Explaining the Basics of Demand Management

You have learned already that demand management is the management of planned independent requirements and their interaction with real customer requirements. The result, the demand program, serves as input for material requirements planning.

Watch this introductory video to learn more:

There are two basic types of independent requirements that refer to a plant and one type that has a cross-plant behavior. Let’s get to know these types a bit closer now using our Bike Company example:

• Planned independent requirements (PIR):

  Planned independent requirements (PIR) are stock requirements and might initiate procurement or production without waiting for sales orders. These requirements for a certain material in a certain plant are derived from a forecast of the future requirements situation or can be created manually.

  In the Bike Company example, past sales order quantities are used to predict the future demand of 200 bikes. Market intelligence and events like trade fairs also contribute to the forecast. Based on the demand plan, planned independent requirements are created, which guide procurement and production planning.

  For example, forecast results can be released from SAP Integrated Business Planning (IBP) or SAP S/4HANA Cloud Public Edition (Flexible Planning or Standard SOP). They are then transferred in material requirements planning as PIRs.

• Sales orders:

  Sales orders are entered by the sales department for a delivery plant.

  For example, the Bike Company receives a sales order from a customer who requires their own logo on the frame of the bikes they purchase. This requirement needs a special handling during production.

• Stock transfer requirements:

  Stock transfer requirements are requirements from other locations in your own network (such as distribution centers). Like sales orders, they also need to be taken into account in the demand program.

  For example, the Bike Company has a distribution center, which needs 50 bikes to fulfill their local customer orders. The production plant of the Bike Company has an own independent requirement for 100 bikes.

  The Bike Company combines all these requirements into their demand program. In total, the demand of 150 bikes is considered.

You have been introduced to the planning strategies term already. Now, let's dive deeper into this topic to expand your knowledge. When it comes to planning strategies, you have three main options to choose from:

• Make-to-stock production strategies:

  If you use make-to-stock planning strategies, the system takes into account both kind of demands, PIRs as well as existing sales orders. The PIRs can be used to create warehouse stock in advance. Receiving sales orders can be fulfilled using this stock. Therefore, a short time delivery can be ensured. With make-to-stock production, it is also possible to keep the production process as constant as possible, regardless of current demand (this is, for example, used in planning strategy 10. See the next section to learn more).

• Sub-Asssembly planning strategies:

  Make-to-stock production can also be executed on assembly level. In this case, the required assemblies are procured, rather than finished products being produced to stock. A sales order for a finished product can be fulfilled quickly because only final assembly remains to be executed, since the assemblies are already on stock.

• Make-to-order production strategies:

  Production/procurement is only initiated when an actual sales order is received. Make-to-order production can also be used in combination with a planning on assembly level planning for the components, to keep delivery times as short as possible.

Each planning strategy has its own properties as well as own pros and cons. The choice of strategy depends on the business process and the nature of the product.

In SAP S/4HANA Cloud Public Edition, planning strategies are numerical codes that represent different approaches to production planning and control.

Pure Make-to-Stock Production (called planning strategy 10 in SAP) is one basic strategy for make-to-stock production. Let's take a closer look at how this strategy works:

Planning strategy 10 can be used, for example, for mass production or manufacturing of low-cost items (for example, C parts that are usually of minor value).