Tag Archives: Lot Size

Use of the Rounding Value Versus the Lot Size

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Background

The way these two fields control the procurement is fairly simple but important to know. The Minimum Lot Size is used to essentially make SNP wait until enough requirements have been gathered before an order is placed. This prevents material being shipped in uneconomic quantities. The Rounding Value essentially does the opposite, it round up the order quantity. Minimum Lot Sizes and Rounding Values can be of course be used in conjunction with one another. The Minimum Lot Size is the minimum quantity which the product can be ordered in. The Rounding Value the quantity multiple which the order is rounded to. However, if the Rounding Value is higher than the Minimum Lot Size, the Rounding Value can act to increase the order quantity above the requirement.

Both of these values can be seen in the screen shot below which is Lot Size tab in the Product Location Master.

Comparative Value Analysis

A good exercise is to show different examples of Minimum Lot Sizes (MOS) with Rounding Values (RV) to demonstrate how SNP would respond.

  1. MOS = 0, RV = 15 : In this case as soon as the first requirement for 1 is generated that is not covered by planned Stock on Hand, an order for 15 would be generated. This would be the type of setting useful for high profit items.
  2. MOS = 5, RV = 15: Any MOS which is lower than the RV makes the MOS essentially unused. In order for the MOS to contribute to the ordering in anyway, it must be higher than the RV. Therefore, this setting would behave the same as the example above.
  3. MOS = 5, RV = 3: In this case the purchase order minimum becomes 6, which is 2 x the RV of 3. In this scenario the MOS effectively becomes 6, and order quantities are possible in the sequence of 6, 9, 12, etc..
  4. MOS = 10, RV = 1: A RV of 1 would make no sense as the system is already required to order only in integer quantities. Therefore, for the RV to have any effect on ordering, it must always be above 1.
  5. MOS = 10, RV = 10: When the MOS is set equal to the RV, it means that that the RV has no effect for the lowest order amount, but then controls the order increment after the MOS.

Where The Rounding Value Can be Set and How it Can be Recognized

There are several places to set the Rounding Value, as the quote below from SAP Help describes.

The following applies for optimization-based planning: If you do not enter a rounding value or enter the value 0, the system uses the rounding logic of the production process model (PPM).

If you specified a rounding profile in the location product master, the system uses this profile instead of the rounding value. The SNP optimizer, deployment and the TLB all ignore the rounding profile.

You have to choose the discrete optimization method in the SNP optimizer profile and enter a discretization horizon in the Integral PPMs field of the Discrete Constraint tab page for the SNP optimizer to be able to take the rounding value into account.

So that the SNP-TLB can use the rounding value, you must set the corresponding indicator in Customizing for SNP under Basic Settings -> Maintain Global SNP Settings. Otherwise the SNP-TLB uses only the rounding value from the transportation lane. - SAP Help

Conclusion

The Rounding Value is a consumption logic parameter, and with all consumption logic parameters should be set per product location / or grouping of product locations by understanding the interaction with the other consumption parameters. This is best accomplished by displaying a spreadsheet or table of product locations and their consumption parameters to those with the business knowledge to intelligently provide feedback on what the parameters should be. After this initial meeting, the consumption parameter results should be analyzed to fully understand what the implications are for what the agreed upon settings are and socializing that analysis among a broad group of decision makers. This continues not to be done in companies, which is why they still have problems with ensuring that their consumption logic parameters are internally and externally consistent.

References

http://help.sap.com/saphelp_40b/helpdata/en/7d/c27259454011d182b40000e829fbfe/content.htm

Lot Size in TP/VS

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The book… has a very good explanation of lot size with respected to TP/VS.

Lot sizes are also used for the selection of a transportation lane, e.g. that a transportation lane is only valid for lot sizes between 20 and 500. If the order lot size is above 500, a different transportation lane has to be used. To use the lot size restriction for the transportation lane in the SNP optimization, it is necessary to choose the options for discretisation in the optimizer profile. A discretisation method has to be selected, the discretisation for ‘minimum transport lot size’ has to do with the ‘discretisation until end/detailed’ resp. an end date for the discretisation has to be set. Differing from the SNP heuristic and the PP/DS heuristic, the lot size restrictions in the ‘product -view, the transportation lanes are not used, but the lot size profile in the ‘product specific means of transport’-view. The lot size profile is maintained with the transaction /SAPAPO/SNPl12.


