ROP using APO CTM
It is generally recommended that you plan critical products and components in SAP APO [or an APS system] and non-critical products and components in SAP ECC [or the respective OLTP system]. The critical products have some typical characteristics that can be used as guidelines to identify them: long replenishment lead times, usage in multiple Upper Level parts and A-Class products [based on ABC Classification that I had discussed in my earlier blog]. The non-critical parts are planned in ECC with the assumption that the planning for these parts does not need advanced algorithms and the parts can be procured easily and quickly on a need basis.
However this consideration misses one critical aspect - the Supply Planning Organization Structure. The above recommendation works generally well where we have planners that are dedicated to plan just these non-critical components. However, we have seen in multiple clients that the Planners are responsible for planning the entire Product Family across all the levels of the BOM for both the critical and non-critical parts. The planning done for non-critical parts in ECC requires the planners to access not only multiple transactions, but also multiple systems and then execute on the system proposals. Also, with increasingly shorter lifecycles for the components, it is getting increasingly important in the High-Tech industry to plan the components considering substitutes, before placing a buy signal to the Suppliers. We have seen that due to these reasons, the planners prefer to have both the critical and the non-critical parts being planned in APO and the proposals presented to them in a consistent manner for them to make decisions.
Now that we have seen some merit in planning the non-critical materials in APO, let us now further delve into how these parts can be planned differently from the critical parts and also how the proposals can be presented to the planners in the most effective way. Since these are non-critical parts, the objective is to let the planners spend the least amount of time and resources in making replenishment decisions and one of the ways that we have seen works better is to deploy Reorder-Point planning methodology in conjunction with the planning solvers in APO. The SNP Heuristics solver supports 6 different methods of Reorder-Point planning in APO, but since it plans infinitely, it does not do a very good job in considering material constraints and substitutes. The CTM solver takes into consideration material constraints and substitutes, but it does not support Reorder-Point planning out-of-the-box. As a result, organizations generally choose the SNP Heuristics for these parts and let-go of the opportunity for planning considering material constraints and opportunities for substitutions. We have come up with an approach, where we can have a Re-order Point planning based on a static Re-order Point in CTM.
Below is the theoretical construct for the Reorder Point planning:
This is one of the simpler replenishment models that can track the On-Hand or the Projected On-Hand position and accordingly make proposals for replenishment. CTM is an order-by-order planning solver and plans demands by first prioritizing them in a sequence, based on the criteria specified in the CTM Profile and then generate supply proposals to meet the prioritized demands considering the constraints.
An effective approach to model the Reorder Point in the CTM Solver is by modeling the Reorder Point as a Demand element that gets prioritized at the earliest for the respective part. We can have a demand element created in LC using a custom program based on the Reorder Point value maintained in the Product Master, which will be available as a separate demand in the Product View and SNP Planning Book. This demand element can be updated in LC whenever the Supply Planner updates the Reorder Point.
As can be seen from the example illustrated above, the replenishment proposals made by the CTM planning run that considers the Reorder Point as an additional demand matches that with the proposals following the theoretical Reorder Point model. I have presented a very simple example to demonstrate the point that the Reorder Point planning can be achieved with CTM Solver. The CTM solver can take into factor all the typical material constraints in conjunction with planning this demand.
The key point to understand is that since CTM has already secured the supply that corresponds to the Reorder Point, the subsequent supply proposals placed when the projected On-Hand goes below zero has the same effect as the theoretical Reorder Point Planning model, which triggers a replenishment proposal whenever the On-Hand Inventory falls below the Re-Order Point.
The major benefit is gained in Productivity improvement for the Supply Planners, since they do not have to access multiple systems or transactions to execute on the planning proposals for all the parts they are responsible for. In addition, the planners need not review the proposals for these parts on a weekly basis, since once the Reorder Point has been set by them, the system will generate the supply proposals accordingly and these can be published over to ECC without additional review by the Supply Planners.
Keeping in mind the Pareto distribution, this solution address 80% of the parts and by achieving efficiency gains in reviewing the procurement proposals, we expect this simple yet effective approach to provide significant benefit instantly to the Supply Planning Organizations and I will be happy to hear your thoughts and point of view on the same.