Tag Archives: Subcontracting

Subcontracting in SNP and GATP vs. Amazon.com

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How it Works in SCM

Ordinarily we keep our discussions centered on SAP SCM. However, in this post we thought it would be interesting to compare SAP’s approach to getting data from subcontractors to what is the most successful company we know of in managing subcontractors and in performing supply demand matching. This company is Amazon.com.

SAP SCM and Subcontracting

In SAP, subcontractor agreements are brought into SCM through either the CIF and SAP ERP or through SAP SNC, where they are put to use in both SNP – which allocates batched requirements to them, and GATP – which allocates real time requirements to them. This is explained in greater detail in this post.

http://www.scmfocus.com/sapplanning/2008/09/16/subcontracting-in-scm-and-snc/

We thought it would be interesting to compare how Amazon.com does it because we have recently been considering how Amazon.com can serve as a model for other companies that would like to be in the business of matching supply and demand for other companies that do not have the IT expertise, but are good at fulfillment operations. We went to Amazon’s website to see how they accept on hand balances. They seem to provide three ways to add balances. These include:

  1. Use the Add a Product feature on Seller Central to create one product at a time
  2. Use the Seller Desktop, which is a free, easy-to-use desktop application that can be used to manage and upload inventory one product at a time or in bulk.
  3. Use inventory files to create multiple products simultaneously

The first method is for low volume sellers and is not all that interesting to us. However, the second and third method seem to be good for large sellers. Here is the actual URL where you can download the software.

http://webstore.amazon.com/WebStore-Knowledge Center/productinventorymanagementsellerdesktop.htm

As for the file setup, this URL shows the different ways they can accept flat files.

http://simply-amazon.com/content/DecidingHowTo_Integrate.htm

There is nothing new here, XML, Excel and so on.

Conclusion

The main point here is that Amazon shows that integrating subcontractor inventory on hand balances should not be all that difficult. Flat files or XML, or the Seller Desktop can be used to bring in on hand from large and small sellers alike.


SPP Operating Parameters and Repair vs Buy

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SPP Operating Parameters

Overall, the operating parameters of SPP links the stocks within the bill of distribution (BOD) with the actual demands.

(See this post if you are unfamiliar with the BOD).

http://www.scmfocus.com/sapplanning/2008/09/28/spp-bill-of-distribution-bod/

The logic of SPP is if these demands can not be met within the BOD, SPP attempts to cover these demands either through external procurement or repair. This is different from SNP, because repair is not considered as part of the equation. However, in service parts networks, repairable or unserviceable products are frequently kept in the supply chain that can then be repaired by the company, or sent out for repair.

Repair vs Buy

Repair or buy functionality is well suited to high value service parts which are cheaper to repair than procure. If you activate this functionality the system checks whether enough un-serviceable products can be repaired are available. You can also setup the system to always repair. This decreases the processing time of the SPP planning runs.

A product location can have two statuses.

  1. Serviceable – A location product has the serviceable status if it is either new or has been repaired
  2. Un-serviceable – A location product has the un-serviceable status if it has not yet been repaired but is scheduled for repair

The system does not use any stability rules for serviceable location products in the plan submission horizon and in the limited freeze horizon. You can model subcontracting production, but you must have the subcontractor PPMs or PDS configured in PPDS.

Returns Forecast

This is determined using the requirement forecast of SPP for the location product and multiplies this requirement forecast by your entry in the Percentage of Good Quantity of Returned Products field and by your entry in the % of Good Qty of Repairable Products Field. To make a repair decision, DRP needs to know the repair cost for a location product.

The Problem

However, the issue is that the repair vs. buy functionality only has BADI screens. Notice this screen shot.

This is very strange. Any functionality in SCM always has a configuration area in addition to having related BAdIs. This is the first time I can recall running into a situation where it didn’t.

I have checked the documentation on it, and it is not clear that this functionality works. This is interesting because all of  the major service parts planning vendors (MCA Solutions, Servigistics, Baxter) can do this. Currently the one that does not appear able to is SPP. This is a problem because this is critical functionality in SPP.

__________________________

After posting this article on the SPP LinkedIn Group I received this response from Lars Sondergaard, so I thought I would post it here for everyone to see.

