Performing Requirements Planning

The main purpose of requirements planning in retailing is to guarantee article availability in a retailer's sites, considering the need to both optimize the service level, and to minimize costs and capital lockup. By continuously monitoring the stocks, the requirements planning process is set up to automatically generate procurement proposals for purchasing. Requirements planning is regularly performed on article/site level.

Both a centralized purchasing policy, with ordering autonomy in the hands of the head office alone, and local purchasing autonomy (partial or complete) are supported by the system.

In order to set up requirements planning on article/site level, requirements planning and forecasting parameters are set in the logistics views (DC, store) of the article.

The (material) requirements planning type (RP or MRP type) plays a key role in requirements planning. For example, it controls whether a forecast is mandatory, optional, or not relevant. You also assign a lot sizing procedure, and the responsible MRP controller (stock planner) among other settings.

Forecast parameters are used to define the time interval of the forecast (period indicator), the number of historical values used, the number of periods forecast, and so on. The period indicator also determines the time interval for updating consumption values in the system.

The following forecast models are typically used:

• Constant model

• Trend model

• Seasonal model

• Seasonal trend model

Each of these forecasting models requires a certain minimum number of consumption values. New articles can make use of the historical values of another article for a certain period of time.

Various consumption-based requirements planning procedures (RP procedures) are useful for retailers:

• Reorder Point Planning

  In this requirements planning method, the available stock in the warehouse is checked against the reorder point. If the stock available in the warehouse is less than the reorder point, the system generates an order proposal (purchase requisition).

• Time-Phased Planning

  If a vendor always delivers an article on a specific day, it makes sense to capture this day using a delivery calendar (delivery cycle). To define the relevant order day for the article/site combination, a planning calendar (planning cycle) has to be maintained.

• Forecast-Based Requirements Planning

  Forecast-based requirements planning is also based on article consumption. Future consumption values are forecast. These values are used as the required quantity for the planning run.

In reorder point planning, the site’s currently available stock is checked against the reorder point. If the stock available is less than the reorder point, the system generates an order proposal (purchase requisition).

The reorder point is calculated using safety stock and the expected average article consumption during the replenishment lead time. As a result, the safety stock, existing consumption values, and the replenishment lead time must be taken into consideration when the reorder point is defined. In automatic reorder point planning, the forecast run calculates the reorder point, in manual reorder point planning, the responsible user specifies the reorder point manually.

Safety stock is used to cover unexpectedly high demand during the replenishment lead time and the additional article requirements when deliveries are not on time. Previous consumption, future requirements, and vendor delivery reliability must therefore be taken into consideration when calculating safety stock.

The replenishment lead time is calculated using the following data:

• Purchasing department processing time

• Planned delivery time

• Goods receipt processing time

In time-phased planning, a planning cycle (planning calendar) has to be maintained. For the dates specified, the system then regularly calculates the requirement for the relevant article/site combination. If a vendor always delivers an article on a specific day - for example, each Friday - it makes sense to specify this in an additional delivery cycle (delivery calendar). Time-phased planning then considers both calendars.

In order to use time-phased planning for an article/site combination, the RP type for time-phased planning, the planning cycle, and usually also the delivery cycle have to be specified in the article master (logistics view). The planning calendar is entered in the Planning Cycle field. You also define the planned delivery time, and the exact lot size as the MRP lot sizing procedure (EX: static procedure, lot-for-lot order quantity).

Articles that are procured for the sites using time-phased planning are assigned a planning date in the planning file. This date is set when an article master record is created, and a relevant MRP procedure is assigned. The date is reset subsequently after each planning run. This date corresponds to the day on which requirements planning is to be carried out next for the article and site (MRP area). It is calculated on the basis of the planning cycle entered in the article master record.

This means that automatic requirements planning is scheduled to run for an article and site (MRP Area) on exactly those days.

A requirements planning run results in a number of purchase requisitions being generated.

