Category Archives: PPM / PDS

Setting Up Fixed and Variable Production Costs for SNP and PP/DS

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Notice that the costs for both storage and safety stock penalty are declared as a daily value right in the Location Product Master interface.

Background

A common need is to setup production costs in the system for production so they can be picked up by the optimizer. In this example I will be using the PPM or Production Process Model.

How Costs Are Used by the Optimizer

Both fixed and variable costs can be setup in the PPM. Secondly, these same costs can be setup for either single level or multi level. The single level applies to SNP and the multi level applies to PP/DS. Different PPMs can be setup with different costs which are then selected by the optimizer. Most companies that I have worked with set a single cost per line in their factory, which is then represented by the PPM. So if there are 4  lines in a factory, and 10 products made per line, then there would be 40 PPMs, each with their own cost. However, this is just one way to perform the setup, there are many ways to perform a setup.

What the Costs Mean

The majority of costs that are used by the optimizer to calculate a plan output are variable costs. This applies to the cost of a missed demand, the costs of violating safety stock, storage costs and transportation costs. Therefore the cost is set per the basic unit of measure in the planning system, and the costs are incurred per day outcome occurs. So for instance, storage costs in SNP are incurred per unit of measure (case, drum, etc..) per day. So if the storage costs are 50 cents per day per drum, and there are 100 drums stored for 10 days, then the storage costs incurred would be $500. This applies to almost all the costs used by the optimizer.

Fixed and Variable Costs

However, production costs offer the exception to this rule. A PPM offers both a fixed and variable cost. So if the variable cost is $40 per barrel and the fixed costs (which could be the setup costs combined with the down time costs) was $1000 and  100 barrels were produced than the cost would be $1000 + (40 x $100 = $4000) or $5000. If I wanted to setup the PPM this way, I would set it up as the following:

The optimizer can compare the storage costs against the production costs, as well as the other three major costs in the SNP (transportation, safety stock, cost of missed demand). For PP/DS these are not the relevant costs for the optimization. Also, there is an overlap with the fixed costs and the Setup Matrix, which is a more sophisticated way of setting the costs and time of moving from one product to another. However, given the long running problems with the Setup Matix, this can be a way of getting around Setup Matrix. However, the functionality of a variable cost per production, which does not consider the next item to be run, is far lower than the hypothetical functionality of the Setup Matrix. But the Setup Matrix functionality is just hypothetical.

How it is Frequently Done in Practice

While most clients I have seen only populate one cost, either variable or fixed, in fact it makes a lot more sense to enter values in both fields. The fixed costs provide a predisposition against making a production order, which is traded off against the storage costs. In fact both the fixed costs and the minimum lot size predisposition the system against creating production orders, so the fixed cost in the PPM and the lot size should be seen as working in conjunction with one another.

Conclusion

The production costs settings are very important and generally not well setup or well thought through. One obvious improvement is to populate both fixed and variable values. They should also be somewhat realistic. There is a strong tendency in cost optimization is to enter completely phony costs, and when this happens the costs become divorced from reality which leads to negative long term implications for advancing the solution. However, attempting to get them to be perfect is also not a very good use of time. This topic is described in this post.

http://www.scmfocus.com/supplyplanning/2011/07/09/what-is-your-supply-planning-optimizer-optimizing/

http://www.scmfocus.com/inventoryoptimizationmultiechelon/2011/05/how-costs-are-really-set-in-cost-optimization-implementations/

The Problems With PP/DS for Process Manufacturing Clients

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Background

The software selection mistakes that are made by the large consulting firms never cease to amaze me. There are all types of selections errors that I run into on a frequent basis, however, none of them as bad as the selection of PP/DS for process industry.

The Mismatch

I will say explicitly, PP/DS has no capability to ever have implementation success in a process manufacturing environment. PP/DS lacks the functionality the process manufacturing companies require across the board and the gaps are not even close. The list of incompatibilities with process manufacturing as as follows:

These are serious shortcomings, however, this does not prevent SAP, or large consulting firms from continuing to recommend PP/DS for process accounts.

Understanding the Limitations of PP/DS

PP/DS was designed for discrete manufacturing environments only. This is true because the software has seen limited development effort, and static discrete manufacturing is the simplest manufacturing the plan.  PP/DS’s only can offer basic interfaces such as the Detailed Scheduling Planning Board and the Resource Planning Table.