Lars Sondergaard • Hello Shaun,Great initiative starting this LinkedIn Group!We found your blog through searching for SPP specific topics.Now regarding the problem you describe where:„A product location can have two statuses“1. Serviceable2. Un-serviceableWe also were stugling a bit on this part, when we had to do a customer demonstation, but we found out that you need to set up EDQA – Event-Driven Quantity Assignment.Depending on the release that you are working on you can refer to the following notes:Note 1081343 – Unserviceable Stock for “Repair or Buy” (Release 5.1) Note 1081024 – TDL: Make settings in ATP and EDQA for SPP (Release 5.1) – probably the more detailedNote 1334332 – TDL: Make settings in ATP and EDQA for SPP (From Release 7.0) – This contains a BC Set I thinkNote 1440517 – stock posting does not trigger the EDQA executionNote 1421828 – Subcontracting stock is not created for SPP ATP catecoriesNote 1405470 – EDQA: SOBKZ to use in Condition Profile for stock changesNote 1378126 – Field “Activation of Process Cat.” in Customizing not copiedNo Badi‘s neededI hope this information can help you out?Best regards,The Westernacher team

Subcontracting in SCM and SNC

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Picking a Winning Team
What is Subcontracting in SCM?

According to SCM documentation, subcontracting is where the buyer supplies some of the components of the purchased product. This is of course very different from the general definition of subcontracting where a contractor sends out pieces of their contract to other contractors. SCM has become increasingly focused on allowing the SCM owner to perform planning for its partners, this emphasis seems a bit misplaced as there are not nearly as many companies doing this as the development effort in SCM would indicate. However, as of May 2009, we are starting to get a number of inquiries on SNC, so perhaps SAP was looking out to the future when it invested the effort in SNC.

We found this very good definition of subcontracting.

Subcontracting components

Give access to information about subcontracting stock at subcontractor

In a subcontracting scenario the plant provides the subcontracting components to athird party, called the subcontractor. The subcontractor assembles the componentsand returns the finished product.Enable outsourcing of manufacturing facilities to a third partyConsider subcontracting scheduling agreements as external procurementrelationships. -Josep Ramon Bonamusa,SAP Iberia

How Is this Setup?

A subcontractor location is setup in SCM, just as you would setup a vendor. This is what you need to setup a subcontracting relationship that can be part of the plan.

  1. Vendor location specific product master records for the subcontracted product and the subcontracting components.
  2. External procurement relationship for the subcontractor product (typically a CIFed over Purchasing Info Record).
  3. Transportation lanes for the subcontractor product and the subcontracting components
  4. Resources for the vendor location and plant
  5. PPM at the vendor location (with one resource and one operation at the very least)

Setting this up has substantial configuration compexity, and then of course there is all of the complexity with regards to getting subcontractor buy-in. One overlooked issue is that many large companies mistreat their vendors or squeeze them to such a degree on price that a lot of bad blood results. The problem then is getting these vendors to collaborate with you. It is always easy to get the executives to agree to collaborate (whether they push it internally or not is a different topic of discussion), but it will be the people working in the trenches and their immediate supervisors actually responsible for the collaborating. So getting them onboard is critical as well.

How It Is Operationalized

Subcontracting works with some functionalities, but not with others.

Subcontracting can work with:

  • Optimization
  • Heuristics

Subcontracting does not allow for:

  • Deployment
  • TLB
  • Capacity Leveling

Here is what must be created or setup in order for subcontracting to work:

The end product

Furthermore….

If you are using an SNP PDS and wish to generate it from SAP R/3 data, you must choose theSNP Subcontracting option in the integration model.In this case, all master data in the subcontractor location, such as the product master data and the transportation lane from plant to subcontractor, is automatically created in the SAP SCM system. - SAP Help

Two Ways

There are two ways to implement subcontracting when it comes to ERP.

  1. In one situation the item can be sent out as an assembly to the contractor, and then return as a finished good.
  2. The second is if the item is send out as afinishedgood and then returns as a finished good.

This depends upon whether the item is just a “WIP” item or whether it is both a WIP item and a sellable item. From these basic rules we have generated a subcontract decision matrix.

Subcontract Decision Matrix

SubAssembly
Processing the Flow

In terms of the the process flow after subcontract SNP stock transfers are created:

If an SNP stock transfer is created for the end product in the subcontractor location, a purchase requisition is generated from it in the SAP R/3 system after the CIF transfer.This automatically contains the address of the subcontractor in Asia (not that of the plant in the U.S.A.) as the delivery address At the same time, theSubcontracting Vendor indicator is set.The delivery address in the requisition is adopted in the PO during the document conversion process.When a goods receipt is posted against such a purchase order, the components of the handheld device are automatically posted to the “stock of material provided to vendor” (stock with subcontractor). - SAP Help

The Problems With An Overly Competitive Culture and Its Impact on Vendor Relations

The US culture is based upon competition. However, what is less focused on is the benefits of cooperation. In the excellent book Who Really Made Your Car, the competitive US culture is actually a disadvantage when attempting to integrate with suppliers.