The requirements planning run for one or more sites and articles can be executed online or as a scheduled background job, using the Material Requirements Planning (MRP) function. The MRP Live transaction can be used across industries, and thus offers a wide range of requirements planning functions for production planning scenarios, as well as for consumption-based planning. The MRP Live run is executed for MRP Areas. This means that MRP Live requires a site to be defined as an MRP Area. It is also possible to create MRP Areas for a site's storage locations, and for subcontractors, but this is rather relevant for production processes. The planning run is always executed on site-level, not for individual sub-MRP areas defined for a site. The MRP Live transaction can only be used for articles/MRP Areas which have a planning file entry. A planning file entry is automatically created by the system when the relevant MRP settings are maintained in the article master (logistics view). The requirements planning transaction MRP Live provides a comprehensive initial screen for a detailed selection of the articles to be planned, as well as for setting control parameters:

• Defining the Planning Scope

  In the subscreen Planning Scope, you can select the relevant articles and sites for the planning run. It is also possible to select the articles/sites by the responsible MRP controller. The subscreen, Also to be Included in Planning, is mainly relevant in the Production Planning environment.

• Setting Control Parameters

  The Regenerative Planning indicator controls that the system plans all articles, for example, also all variants of a generic article, irrespective of whether they have been changed in relevance to the MRP since the last planning run. This means that if the indicator is not selected, the system executes net change planning. The Planning Mode controls, if unfirmed procurement proposals from the last planning run should be re-used if they completely match the new requirement, or if they are deleted and re-created.

The requirements planning run’s available-to-promise (ATP) check considers the current stock and existing documents (for example, purchase orders, or sales orders), using them as planned goods receipts and issues.

Purchase requisitions contain quantity and delivery date proposals for articles to be purchased. In Retail, the quantity calculation is typically done on the basis of past consumption, considering the current and expected stock level in the respective site. The delivery date is determined automatically based on settings in the master data.

It is possible to use a purchase requisition to create requests for quotation. However, typically supply sources are already available in the system and can be determined automatically.

Fixed vendors are determined and displayed in the detail view in the purchase requisition item, if automatic supply source determination identified a unique supply source.

If there is no supply source entry in the detail view of the purchase requisition item, the source of supply for a purchase requisition item has to be determined automatically, or entered manually, during the conversion into a purchase order. If several sources of supply are to be considered, these are displayed in a dialog box when converting purchase requisitions into purchase orders. Optionally, you can then use a price simulation to determine the most favorable vendor.

Supply source determination will be explained further down in this lesson.

The process chain detailed in the following figure, Purchase Order — Based On Requirements Planning, shows how purchase orders are generated from purchase requisitions, that were created automatically in requirements planning.

In general, both documents, that is purchase requisitions and purchase orders, can also be created manually, or via the Store Order function, among other applications. Some of the creation options for purchase requisitions and for purchase orders are shown on the left in figure, Purchase Order — Based On Requirements Planning.

Purchase Requisition conversion: To create purchase orders automatically from purchase requisitions, specific master data settings are required.

• In the site master record, on the Purchasing/Distribution tab, the automatic order conversion flag must be set.
• In the material master record, Logistics view of the respective site, the automatic purchase order allowed flag must be set.
• In the supplier master record, Purchasing data view, the automatic purchase order flag must be set.

The following functions are available when converting purchase requisitions to purchase orders:

Supply Source Determination is used to find a possible vendor. Both internal (distribution centers) and external supply sources (external vendors) can be considered.

Quantity optimizing can take place when you convert purchase requisitions into purchase orders. Quantity optimizing will be covered in the next lesson, Setting Up Purchase Order Management.

You use a Release Procedure if you want to set up approval procedures for purchase requisitions or purchasing documents. If a purchase requisition or purchasing document fulfills certain conditions (for example, the total value of a purchase order is more than 10,000 USD) it must be approved (for example, by the cost center manager) before further processing can take place.

Supply Source Determination

Supply source determination is used to assign supply sources to requirements. The MRP Live function, which was explained before, is available for cross-industry use in the SAP S/4HANA system. Thus, the supply source determination of MRP Live, called simplified sourcing, slightly differs from the retail-specific supply source determination which is used in the other system applications.

