Use Case 2: Order Confirmation based on Availability and Allocation Planning

Customers are changing from being Product-Centric to being more customer-centric.

Customer satisfaction is the key to the success of any company. Here is where response planning becomes important. When the supply plan is completed, the goal is to confirm the sales orders. Typical forecast accuracy is anywhere from 65 % to 90 %.

In the Supply Chain, conditions are always changing. You get a big order from a customer for next week, which was not considered in the forecast, or changes can arise from the execution side, for example, capacity shortage.

When changes happen, you may want to simulate, for example, what happens if you allocate more material to your important customer, or maybe the impact of adding one more shift to the factory to increase the capacity. By doing such a simulation, you could find out if more sales orders could be satisfied?

An effective response management solution enables the organization to determine the best course of action in those scenarios. Therefore, response planning is a supply solution with a short-term horizon. Response Planning adjusts supply plan to respond to incoming customer orders for deviation from the forecast, confirm sales orders, and plans allocation for constrained supply. The functionality of order confirmations helps you to enforce planning by considering allocations to then generate order promises against customer orders.

For organizations that follow a frozen period ranging from a couple of days to a week, the response solution is relevant from the end of the frozen period to the end of the response solution horizon. For a frozen period of 1 week and a response solution period of 6 weeks, the horizon of response planning would be from 1 to 6 weeks. With no frozen period, the response solution horizon would be from the current date to the end of the response planning horizon.

Serving the customers optimally and responding to changing market realities against forecast is of prime importance. Therefore a response and supply solution becomes the central nervous system of the organization. All demands are not equal for an organization, and you may be required to follow a prioritization rule when fulfilling orders.

The figure shows an overall unified process flow and where Response Planning fits in.

Overview of the business process:

• The Account Planner defines how demand shall be prioritized by defining specific prioritization rules.
• The Account Planner then executes the Response Planning run that calculates a new supply plan, confirms sales orders according to the selected prioritization rule, and consumes product allocations.
• After evaluating confirmations and analyzing gating factors, the Account Planner proceeds with resolving existing issues.
• To do this, the Account Planner uses a scenario in which gating factors can be removed, for instance, by adjusting the existing product Allocations. All necessary simulations and reiterations can be executed in this scenario without changing the base planning version.
• When the simulation results are satisfactory, the Account Planner promotes the scenario to copy the new adjusted Allocations to the base planning version. The product allocation can be used in Sales and distribution for ATP, which is discussed later in this chapter.
• What-if analysis could also be done using the planning versions. Scenarios can also be created in these planning versions. The final result of this what-if analysis is then propagated to the planning version.
• In SAP IBP order-based planning, you could also consider advanced forecast consumption capabilities. Advanced forecast consumption capabilities are offered with an operator for SAP IBP time-series-based supply planning called "TS-based forecast consumption".
• For details, see consulting note: 2776077 - order-based planning using time-series based forecast consumption operator - SAP ONE Support Launchpad
• "Supply elements" and "Supply proposals" are used interchangeably, and they consist of Planned Orders, Stock Transfer Requisitions, and Purchase Requisitions.

As shown in the figure, Response Planning considers Forecast, Sales Orders, fixed demands, and receipts (and safety stock) as Demand Elements.

Supply Elements created are Planned orders, STRs, Purchase Requisitions. Allocations are considered as a constraint and Sales orders are also considered, as opposed to Supply Planning with Allocation Creation Run.

To summarize:

• One big difference compared to the Supply Planning with Allocation Creation run is, that in the Response Planning run Sales orders are considered as demand
• The other difference is Allocations can be considered as a constraint during the Response Planning run

While the Response Planning run in SAP IBP for response and supply is the basic planning run to plan the sales orders, it also considers open forecasts, fixed requirements, and receipts (stock) from execution and safety stock. When necessary, multi-level receipts are created, considering different valid sources of supplies available. Constraints considered in Response Planning are Resource Capacities, Supplier Commit quantities, Material availability and lead time, Product Allocations. Additionally, Response Planning creates new confirmation proposals for sales orders.

Master data consists essentially of the supply chain model discussed earlier. To summarize:

The Supply Chain Model consisting of locations, materials, location materials, resources, and different sources of supply including transportation lanes and production versions are typically imported from SAP ERP.

The Supply Chain Model can be complemented in SAP ERP by adding additional transportation lanes and priorities in case of multiple sources of supply for one location material.

In the section, Supply Planning with Allocation Creation Run, we have already discussed constraints including Resource, Supplier Constraint, Lead Time, and Adjusted Quantities. 

Allocations were generated in the Supply Planning with Allocation Creation run.

These allocations can be considered as a constraint for Response Planning, whereas it was not in the case of a Supply Planning with Allocation Creation run.

We discuss switchable constraints in detail later in special topics. This feature is used to activate or deactivate constraints. Depending on settings, the constraints will or will not be considered in planning runs. This function supports you in situations where you want to plan both with and without certain constraints in the same version of your planning area. For example, you may want to do this at different points in time - you may want to plan without constraints in early planning phases, while you want constraints to be considered in later planning phases.

In addition to creating the initial plan, you can also respond to changes and update the plan at any time for any unforeseen changes.

• Whenever a supply or demand change occurs, you can use simulations to experiment with all the potential solutions
• Will you reassign materials from an existing order to the high-priority customer?
• Or get in touch with the factory and ask them to add an extra shift that week?
• Once you have found the best solution in the simulation, you are provided with an instruction sheet. You or a relevant colleague can apply the changes to the order itself.