No Lagging and Overlapping

An absolute requirement for process manufacturing is the ability to lag and overlap operations. That is a second operation needs to start after a certain percentage of a first operation is complete. However, PP/DS does not speak in these terms. It understands scheduling two operations at the same time (SS) or beginning an operation after the first operation as completed (FS). Just this limitation should restrict the application from being selected for process manufacturing, yet it doesn’t.

Inflexible Resource Capacities

Resource capacities must be changed on a frequent basis in process manufacturing. However, PP/DS’s PPM, PDS, and Resources only allow for copies to be made, and for the selection of these alternate objects. However, this creates a significant maintenance issue which many companies are not aware of before they implement PP/DS. In actuality, there has never been a good reason for the existence of PPMs and PDS in the first place. Other scheduling applications keep the BOM, resources and routing separate and relate them to one another. This allows any object to be changed and based upon links or relationships to be updated. SAP has been strongly pushing PDSs over the past several years, but they are even higher maintenance than PPMs. Overall, PPMs and PDSs are simply a bad design that end up taking up a large amount of time and money to support, and take up too much implementation time setting up and even discussing on projects.

Conclusion

The disregard for their client’s implementation success is demonstrated by large consulting companies that continue to propose APO modules that are destined to fail in the environments which they are being recommended. Oftentimes one hears about the relatively low success rate for enterprise implementations, and often in these articles different factors are listed. However, one of the most obvious, blatantly incorrect software selection, never seems to be on that list. It really should be, because bad advice on the appropriate software to use is rampant in the enterprise software industry. No doubt this will be seen as a controversial article. It shouldn’t be. In cases where SAP’s module lack’s the capability to be successful at a company, it should not be recommended.


Planning Areas

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Planning Areas:

Planning areas are the central data structures for Demand Planning and Supply Network Planning.

To go to planning areas, or to create planning areas go to the following:

Both the planning object structure and the planning area can be setup from the same transaction.

Path= Supply Network Planning – Environment – Current Settings – Administration of Demand Planning and Supply Network Planning

POS and Planning Area

They hold key figures. To find out more about key figures see this post.

http://www.scmfocus.com/sapplanning/2009/07/06/key-figures/

Here is an example of a planning object structure, it has a number of characteristics. They must be added to create the POS. When we create one we both add characteristics

Creating the Planning Area

The next step is to create a Planning Area pointing to the Planning Object Structure.


Further it will ask for other details regarding this planning area. Below is the first tab:


The next tab includes the Key Figures (“Key Figures” is just an overly fancy term which means the forecasted line item. Things that you plan that can hold numerical values are Key Figures.)

Now it is very easy to add Key Figures willy nilly however of course its important to remember which need to be setup.


Aggregate Planning Tab

Next its required to select the Aggregate Planning tab which has the various hierarchies to select from. All of these selections need to be setup prior to arriving at this screen. These selections set the level of planning aggregation that you want to do in this particular planning area. After this is filled in its time to save the Planning Area — which creates it.

Planning Area Key Figure Aggregation
The key figure aggregates essentially decide how different key figures will be aggregated (the aggregation type – in this case it is “Pro Rata” which is “S.” Here is what we get when we select the drop down.

Pro Rata
The next feild is how the key figure is disaggregated. The value currently selected which is P, which stands for proportional allocation.

Pro Rata 2
However, this is relatively simple decision making compared to which key figures are to actually be selected. This deserves a great deal of attention.

Once we back out of the S&DP Administration and then go back in we can see that the Planning Area has been created, but it is not yet activated.

Planning Area Activation

Now we need to perform the activation. This is not done in the main area of the object, but requires you go out to the listing level (why, we don’t know). So you save in the item view, but activate in the list view. Below we have a screenshot of the list view. We right mouse click and then select Create Time Series Object.

Create Time Series Object
Its important to fill in the dates. If not, it will activate the time series object for too long of a period of time, and this will tie up the system. This is particularly true since we are setting this up as a test. So we will choose a short time period.

Create Time Series Object 2
Next we will include the Planning Version.

Create Time Series Object 3
Now we are ready to create the time series object. Its important to remember, this creates the time series object, but does not necessarily populate it with data.

SNP Activated
This shows it has been activated.

Characteristics in SCM

Its important to recognize that DP and SNP use different characteristics, and thus different planning areas and planning object structures are created for DP and SNP.


