Explaining Make-to-Order (MTO) Production

In the following, you will learn about sales order-related planning strategies. Take a look at the following image, which illustrates different planning strategies. You may notice that some of the make-to-order planning strategies have similar names to the make-to-stock planning strategies. While the names may appear similar, it is important to understand that these strategies have distinct purposes and are designed to cater to different production scenarios.

In make-to-order production, for example, planning strategy 20, the production planning is initiated only when a sales order is received. PIRs are not used in this strategy.

Using the planning strategy 50 – assigned to the final product – it is possible to produce/procure sub components in advance.

Make-to-order production is a planning and inventory management approach that focuses on producing or procuring materials specifically for certain sales order items. Instead of producing or stocking items in advance, make-to-order considers individual customer orders before initiating the production process. This approach helps to minimize excess inventory and reduce the risk of carrying unsold products.

Let’s take a closer look at the steps of planning strategy 20:

Imagine that the Bike Company receives 2 sales orders. With planning strategy 20, each sales order is planned separately. The system does not perform a net requirements calculation between individual sales orders or with the make-to-stock warehouse stock. In make-to-order production, lot-for-lot order quantity is used as the default lot-sizing procedure, independent from the setting in the material master.

In material requirements planning (MRP) in SAP S/4HANA Cloud Public Edition, the Bike Company has to procure or produce each material separately. You will learn more about individual or collective indicator settings in the next section.

The produced bikes for one sales order cannot be exchanged or used for another sales order. Each sales order has its own separate stock, which is managed directly within the corresponding sales order.

The sales order stock and the requirement are reduced by a goods issue to the sales order.

Make-to-order makes sense on the following conditions:

• If it is difficult to forecast the finished product (strategy 70)

• If you need the ability to reserve material for certain sales orders

As mentioned previously, the Bike Company can either produce each material individually, or they can consolidate the requirements for multiple sales orders that use the same material. In SAP S/4HANA Cloud Public Edition, this is controlled by the individual or collective indicator settings. Watch the following video to learn more:

You make the settings for this strategy in the master of the finished product (MRP 3). The individual/collective indicators for the assemblies need to be set accordingly in the corresponding master.

The individual/collective requirements indicator in the material master determines whether a component is procured for a specific customer requirement in an individual segment.

The following are the options for the individual/collective requirements indicator:

• SAP S/4HANA Cloud Public Edition Indicator 1:

  The SAP S/4HANA Cloud Public Edition Indicator 1 for individual requirements means that the material is being specially manufactured or procured for a sales order. An individual segment is specially created for each requirement. An individual requirement is only created if the higher-level material does not generate a collective requirement.

• SAP S/4HANA Cloud Public Edition Indicator 2:

  The SAP S/4HANA Cloud Public Edition Indicator 2 for collective requirements means that the material is produced or procured for various requirements. The requirements are contained in the net requirements segment.

• Empty SAP S/4HANA Cloud Public Edition Indicator:

  An empty SAP S/4HANA Cloud Public Edition indicator means that the component is planned in the same way as the higher-level assembly. If the SAP S/4HANA Cloud Public Edition indicator represents the finished product produced in make-to-order production and the indicator is blank, the constraint for make-to-order production replaces the entry with 1, which means individual requirements only.

In the example shown in the figure, Individual/Collective Indicator – Example (I), two individual segments (for sales orders A and B) are created for the shaft.

If you want to control the material item for each BOM individually in SAP S/4HANA Cloud Public Edition, use the Explosion type field in the component’s item data (General Data view). The setting in the SAP S/4HANA Cloud Public Edition BOM overrides the setting in the material master.

All materials that appear under one material in collective requirements in the BOM are planned as collective requirements (inheritance) irrespective of the setting in the material master.

The receipt of the sales order triggers the final assembly. The sales order appears within an individual customer segment in which planning is performed separately for the sales order. In the next planning run, the system creates a planned order for the newly created sales order in the individual customer segment. This planned order can be converted into a production order, which then allows final assembly.

In the planning segment, however, the planned order quantity for the planned order without conversion indicator (with the order type VP) is reduced by MRP in accordance with the new requirements situation.

In this strategy, you manage the sales order in the individual customer planning segment. Alternatively, you can manage the sales order in the net requirements segment (planning strategy 52). If you choose this procedure, you have to work with the lot-sizing procedure with lot-for-lot order quantity. In this case, you must not maintain the rounding value, rounding profile, and the minimum or maximum lot sizes. Furthermore, stocks are not taken into account.

Consider a situation in which a planned independent requirement of 100 pieces exists and you receive a sales order for 40 pieces, which consumes the planned independent requirements. In this situation, the sales order for 40 pieces remains in the individual customer planning segment and a planned independent requirement for 60 pieces in the forecast segment. As soon as you plan the product again in the next planning run, the system creates a planned order for 40 pieces in the individual customer planning segment, which you can convert into a production order. At the same time, the system reduces the existing planned order in the planning segment from 100 to 60 pieces.

If a large part of the value added process occurs at final assembly, use planning without final assembly (planning strategy 50). The final assembly is not triggered until a sales order is available. The storage level is always below the finished product level.

If you do not wish to create IndR (that is, of VP status) planned orders in all BOMs for a particular material, you can assign the Planning off explosion control indicator in the Basic Data for the BOM item. You define this indicator under Define Explosion Types in Customizing for BOMs.