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

 

CIF Change Pointers and Transactions

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sap-change-pointers.jpg
CIF Change Pointer The CIF change pointer lists any inconsistent objects it identifies. Here is the path.

Advanced Planning and Optimization – APO Administration – Integration – CIF Compare Reconcile Function – Execute Compare Reconcile

The path for setting background jobs for master data transfer is the following

ECC – System – Services – Jobs – Define Jobs (SM36)

Next enter program RIMODGEN

With master data changes, the system can transfer just the master data records. For a transfer of data changes, you must set in customizing in the SAP ECC system that ALE change pointers are written for master data changes. First you activate change pointers (BD61)

In order to initiate real time transfer of master data change, use the following transaction…

(CFC9)

Integration Model Organization

There should be an organized manner that will make master data integration efficient and concise. SAP recommends organizing the integration models according to the following list:

  1. ATP Customizing and product allocation customizing
  2. Plants
  3. Characteristics and classes
  4. Material masters and characteristics and classifications
  5. MRP area
  6. Planning product
  7. Availability check
  8. Product allocation
  9. Customers and suppliers
  10. Work centers
  11. Production Process Models
  12. Scheduling agreement and contract and purchasing info records

Important Features of the CIF

  • In the CIF you can specify in the integration model that the ATP check in the sales order is to be performed in APO rather than ECC.
  • (PP/DS) The lot size always indicator is set in the APO product master and if you do not set the indicator, a lot for lot order quantity is always used in make to order planning and the system ignores additional constraints. This indicator is transferred via the CIF.
  • When data is brought over to SCM via the CIF it is automatically assigned to the active model (000).
  • Inactive models, including any model that we generate, is only used for strategic planning. Planning that has results CIFed back to ECC is only in the active version, hence the name. Also changes to the inactive models can not be copied to the active model, only changes to the active model can be copied to the inactive.
  • Even small changes to master data are copied over to the receiving system in an incremental fashion. However, this must be configured properly for SAP to do this. Change pointers must be activated in ECC with transaction (BD61).

We can carry out the real time changes for the following master data elements with the transaction (CFC9)

There is a program that will setup auto data movement for when Material Master, Customer Master or the Vendor Master are created or changed.

In the entry screen you should insert (RIMODGEN) for creating integration models, the variant, counter,

Changes to the PPM or production process model can be setup with transaction (CFP3).

Reference

SCM215 Integrated Master Data in SAP SCM

SCM212 Integrated Supply Chain Model

SCM250 PPDS

cif-target-system-settings-in-cif.jpg

cifmodgen-program1.jpg


Product Location Profiles and Mass Maintenance

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This is one of the more numerous objects that will be CIFed between ECC and SCM. Therefore, it is more than likely going to require more thought in terms of how the integration models are batched.

This takes you here:


We fill in more of the details on both the Procedure and the Quality and Date Determination tab.


Next we will create an SNP Profile. We again goto the Product create transaction.


Now we want to assign these profiles to the materials that we already created.

Mass Maintenance

We will go to transaction (MASSD) which is Mass Maintenance. Here is a highly confusing searching. You have to type in the letter and then a wild card for the component (these are actually profiles we are looking for) that you are looking for.


We will then save this combination as a variant. This way we can call it up again in the future.


We want to go the Location Dependent Data tab. Here you can see we have all the valid product location combinations.


Next we want to assign particular the profiles we created to each of these combinations. This is a very efficient way to do so. The other alternative is to add a profile to each product location one at a time.


Now we are going to select just the SNA-RE materials and change the Lot Size Profile for them. We can do this by selecting the line items with the control key and they selected this button. (The bizarre looking button with the double downward arrows in the upper left hand corner)


You can check by going to the location master and entering a product / location combination and hitting enter.


Here we can see the Profiles have been assigned to the product / location.


Here we forgot to add on the profiles for product SNA-RE at location SNA5, so we will add it through (/SAPAPO/MAT1). This is the way to adding it to a single product location vs. what we showed previously with the mass maintenance. The end result looks the same as you can see below.


That was a demonstration of how the product can have profiles created and assigned to it. These profiles control behavior and assist in maintenance in that they allow control to be allocated to an object..a profile that can then be assigned and re-assigned to product locations very flexibly.