Finite and Infinite Scheduling in PP/DS

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wpid-infinite2-2010-05-3-15-54.jpg

What This Article Covers

  • PP/DS finite scheduling and the its issues
  • Resource maintenance
  • The problem with how many large consulting companies like IBM approach discussing constraints with the client.
  • Being in constraint denial

Constrained or Unconstrained Detailed Scheduling

It’s important to consider and evaluate the use of the sentence

PP/DS performs finite based scheduling.

The reason why it is important to evaluate the comment is for several reasons:

  1. PP/DS can be run in either finite or infinite mode for scheduling.
  2. The value that are entered in the PPMs or PDSs may be “placeholders.”
  3. The constraint values may be incorrect when the project goes live, or may start off as an accurate reflection of factory constraints, and then drift from their initial accuracy due to an inability of maintaining this master data.

Constrained?

I once had a very strange conversation with a consultant who, in a meeting with S&OP, proposed that one way or another the plan would be constrained because the PPMs would have to have values in them for resources in order to “activate.” When I pointed out that these values were not necessarily accurate, he agreed for a moment, but then reverted to his initial track of talking about the constrained plan that would be sent to S&OP.
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Configuring for Yourself, Not for the Client: How IBM Does Things

I have this experience relatively frequently with consultants from the big consulting firms as they typically like to configure software regardless of its benefit to the company as it is a method for enhancing their resume. This particular consultant worked for IBM, but all the big consulting companies have moved in this direction. With the increasing focus on technical wizardry for its own sake, fewer and fewer SAP consultants understand the businesses they are configuring the system for. It also results in less and less sustainable solutions for clients. I frequently run into mis-designed solutions that were based upon the need for padding billing hours and resume building needs of the consultant by the major consulting companies with increased frequency. You can read more about these issues at the links below.

http://www.scmfocus.com/sapprojectmanagement/2010/04/why-the-big-consulting-firm-implementations-fail-so-often/

http://www.scmfocus.com/sapprojectmanagement/2011/07/the-ibm-systems-implementation-approach/
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Misunderstood Constraints on a Previous Project

On another project I evaluated their PP/DS installation that they thought was constraining the plan, only to find that the PPM resources were set to infinite capacity and that the only constrain was a lot size.

Finite Scheduling Indicator

Resources can be checked for whether they are constraining, or planning in a finite way by checking the resource master and looking for the finite scheduling indicator. If this indicator is not set, the resources is not constraining. Furthermore, resources can be configured with a “finiteness level,” which means that the resource can be treated as variably finite depending upon the application (i.e. infinite for PP and finitely for DS) Additionally, finite or infinite scheduling can be set in the in global PP/DS settings.

It took over 4 meetings with business representatives who did not believe me, because they said that what I said could not be true because SAP had explicitly told them this is what PP/DS did, and that…

…PP/DS does constraint based planning.

My response was that..

PP/DS has the capability to do constraint based planning, but it must be configured properly to do so.

SAP was effectively hiding this fact from the client, but what the business could not figure out was why their production plan was so unusable. SAP eventually had the analysis into this area buried. The production plan was still ignored by the factory, but the implementation problems were blamed on the business who were “clueless” and just did not “get it.” However, all they had to do is check the SAP documentation, where it clearly states that finite scheduling is only one way of running PP/DS.

Many Problems

There are many reasons for PP/DS implementations to not meet expectations, however, one of the most common is companies have a great deal of difficulty in keeping their resources and PPMs up to date with the actual resource capacities in the factory. SAP does not like to talk about this much, and when they do, they typically see it as a sales opportunity for their ineffective MDM product. Neither SAP nor can other vendors point to many MDM success stories.

http://www.scmfocus.com/supplychainmasterdata/2010/04/why-software-based-mdm-is-a-consulting-boondoggle/

The fact is that MDM will not ride to the rescue on maintaining PPMs and resources, and that the method that SAP has provided to maintenance of this master data is a significant burden on the company to manage. This is why I recommend that companies not get too excited after they take a module live, because the real proof of the maintainability of the systems is several months after go-live.

References

SCM 250 PP/DS Training Manual

Questions? 

Did this article make sense? Was it surprising to you, or have you had the same experiences. If you have any expertise in this area, comment below, and we will respond. 

 

SCM-APO Lot Size Definition

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What is Covered in this Article? 

  • The definition of lot size.
  • How lot size is used in SCM-APO.
  • What are some approaches to setting lot size.
  • How lot sizes are often set in reality. 

Definition

Lot size is one of the most important concepts in supply chain management. While doing some research I was looking for an online definition of lot size. I was disappointed in what I found, so I thought I would write a post on the topic. Let us start with the definition I developed. As this site is dedicated to software, the definition will have a software orientation or bias. It applies to SAP SCM-APO, but applies equally to any supply planning application.

