Exploring Principles and Tools for Demand Planning

Forecasting can be performed in different tools. For example, forecasting can be performed in SAP Integrated Business Planning (IBP). The result of the forecasting can be transferred to SAP S/4HANA as a planned independent requirement.

In addition SAP S/4HANA offers the following planning tools for sales and operations planning tasks:

• Flexible planning

• Standard SOP

These planning tools are not strategic for SAP S/4HANA and will be replaced by SAP IBP functionality.

Demand management is the management of independent requirements. The behavior of independent requirements in MRP (for example, whether they're effective or consume other requirements) is determined by the requirement class and/or the planning strategy.

Planned independent requirements are stock requirements. They can be derived from a forecast of future demands. In make-to-stock production, you start production of the affected materials before a specific sales order occurs. This procedure allows you to reduce delivery times. Moreover, you can use forecast planning to leverage the load of your production resources.

SAP IBP delivers a new paradigm of user experience and efficiency, leveraging real-time dashboards, advanced predictive analytics, interactive simulation, embedded social collaboration, and Microsoft Excel-enabled planning tables.

The usage of SAP IBP (IBP for Demand) is the strategically alternative of the side-by-side scenario for Demand Planning (DP) and Supply Network Planning (SNP).

Demand planning is a method to forecast future demands. You can create both quantity-based plans and value-based plans. You can choose any planning level, for example. This means that you can plan future demand for specific customers, regions, or sales organizations. You can also define time bucket profiles for planning.

Planning levels are defined using characteristics in the system. Characteristic values are the objects for which you aggregate, disaggregate, and evaluate business data. Planning data is stored in the form of key figures. Key figures contain numerical values that signify either a quantity or a value. For example, the projected sales value in Euros or projected sales quantity in pallets.

You can choose the type of historical data that you want to forecast. You can use any key figure. You can forecast material consumptions, incoming order quantities, invoiced quantities, or sales revenues.

The system uses different forecasting models to determine the future pattern of the key figure. Also a constant model for products with (very) limited variations of the historical demands will be offered. In addition, you can use seasonal models for seasonal products, such as ice cream, Easter candies, or Christmas lights.

There are options for smoothing and time-dependent weighting of historical data, as well as outlier corrections.

You have already learned that demand management is the management of planned independent requirements and their interaction with real customer requirements. 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 using our Bike Company example:

• Planned independent requirements (PIRs):

  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), SAP Supply Chain Management (SCM/APO), or SAP S/4HANA (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.

In the previous unit, you were introduced to planning strategies. 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's 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.).

• Subassembly 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. 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 advantages and considerations. The choice of strategy depends on the nature of the product.

Examples of some preselected planning strategies will be shown in the following two lessons.