Product Location Master Tabs for PP/DS and SNP

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What to Focus On

The focus of this post is on the Product Location Master is on the following tabs that relate to SNP and PP/DS.

  1. Lot Size
  2. PP/DS
  3. Demand
  4. SNP 1
  5. SNP 2
  6. Procurement

Lot Size Tab


There is a lot to go over here, so we will just focus on a few of the settings. First you can chose Lot for Lot (the exact shortage amount is ordered), Fixed Lot Size or by Period (a preset amount is used). Next to this field allows you to enter the lot size. By period groups together lots from different periods. If you select by period you can choose from the following:


You can also chose Reorder Point. If you chose the Reorder Point, you have the following options.


As you can see each of these selections has further qualifications that you can add.

In the lower portion of the tab you can hard code safety stock, reorder point, max stock level, service level, demand forecast error. Some of these form the inputs to creating a safety stock, others allow a full hard coding of safety stock.

The PP/DS Tab


The first options is the planning procedure. Defines for each planning relevant event that can occur for a location product, which action is executed by Production Planning and Detailed Scheduling (PP/DS) in SAP APO if this event occurs.


The planning package is an optional selection. In the case of a planning package for a supersession chain, this corresponds to the condition that the products in a supersession chain always have to be planned together in procurement planning.

The next selection is the planning Heuristic or PP/DS Heuristic which is to be used. There are many many heuristics to chose from, each with their specific benefits. We will discuss these benefits in a separate post on PPDS heuristics.


The planning group is simply a grouping of the product. It is also optional. However, a planning group can serve as an aggregation device. The planning group is also available for the propagation range as a selection criteria.

The lower portion of the tab is concerned with horizons. Essentially how far out the product should be planned. These horizons affect different modules such that a single product, can have different horizons for different planning purposes. Most of these are values that you enter rather than selections. The exception being the SNP horizon.

Demand Tab


Requirements Strategies are setup in the IMG. See this post for details.

http://www.scmfocus.com/sapplanning/2009/08/29/requirements-strategies-in-sap-erm-and-scm/

Requirements Strategy 8
The first sub-tab has to do with Dependent Requirements. If you select “Always coll requirements,” the system creates dependent and stock transfer requirements for the product in the make-to-stock segment.

And then whether the consumption should be forward or backwards. Backward consumption simply means that sales orders, dependent requirements or material reservations consume forecasted demand that lies within the consumption period and before the requirements date. Forward consumption does not allow this.

The consumptive group is in conjunction with descriptive characteristics to enable the forecast to be consumed by sales orders and related orders, at a more detailed level than the location product.


Now we go to the pegging sub tab. The most critical setting is the Fixed Pegging option.


This determines whether the product has fixed pegging and thus whether the pegging from a production planning run is permanent. The next selection supposed to be set if you want to used dynamic pegging, that is the capacity and inventory is available for pegging during every MRP run. The right side have to do with variances and are not used all that frequently. Below and towards the right you can set if you want to use total receipts.


If you set this indicator, the system assigns a receipt element to just one requirement element for the product during dynamic pegging. (The requirement element must thus completely consume the receipt element.)

Use total stock. If you set this indicator, the system may assign a receipt element to just one requirement element for the product during dynamic pegging. (The requirement element must thus completely consume the receipt element.)


The final sub-tab shows the stock types which should be considered available. That is you set which of the types of stock you want taken into account.


SNP 1

(Gives the penalty cost rate per day that is used by the SNP Optimizer to weight the delayed delivery of a product with regard to the planned delivery date. The penalty for delayed delivery of the requirement quantities is measured per base unit of quantity.) - SAP Help

Product Location Master 1
SNP 2

Product Location Master 2
Procurement

  • Procurement Type: The options are external procurement, in house production, external production or inhouse production, external procurement planning.
  • Planned Delivery Time: Procurement Lead Time
  • Cost Function: Used in optimzation
  • Procurement Costs: Also used in optimization
  • Product Storage Costs: The cost to store per day
  • Safety Stock Penalty:

Product Location Master 3
Conclusion

Basically, these tabs are very powerful in controlling SNP and PPDS. Some controls, such as safety stock have levers in both the Product Master as well as within the heuristic (if the right heuristic is selected). Some of these settings will be CIFed over from ECC, but no all of them. Therefore, after the CIF is complete, its important to go through the product master with your client and make sure your settings are doing what you want them to in terms of output to the plan.