The lot size is the order batch quantity which is implemented in the system to control and conform production orders and purchase orders to the objectives of the company. The lot size prevents orders from being created in non-economic quantities, and serves to batch orders. - Shaun Snapp

Finding a Good Definition in the Literature

However, it is often beneficial to check several definitions to get a full idea of a topic. Of the books I am familiar with, I like Marc Hoppe’s chapter on lot size in “Inventory Optimization with SAP,” the best.

Hoppe’s Explanation

Hoppe explains the lot size well as a trade-off between inventory management and production or between inventory management and procurement. I have a graphic below, which is a common graphic for lot size it demonstrates the relationship as two points of emphasis fighting against each other, with the best solution being somewhere in the middle.

Understanding The Basic Concept of Lot Size: A Formula of Tradeoffs

Both production and procurement incur costs per procurement order or per manufacturing order. Meanwhile inventory management incurs holding costs for inventory, and of course sales incurs a cost of a lost sale if too little inventory is carried. Because lost sales are not quantified by many companies, this cost tends to get overlooked, however it is a real cost and efforts should be made to quantify its cost. This can be as simple as having order takers enter order requests that are made but can not be fulfilled.

An additional cost which is often not considered is the transportation cost – inventory management cost trade-off. As explained in the book “Managing the Supply Chain,” larger orders incur a smaller per unit transportation cost — generally.

What is Meant by the Term “Economic” with Respect to Lot Size

Generally speaking, when different costs are used to derive a lot size, the lot size is said to be “economic.” This is only one of many ways of determining lot size. Other methods include:

  • ABC Guidelines (where A items may have 1-5 days of supply, while B items may have 20 days of supply – this method is strongly financially driven)
  • Manual discretion

How Lot Sizes are Often Set in Reality

Optimally, and industry is far away from optimality, the lot size – which is the order amount should be determined by the trade-offs between inventory holding costs and production and procurement costs. This is called economic lot sizes rather than deterministic lot sizes. Deterministic is a fancy operations research term meaning predictable or static.

Reality

What happens in reality is quite embarrassing, as executive compensation driven by short-term stock options promotes many companies to run with too inventories that are simply too low, often times justified by Lean consultants as a “best practice” or by various Lean initiates internal to the company. The following post describes some of the problems with the application of Lean to supply planning.

http://www.scmfocus.com/failedsupplychainconcepts/2009/11/does-lean-make-sense-for-supply-chain/

A second reason economic lot sizes are not used is because they are more complex to implement than static lot sizes. While this discussion is outside of the scope of this article, it is important to note that the academic or strictly technical approach to inventory control is not applied at very many companies.

SCM

In SCM-APO as with other supply planning applications, the lot size approach has a tremendous impact on the results of the plan. It is one of the major ways of creating order batches that are economical. I have seen several occasions where an overemphasis on configuration and detailed planning has been placed into SCM, only to have the output disaggregated by overly small lot sizes. It’s important to get the different parties on board with the lot size selected. Lot size discussions and meetings are intensely political, but they must be held. Taking say, just inventory management’s view into account in order to reduce argumentation (which I have seen done) is not going to result in a happy and accepted SCM implementation. In fact, no matter how esoteric and pliant the SCM configuration, without cross departmental agreement on the simple lot size, implementations have a serious problem with buy in.

Dynamic Lot Sizes

Because of the issues related in the paragraph above, dynamic lot sizes make a lot of sense. In fact, unless the project is quite limited in its budget, the only justification for fixed lot sizes I can see are for minimum order quantities (such as pallets) or supplier minimum quantities that are larger than the economic based lead times would recommend. This condition is far more common in service parts, so for finished goods planning, dynamic lot sizes should be the rule.

Economic Lot Sizes

The difference between economic and dynamic lot sizes can be confusing. Both are desirable. However, and economic lot size simply means that the trade offs between inventory and stock out costs and production and procurement costs have been calculated. However, dynamic lot sizes simply mean that the lot size value is changed over time. It does not mean that the lot size was quantitatively determined with any consideration for economic order quantities. The ultimate desired state is to have lot sizes that are both dynamic and economic. One perfect example of the benefit of both economic and dynamic lot sizes is in the event of price changes or temporary discount. Without the ability to have economic and dynamic lot sizes, companies either lose the ability to take advantage of temporary discounts, or must rely upon their planners to manually increase the order quantities.