Japanese car makers have established constructive partnerships with their suppliers. The three leading Japanese car makers, Toyota, Honda and Nissan, are seen as legitimate semi-insiders by supplier companies…positive relationships are achieved by following six steps:

  • Understand how suppliers work
  • Turn supplier rivalry into opportunity
  • Supervise suppliers
  • Develop supplier technical capabilities
  • Share information intensively but selectively
  • Conduct joint improvement activities

Increasingly many areas of manufacturing rely heavily on suppliers and supplier relationships.

Subcontract Planning Book

SCM has a subcontract planning book which allows the planners to effectively interact with the information entered by subcontractors.

http://help.sap.com/saphelp_scm41/helpdata/en/b7/78573da974c729e10000000a11402f/content.htm

Subcontracting and Procurement Collaboration SNC supports a number of collaboration methodologies. Subcontracting is actually categorized with procurement collaboration and the object transferred is a purchase order. You can read about subcontracting’s categorization within SNC here.

http://www.scmfocus.com/sapplanning/2009/05/16/scm-collaborative-planning/

References

Suman Bhattacharyaa at IBM Global Services

http://www.sap.com/spain/company/events/2008gestioncadenalogistica/pdf/6Killer%20Applications%20Day%20SCM%202008_SNP.pdf


Material Master MRP Tabs

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Most of the following is taken from the SAP Library and the Performance Assistant in SAP, and thus is not original content. I felt it value added to have it organized in this manner below, because it is setup differently in the SAP Library and lacks screen shots.

The MRP tabs in the material master are the most important for planning tabs in ECC. There are four tabs and each holds the following planning relevant fields:


MRP 1

Purchasing Group: The buyers who are responsible for the item

MRP Group: Groups materials together to allocate them special control parameters for planning (these control parameters include the strategy group, planning horizon and the creation indicator)

MRP Type: Controls the MRP procedure (MRP or reorder point to be used for planning a material). This needs to be set to X0 in order for the product to be externally planned in SCM. However, this is not enough to make the product be planned in SCM all by itself. Rather the MRP Type of X0 must also be selected in the CIF Integration Model in order for it to be relevant for SCM.

Reorder Point: If a reorder point MRP Type is selected, the Reorder Point tells the system how far to let inventory decline until a reorder is placed. The reorder point should cover the average material requirements expected during the replenishment lead time. Safety Stock, Average Consumption and the Replenishment Lead Time work to define the Reorder Point. Reorder point planning can be setup either manually or automatically. Manual is essentially hard coding the value, automatic allows the system to calculate based upon the factors listed on line three of this paragraph.

(Reorder point planning is one of the three consumption based planning methods available in SAP – the other being Forecast Based Planning and Time Based Planning – connecting up to the same cycles as your suppliers i.e. if a supplier always delivers a material on a particular day of the week, material planning can be set to the same cycle)

Planning Cycle: Sets the planning cycle (often to match suppliers delivery dates) listed above.

Lot Size: The ordering methodology

Min Lot Size, Max Lot Size: Self explanatory quantity fields

Takt Time: Control parameter for takt based scheduling:

Definition of Takt Time from Answer.com

“Takt time can be defined as the maximum time allowed to produce a product in order to meet demand. It is derived from the German word taktzeit which translates to clock cycle. There is a logic therefore to setting the pace of production flow to this takt time. Product flow is expected to fall within a pace that is less than or equal to the takt time. In a lean manufacturing environment, the pace time is set equal to the takt time.

History

Takt Time is defined as:

Where: Ta = Net Available Time to Work eg. [minutes of work / day] Td = Total demand (Customer Demand) eg. [units produced / day] T = TAKT Time eg. [minutes of work / unit produced]“


MRP 2

Procurement type: Codes if the item is configured for internal, external or both internal and external procurement.

Special Procurement: Codes for whether the material uses particular procurement such as (Consignment, Subcontracting, Phantom Assembly, etc…) It defines external procurement or in house production more precisely.

Quota Arr. Usage: Configures the quota arrangements for (POs, PRs, Sched Agreements, Planned Orders, MRP and Prod Orders)

In House Production: Lead time in days

GR Processing Time: Time to receive the goods into the facility

Planned Delivery Time: Self evident delivery lead time

Safety Stock: Can be hard coded or calculated. Definition of Safety Stock:

Safety Stock

Extra units of inventory carried as protection against possible stockouts. The safety stock must be carried when the firm is not sure about either the demand for the product or lead time or both. In the case where demand is uncertain, safety stock is the difference between the maximum usage and the average usage multiplied by the lead time. For example, assume that a store is faced with an uncertain usage for its baseballs. Lead time is constant at two weeks. Normal weekly usage is 700 dozen but it can go as high as 850 dozen. – Answers.com

Service Level Used to autocalc safety stock, the higher the level the higher the safety stock required to satisfy this level.