MRP Live supply source determination uses the following determination sequence for articles with procurement type F (external procurement). Take note that source lists (site-specific) are not mandatory, but can be used to (temporarily) include or block existing sources of supply:

• Quota arrangement*: These can be used to prioritize sources of supply in case several sources of supply are valid simultaneously
• Outline agreements (scheduling agreements, purchasing contracts)
• Purchasing info records with auto sourcing flag
• Purchasing info records with regular vendor flag

* Quota arrangements are hardly used in Retail.

As always, more granular data retention levels have a higher priority than general data retention levels so, for example, a site-specific purchasing info record has a higher priority than a general purchasing info record.

If the above mentioned source determination logic of an MRP Live run is not able to determine a unique supply source, then, for retail sites, the retail-specific external supply source determination is performed: the supply source field in the article master is not evaluated, only external supply source determination takes place.

Retail-specific supply source determination

Both internal (distribution centers) and external supply sources (external vendors) are possible. Possible supply sources are defined by the system with the following priority and then displayed on the screen as suggestions:

1. The system first checks if there is a quota arrangement for the article that has a validity period that includes the delivery date stated in the purchase requisition. If you want to procure an article from different sources of supply, you can provide the individual sources of supply with a quota, which allocates a proportion of the requirement to each source of supply. A quota arrangement is agreed for a specific period of time. A quota arrangement does not split a requirement. The entire quantity demanded in a purchase requisition is assigned to one source of supply according to the quota arrangement.

2. If no quota arrangement is available, the system uses the source list to determine a suitable supply source: The sources of supply that are allowed (and not allowed) for an article in a certain site and during a specified period are listed in the source list. You can also determine if the source list record should also be used in requirements planning (MRP). Furthermore, with a "blank" source list record with the "Blocked source of supply" indicator set, you can prevent an article from external procurement for a given period of time. Each source of supply is defined by a source list record.

   Note

   With the flag "Source list requirement" set in the site master, a quota arrangement can be overruled by the Source list entry.

   Steps 1 and 2 are available in standard / cross-industry as well. However, quota arrangements (Step 1) are not commonly used in Retail. The source list (Step 2) is used by some Retailers.

3. SAP Retail provides a specific supply source determination logic with the Supply Source field in the article master. The following options are available:

   • The system searches for an external source of supply (external vendor)

   • The system searches for an internal source of supply

   • Both methods can be used one after another

   In addition, you can deactivate supply source determination in your system and use a user exit to implement your own supply source determination method.

   You can also set the source of supply source key to consignment.

   Search sequence in external supply source determination: first, the system checks whether the ordering site is assigned to a supply region. If this is the case, only those relevant external supply sources will be considered. In external supply source determination, the outline agreements (see step 4) have the highest priority. If there are no outline agreements, the system searches for purchasing info records. If several purchasing info records exist for the same article, you can use the regular vendor indicator to force a unique selection, provided that the regular vendor indicator is activated for the ordering site.

   If the regular vendor indicator is set in the purchasing info record, the info record flagged as a regular vendor is proposed as the fixed vendor for a purchase requisition item.

   The first step in internal supply source determination is to search for a stock transport scheduling agreement between a DC and the ordering site. If there is no such scheduling agreement (they are not commonly used in retail), the supplying site (distribution center) is determined from the site master. Supplying sites can be maintained on site level (general level), or on merchandise category/site level (more specific level). On both levels, it is possible to maintain several supplying sites, even with overlapping periods, but then a priority indicator has to be assigned each.

4. An Outline agreement is a long-term agreement between a purchasing organization and a vendor for the delivery of articles, or the performance of services at specified conditions during a certain period. The following outline agreements are possible: value contracts, quantity contracts, and scheduling agreements. In Retail, contracts are commonly used.

   You choose a value contract if the total value of all contract release orders is to reach a certain amount. The contract is fulfilled when the agreed-upon value has been reached as a result of contract release orders.

   You create a quantity contract if the total quantity to be ordered during the validity period of the outline agreement is to be specified. The contract is fulfilled when the quantity agreed-upon has been reached as a result of contract release orders.

   You can also define group-wide contracts (centrally agreed contracts) with your vendors. These apply to all sites and company codes in a client, set up on reference purchasing organization level. However, site-specific conditions can still be created in centrally agreed contracts.