Lot Size in Cost Optimization

There is a particular way that the lot size can be adjusted in the SNP cost optimizer. Not wanting to make this article too long, I have included the link to how this works in the post below:

http://www.scmfocus.com/sapplanning/2011/11/05/how-soft-constraints-work-with-soft-constraints-days-supply-and-safety-stock-penalty-costs/

Lot Size in SAP ERP and SCM

Both SAP ERP and SCM have lot size fields. Since only critical materials should be planned in SCM, all other non-critical materials will go out on the lot size entered into he SAP ERP Material Master. For those items planned in SCM, the value entered in the Lot Size Unit field of the Product Master overrule any value that is entered in SAP ERP.

Here is the tab for lot size in the SCM Product Master


However, in addition to the Product Master, lot sizes can be set in the PPM.

Fixed lot size: The SNP optimizer considers the value you specified for the fixed lot size as the minimum lot size. Every time the PPM is executed, the PPM output quantity (the output component quantity) corresponds to this fixed lot size. – SAP Help Super Advanced Lot Sizing and SNC

Conclusion

Lot sizes are one of the major master data elements to SAP SNP, and to supply planning and production planning systems generally. At a high level the lot size is a value that prevents the company from procuring or producing in quantities that would not be economic. However, there are a variety of ways of setting the lot size.

References

http://books.google.com/books?id=d9yLF6HG9asC&pg=PA85&dq=lot+size+supply+chain

http://books.google.com/books?id=v3TyIkU5aScC&pg=PA2&dq=lot+size+supply+chain

http://books.google.com/books?id=dUKGHB_YjFQC&pg=PA36&dq=lot+size+supply+chain

http://www.amazon.com/Inventory-Optimization-SAP-Marc-Hoppe/dp/1592290973

http://help.sap.com/saphelp_scm41/helpdata/en/fc/217d3cf7ffd118e10000000a11405a/content.htm

 

PDS vs. PPM and Implications for BOM and PLM Management

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Is the PDS the Future?

There has been a lot of focus on SCM’s emphasis on the PDS vs. the PPM. The concept is that PDS should be used when possible because PDS has much more flexibility when it comes to engineering change management. However, there are a few disadvantages with this approach.

  • PDS is more complex and difficult to setup than the PPM at least at first
  • It is not at all clear that SAP is a good place to manage engineering changes, this is a presumption by SAP, but its foundations are not strong
  • However engineering change management is only one reason to move to the PDS.
  • We have not analyzed, and have not seen analysis for how well PDS incorporates changes from third party BOM management software.

As we have noted in this post…

http://www.scmfocus.com/servicepartsplanning/2009/04/21/is-sap-plm-for-real/

…change management in SAP ERP is weak. This is primarily because the material management functionality in SAP was never designed with change management or document management in mind. A solution that is extremely effected at BOM and change management is Arena Solutions, which can be sampled at this link.

http://www.scmfocus.com/servicepartsplanning/2008/12/12/arena-solutions-and-where-used-view/

Our perfect solution would have Arena performing the BOM management, and then sending it over to SAP ERP’s material management. In this case would the PDS be able to reflect the changes easier than the PPMs? More specifically, would the extra work involved with setting up PDS be worth the effort.

Undiscussed Constraint Management Maintenance

One issue we have with the PDS is it focuses the attention on engineering change management. What we have not hear much addressed and what we have seen as the main limiting factor to implementing PPDS is that clients do not update their PPMs or PDSs. This means that after the implementation, the accuracy of the production plan increasingly deviates from the realities of the manufacturing floor. This could be managed from two different directions

  • From the process side…..which SAP and the large consulting companies are really not doing – that is explaining the significant maintenance involved with constantly updating the system with changing production constraints.
  • By making the PPM and PDS more easy to update, because right now its still a big ball of effort, which means many companies will not do it and will hope that the old constraints are “good enough.”

The best rundown of the differences between PPMs and PDSs is at the link below.

http://wiki.sdn.sap.com/wiki/display/SCM/Difference+between+PDS+and+PPM

Conclusion

This post is designed to stimulating thinking more than answer a specific question. Essentially, we are proposing that the BOM management and lifecycle management for companies using SAP be rethought. Also, we think more attention needs to be placed on getting clients to actually maintain their PPMs and that that should take first priority over emphasizing PDS as “new objects” for planning. That is the PDS can be wrong even if engineering changes are updated.