SAP SCM Planning

Assemble to Order in SAP SCM

Assemble to order is a functionality available in SAP SCM. This functionality is incorporated in PP/DS as well as GATP. PP/DS must plan and schedule the production, while GATP – if employed – uses Multi-Level ATP in order to effectively inter-operate with PP/DS in order to provide an available to promise quantity back to either SD or to CRM.

When Assemble to Order is Appropriate

The assemble to order manufacturing method is appropriate for situations where a large number of sub-assemblies can be put together quickly to create a final product. The best example of this is the computer industry. Once the basic components (computer shell, hard drive, mother board, memory, fans, display, video card, battery, power supply) are available in one location, the final assembly of a laptop, stand alone or server is simple. The earliest personal computers were actually kits, and of course early mainframes were assemble to order – made in a job shop environment. However, once computers became mass produced, they moved towards a make to stock environment. This persisted until an upstart used the Internet to take orders for a make to order computer.

Assemble to Order at Dell

The assemble to order model was made famous by Dell, and coincided with the development of the Internet as a sales medium.

Dell pioneered the assemble to order model and pushed inventory back on its suppliers, so it received payment for the hardware before it paid for the parts. I suspect that Dell’s pressure on its suppliers and its choice to remain very loyal to Intel has cost it as well, as suppliers will only extend so much effort to mollify a customer that constantly beats down on price.

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Does Assemble to Order Provide Long Term Advantage?

Dell was at one point a leader and picked up rapid market share, but their assembly to order model and online business model as not provided the longer term advantage Dell hoped to maintain. By 2007, Dell had stalled and its once best in class quality and customer service had dropped. In order to increase sales, Dell actually moved to add a retail side to their business which has been attributed by analysts as improving the company’s outlook. However, selling computers in a retail store is a build to stock manufacturing model, not an assembly to order. Article after article talked about how Dell’s big advantage was build to order generally, and assembly to order more specifically. The people writing these articles, by in large did not have a manufacturing background, and our inkling is that they oversold the benefits of assemble to order. Assemble to order is good, but a lot of computer buyers buy standardized computers, and thus build to stock is fine for a large segment of the market. Dell builds gaming machines as well, and for this market, build to order is a better fit.

Now most computer builders both an assembly to order and a build to stock model working side by side.

Apple has a very nice configuration site that when complete creates an assemble to order order which is sent to the company’s overseas manufacturing arm. We are not sure, but think its likely that the item is shipped directly from the overseas factory to the customer site. However, you can also buy a made to stock Mac from an Apple store. This is how almost all computer manufacturers work now, except for specialised companies that build gaming boxes that only assemble to order, and servers, which are also primarily assemble to order.

What we are waiting for is when automobile manufacturers become capable of doing build to order. This is because the auto industry holds far too much finished goods inventory. Currently, automobile manufacturers have a large oversupply of many vehicles.

http://usnews.rankingsandreviews.com/cars-trucks/daily-news/090415-GM-Has-Massive-Oversupply-of-Pontiac-G3/

This brings up the entire topic of the auto dealer model, which was developed before the Internet and seems increasingly wasteful and unnecessary. See this post for more details.

http://spplan.wordpress.com/2009/05/16/auto-service-part-networks-are-a-mess/

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It can be enabled in SAP SCM in the following modules:

GATP – Multi Level ATP. This is one of the three forms of ATP provided by GATP. To read more about this see this post.

http://sapplanning.wordpress.com/2008/01/05/gatp/

References

http://seekingalpha.com/article/36656-is-wal-mart-the-answer-to-dell-s-problems-not-likely