MRP 3 Strategy Group: The strategy group groups all the planning strategies that can be used for a particular material. The planning strategy represents the procedure used for planning a material and is (technically speaking) controlled by the MRP types. Standard values include (Make to Stock, Prod by Lot, Planning with Assembly, Planning w/o Assembly, Make to Order / no Assembly Order, Assembly/Service Order)

Period Indicator: Specifies the period of time the consumptive values are to be stored in the system

Consumptive Mode: Indicator in demand management that controls the direction on the time axis in which sales orders or dependent requirements are allocated to and consume planned independent requirements.

Forward Consumption Per (period):

Planning Material: Material number whose planned independent requirements the system uses to consume the sales order of the material in question if you use the planning strategy, “planning with planning material”.

Conv. factor f plng material: Factor that the system uses to convert the quantity of the current material, measured in the base unit of measure, to the base unit quantity of the planning material.

Bwd Conumption Period: Determines the consumption period (in workdays) for backward consumption. Using backward consumption, sales orders, dependent requirements, or material reservations are assigned to and consume planned independent requirement quantities which lie within the consumption period and before the requirements date.

Mixed MRP: Determines whether the material is available for (subassembly planning with final assembly, gross requirements planning, subassembly planning without final assembly)

Planning Part: Key which specifically identifies the plant from which the planned independent requirements of the reference material comes from.

Planning matl BUnit: Unit of measure in which stocks of the planning material are managed

Availability Check: Specifies whether and how the system checks availability and generates requirements for materials planning.

Total Replenishment Lead Time: After all BOM levels have been procured or produced, it is not calculated in the system, but defined in this field as the total in-house production and or planned delivery times of the longest production path. This time is necessary if, for materials produced in-house, the replenishment lead time is to be taken into consideration in the availability check.


MRP 4 BOM explosion/dependent requirements

Selection method: Indicator determining the selection of the alternative BOM when requirements are exploded in material requirements planning.

  • With Selection by order quantity, the system chooses the alternative BOM into whose lot size range the order quantity falls. The lot size range and area of validity of the BOM apply.
  • With Selection by explosion date, the system chooses the alternative BOM into whose area of validity the date falls according to the setting BOM via dates.
  • With Selection by production version, the system chooses the alternative BOM defined in the valid production version. The lot size range and area of validity of the production version apply.
  • With Selection only by production version, the system chooses the alternative BOM defined in the valid production version. The lot size range and area of validity of the production version apply. If no production version is found, no production orders or process orders can be created.

Individual coll: Determines whether the requirements for the material are individual requirements or collective requirements.

Component scap%: Percentage of scrap that occurs during production, if the material is a component.

Requirements Group: Defines if the system groups together dependent requirements for the material on a daily basis.

MRP dep.requirements: Controls whether dependent requirements are relevant for MRP or not. Dependent requirements include dependent reservations and stock transfer requirements.

You only use this indicator in connection with planning strategies for make-to-stock production, assembly planning. Note that the indicator Dependent requirements not relevant to MRP should only be used when, for example, planned independent requirements exist for an assembly. In this case, no receipt elements for the dependent requirements in MRP should be created as receipts have already been created for the planned independent requirements.

Repetitive manufactring

Fair share rule: If demand exceeds supply, DRP uses fair share logic to calculate deployment based on on the available to deploy (ATD) quantity, the open sales orders, the safety stock, and the forecast.

REM profile: Repetitive manufacturing profile

Controls, via order type, whether you are working with make-to-order repetitive manufacturing, based on sales orders, or with make-to-stock repetitive manufacturing, based on no specific orders. Controls, via order type, whether you are working with make-to-order repetitive manufacturing, based on sales orders, or with make-to-stock repetitive manufacturing, based on no specific orders.

The repetitive manufacturing profile also determines;

  • how the system deals with activities when backflushing
  • which movement type is used to post goods receipts and goods issues
  • how planned order and run schedule quantities are reduced in the backflush transaction
  • how BOM corrections are made – if errors should occur when posting quantities to be backflushed

Push Indicator: If there is excess inventory, surplus stock is retained at its place of origin or is distributed according to push logic.

  • If you leave the field blank, the system uses pull distribution; the demand of the current day is met through deployment, but excess stock is not distributed.
  • If you select P, the system uses pull/push distribution; excess stock is distributed to meet the demand existing within the demand horizon according to the forecast in the DCs. Distribution begins on the first day for which requirements exist in the system and ends with the last day of the demand horizon.
  • If you select X, all the requirements defined in the system are met through deployment. Distribution begins on the first day when requirements exist and continues until all the requirements defined in the system are met.

