Tag Archives: EOQ

Misnaming of Periodic Order Quantity in SPP

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Background

SAP has a habit of creating its own terminology when standard terminology is already accepted and in general use. I pointed this out previously with their misuse of the terms leading indicator and extended warehouse management. Both of these terms have different usage than the way that SAP uses them. Leading indicator is not even a term in supply chain. My issue with SAP terminology goes back to 1997 when I was in SAP SD training and the instructor was speaking about material determination. After 10 minutes or so I realized that SAP was referring to product substitution. I got up and addressed the class that this terminology was not correct and unnecessarily confusing.

Why Do This?

I feel like this helps out people are tying to figure out SAP SCM and may think that SAP has created a new term that is part of supply chain management, when in fact it is not. I have never been able to figure out if the misuse of terms is due to genuinely not knowing the correct term to use, or some type of obscure marketing reasons.

EOQ POD?

The latest incorrect term is the term EOQ Period. In SPP there exists two options with regards to ordering quantity for child locations. SAP offers EOQ, and what they call EOQ POD, or period. The path for this configuration is

IMG: APO –> Supply Chain Planning –> SPP –> DRP –> Make General Settings for DRP

Here you can see I have selected EOQ Period. However, the term EOQ Period is not a term in inventory management. You can look through supply chain and operations research books and not find it. I tested this by checking with Google Books.

There were only 8 hits, and they were either SAP publications or mis-hits as you can see above where EOQ and period are separated by a comma and not an actual term.

The correct term for an economic order quantity that is triggered by the passage of time rather than the hitting of a certain quantity is Periodic Order Quantity, or POQ.

 

EOQ in SPP

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Purpose of EOQ

The aim of EOQ is to achieve a certain target service level for each product location. The target service level defines the percentage of incoming orders that you must fulfill. If you determine the service level for a location product, a criterion for the height of the target service level could for example be the price of the location product. For the system to assign a target service level to each location product, you define the rules for assigning target service levels. You can set these in SPP, and they can be set in mass maintenance. The EOQ/SFT calculation in the location product master, SPP Inv Planning tab can be set to either Normal or Poisson.

EOQ

Here we will calcuate EOQ in SPP. We will goto transaction (/N/SAPAPO/48000009) and then load the variant.


Next we will goto the next screen and change the display. We also want toselect the Location-Dependent data. We want to change the settings for Fixed: Pull, Fixed: Push, Procurement Costs, Holding Cost Factor. After we change we must be careful to select the box with two down arrows. This applies all the settings to all the product locations below.


Now we need to set the target service level. Goto transaction (/N/SAPAPO/PLNV_TL_MAIN). Here we can see that the global target service level is 95%.


We want to enter the EOQ/Safety Stock Planning for our product and location. For this we need to go to transaction (/N/SAPAPO/SPPINVP). We want to load our product and double click our location and then press change and calculate (towards the bottom of the screen)


Now we want to increase the procurement costs for our product and location to 100. We then want to recalculate EOQ.


We will do this by selecting Product Master button towards the bottom of the screen.


We now goto the Procurement Tab.


We increase the procurement costs and then goto re-calculate EOQ with the same transaction we were in previously. Select calculate and notice how the values for EOQ change all across the board.


Now we will want to increase the fixed costs for push and pull for our product to 200. For this we select the Product Master button again.


Next we want to define a planning profile to plan EOQ/Safety Stock Planning in the background.


We will create a new entry.


Now after we create it we want to run it.


Notice that the EOQ value on the product master has changed.


EOQ Exercise 2

We will want to go and define a planning profile. /N/SAPAPO/49000008

Now we will goto the PSM and run this.


Now we want to check the EOQ and safety stock in the product master for our product. We will goto the SPP Inv Planning tab.


Now we want to define the model determination and select the Poisson distribution model for EOQ planning. /N/SAPAPO/PINV_MS_MAIN

We will select the Location Product Model folder to the left and enter the following.


Now we rerun in the Planning Service Manager.


There was no change in safety stock.


Next we will want to define the parameters for EOQ and safety stock planning for our product location. /N/SAPAPO/PINV_TL_MAIN


We will want to select the Location Product Target Safety Stock folder and enter the values above for service level and safety stock.

Now we run the PSM.