of days, weeks, or months, but can be flexible as well.

The Reorder Point Lot Sizing Method requires continual monitoring of the available warehouse stock. In this method, a reorder point is established. For example, this could be a specific quantity, and the system will check the available warehouse stock to see if it falls below the reorder point. Safety stock is also considered in this method along with things like production orders and purchase orders. If there is a shortage determined, the system will work towards procurement based on an existing and previously established lot-sizing procedure as defined in the material master such as Replenish Up to the Maximum Stock Level.

7. What is Consumption-Based Planning? How is it different from Material Requirements Planning?

Consumption Based Planning is a generic term for the procedure within material requirements planning for which stock requirements and post consumption values play a central role. Consumption Based Planning is further divided into the following procedures, reorder point planning, recast based planning, and rhythmic planning. The goal of Consumption Based Planning is to determine material requirements on the basis of mathematical statistical calculations. An example of Consumption Based Planning would be Reorder Point Planning. This is because that once consumption drives the stock level of a product below a defined quantity, a procurement proposal would have to occur. Additionally, there are other methods that forecast based on consumption data. Consumption Based Planning is easier to use because it does not require extensive data.

In contrast, another way to plan is to plan based on independent requirements or concrete customer requirements. In this way, planning is essentially done, for example, using current and future sales figures. This is Material Requirements Planning. Material Requirements Planning is a generic term for the activities involved in creating a master production schedule or an external procurement plan for all the materials in a plant of company. An example of this is using Bills of Material. The advantage of Material Requirements Planning is that it can work with lower levels of safety stock due to the exact requirements used and the comparatively extensive data.