Understanding Target Inventory and Lot Sizes

Objective

After completing this lesson, you will be able to explain the target inventory and lot size procedures.

Explaining Target Inventory and Lot Size Procedures

The figure, Inventory: Lot Size Procedures, shows you the different available Lot Size Procedures and their explanations.

SAP Integrated Business Planning for inventory (IO) provides best-in-class, multi-echelon stocking policies with metrics, leading to great savings.

Inventory targets are established in the tactical planning process.

Often planners tend to use simplistic approaches in the absence of robust capabilities.

The figure, shows the Challenges with Use of Lot-Size Procedure.

Since use of additional lot-size methods is not subjected to fairshare by optimizer, it is better to use heuristics as a pre-step. This also gives the flexibility to adjust or set minimum and maximum values.

With SAP IBP version 2102, it may be possible to calculate the same with standard IBP function for dynamic rolling aggregation (IBP_DYNAMIC_RAGGR) of any KF - for example, combined forecast and sales orders.

The figure, Inventory Key Figures, shows you Key figures related to inventory planning.

Modeling Considerations for the Additional Lot Size Key Figure

  • Additional Lot Size is an output key figure from supply planning for visibility and reporting.
  • Fair share is performed for target inventory only and not for additional lot size.
  • If fair share is desired, you can run unconstrained heuristics as a first step, and add the value into the Target Inventory or Maximum Inventory key figures. It is better to add the value into Maximum Inventory, as the additional lot-size demand is extra beyond the target inventory.

Planning Target Inventory

ExerciseStart Exercise

Planning Target Inventory

Business Example

In this exercise, you activate lot-sizing procedures and understand the implications of doing this. After completing this exercise, you will understand the need for planning target inventory.

Check your planning area ZSAP4 and student group number assignment with the instructor before you start. Where this exercise uses ##, use your group number instead.

Task 1: Set New Values for T-F2##

Steps

  1. Set the following values for locations 2200. Use the data from the table:

    LocationLot-Sizing ProcedureMax Inv Factor (x times Target Inv)Safety Stock (SOP)
    2200132200
    2400132400
    2500132500
    There is also a Safety Stock attribute, but you need to update the Safety Stock (SOP) attribute.

    1. Access and log on to the SAP IBP, add-in for Microsoft Excel.

    2. Go to Favorites→Group ## Pump.

    3. Choose Master Data Workbook.

    4. In the Create Master Data Workbook window, choose the master data type Location Product.

    5. Filter the Product ID column by T-F2## and the Location ID column by 2200, 2400 and 2500.

    6. Make the changes according to the table.

    7. Choose Save Changes.

    8. Exit the Master Data Excel.

  2. Set the following target periods of supply for daily buckets. Use the data from the table:

    LocationValue
    22005
    240010
    250012

    1. Choose the Inventory tab.

    2. Choose Edit View, Time Settings and extend the To Date to the last allowed day of the planning view. Take a note of that day.

    3. In each time bucket represented by a daily value, enter the corresponding values as follows:

      The figure shows the Planning view based on the selection.

Task 2: Revise Capacity for the Production Lines

Steps

  1. Set the production line capacity WT-L##_1000_002 to 15000.

    1. Select Master Data Workbook.

    2. In the Create Master Data Workbook window, choose the master data type Location Resource.

    3. Filter the Resource ID column by WT-L##_1000_002.

    4. Make the change for the Capacity Supply attribute. This will update the corresponding key figure (attribute as key figure).

    5. Choose Save Changes.

    6. Exit the Master Data Excel.

Task 3: Run the Optimizer and Validate the Results

Steps

  1. Run the optimizer and validate the results.

    1. In the Microsoft Excel SAP IBP tab, choose Application Jobs, then S&OP Operator, then Run.

    2. Select the planning operator Profile 1_Optimizer_No Fairshare_##.

    3. Change the end day to the last possible day of the planning view (see step 2b of task 1 above).

    4. Under Scenarios, check that the Baseline checkbox has been defaulted.

    5. Under Versions, check that the Base Version checkbox has been defaulted.

    6. Under Planning Unit, check that the ##_PUMP checkbox has been defaulted.

    7. Choose Next.

    8. Choose Run.

      Result

      The optimizer tries to keep the projected stock higher than the Safety Stock (SOP) in order to minimize the target inventory violation costs. When target subperiods of supply are used, the results are often hard to understand because the placement of production and transport quantities, in order to control this behavior, the maximum inventory key figure is used. In the second screen which shows later buckets you can see that the optimizer ends with a projected inventory roughly on Safety Stock Level. In order to display the entire planning horizon extend the time setting of your planning view sheet and make it valid to the last possible day.

      The figure shows the Optimizer results for earlier time buckets.The figure shows the Optimizer results for later time buckets.

  3. Validate the lot-sizing procedure result in Projected Stock key figure on the Inventory tab.

    1. The lot-sizing procedure varies according to the table:

      SettingLot-Sizing Procedure
      0 (default setting)Lot for lot (the demand for each period is produced in that period)
      1Static periods of supply
      2Dynamic periods of supply
      3Production cycle lot size
      4Static periods of supply based on average demand
      5Dynamic periods of supply with safety stock

      For the present exercise, the selected setting was 1-Static Periods of supply which aims to build up safety stock that covers the dependent and independent demand of a definable number of subsequent periods. You specify the number of subsequent periods in the input key figure Target Subperiods of Supply. In the key figure Target Subperiods of Supply a value was defined for each location. Therefore, validation should consider that Projected Stock equals the sum of the following X time buckets demand, where X is the key figure Target Subperiods of Supply for the present time bucket.

Task 4: Check the Business Log After the Optimizer Run

Steps

  1. Check the business log after the optimizer run.

    1. In the Microsoft Excel SAP IBP tab, choose the SOP Operator dropdown list.

    2. Choose Status.

      The figure shows the PSAP Operator icon.

    3. In the fifth column, choose Show Business Log.

      Result

      The following window is displayed:

      The figure shows the Filter for Business Logs.

    4. Choose OK to read the report.

      Result

      The figure shows a Business Log.
Learning
SAP FacebookSAP YoutubeSAP LinkedIn