Backflush Profile: (Backflush is the non manual posting of an issue of components some time after their actual physical withdrawal for an order.) The backflush profile groups together control parameters for the production backflushing process for the discrete industry. In DI backflushing, this profile replaces the repetitive manufacturing profile that was used previously. You add new control parameters for the DI backflusing process to the backflush profile only.


MRP Profile

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What Is It?

An MRP profile essentially helps a company organize its materials and set values for MRP relevant fields. You might have a different profile for:

  • Finished Goods
  • Project Stock
  • Plant Stock
  • Subcontracting Stock

An MRP Profile applies for a specific plant or sets of plants. You can define which fields are necessary to be filled with values for the MRP specific data in the material master, which fields can be changed and which must be defaulted. Here is an example of some of the fields that can be configured.

  • MRP Type
  • MRP Controller
  • ABC Indicator
  • Planned Delivery Time in Days
  • In house production time
  • Safety Stock
  • Reorder Point
  • Lot Size
  • MRP Group


There are many more, so by filling in the MRP Profile, we are categorizing the material for future use.


Locations in SCM

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What Are They?

Locations will be sent to APO using the CIF. It location data is sourced from SAP R/3 via the CIF (Core Interface). Integration models are created to select and transfer the required data to APO. Rules are generally used to restrict customer master records going to APO as not all customers are relevant for planning. Data held in SAP APO is generally a subset of that held in SAP R/3. This data is transferred from R/3 to APO based on rules embedded in the CIF. It is important therefore that the data defined in R/3 is compatible with its planning use in APO.

R/3 IMG → Production → Distribution Requirements Planning (DRP) → Basic Settings → Maintain assignment of node type – plant

Locations in SAP represent nodes in the supply chain. These include factories, stores, ports and customers. All locations will be used to describe transactional data (forecasts, sales orders, STO’s, planned production orders). Plants in R/3 must be allocated a node type so that the CIF can determine if these are plants (manufacturing facilities) or distribution centers. The function of a location is dependent upon the location type (Plant = 1001, Customer 1010, Vendor 1011, Transportation Zone = 1005, Stock transfer point = 1006, DC = 1002, MRP area = 1007). SAP APO locations generally contain a large number of additional planning parameters for which there is no equivalent in SAP R/3. Therefore these can not be transferred from R/3. You can only transfer MRP areas in storage locations to APO if they are assigned to precisely one storage location (there are not storage locations in APO). You can not transfer subcontracting MRP areas.

Menu path for Locations:


The next screen


The next screen


Required for SCM

  • All nodes in the supply chain need to be set up in APO. These nodes will be linked to form the supply chain network and will be used to hold master data used for planning (calendars, lead times) and transaction data (stock, planned orders, sales order, forecasts).
  • The location field in APO is 20 characters long. However, when integrated with R/3 this is limited to the length of the plant field (4 characters or the customer field 10 characters) in R/3.
  • Locations are assigned location types (1001 – factories, 1003 – distribution centres, 1010 – customers). Location types are not used in R/3 but are derived from data in R/3 when they are passed across the CIF. The location controls some functions that can be performed at the location in APO.
  • Location numbers must be unique. In SAP R/3 customers and vendor will be also be converted to APO locations. Care is required to ensure these number ranges do not overlap.

SCM Product Master

The SAP Product Master is used to describe products at a unique level in the SAP Planning and Execution systems. Unique means that everything about the product including packaging, product quality and cost are the same. The product code is the main field for identifying a product master.

Product data consists of global data and location specific data. An example of global data are descriptions, classification and units of measure (UOM). Location specific data includes lot sizing, planning parameters and lead times. For a product to be active at a location product/location data must be defined

These represent the milk supply and are used in PPM’s so that products with demand can consume milk supply (simple BOM’s with the finished good product as the output material and the planning level as the input material). As the PPM’s will be managed in R/3 planning level materials will also be required in R/3. Planning level materials will be set up using material type ZPLN. These materials will have the MM/PP status set to ‘blocked for use’ so that no transactional data can be used with these.

Classification System

APO uses a simplified version of the R/3 classification system. To enable integration R/3 classes must be set up to be compatible with APO.

  • Only one class of each class type (001 – material, 023 – batch) must be assigned to each material.
  • The classes assigned to the material must have identical names.
  • Characteristics relevant for APO should be limited using an organizational area assigned to the class and APO relevant characteristics.
  • Characteristics with multiple value assignment should be avoided for use with APO.