Exploring Planning Strategies

In the last lesson, you learned about planning strategy 10. SAP S/4HANA Cloud Public Edition Enterprise Management offers some more plannings strategies for make-to stock production, for example, 40 and 70. These planning strategies provide different approaches to make-to-stock (MTS) production, allowing companies to choose the one that best suits their business requirements.

Make-to-stock production strategies can be executed based on planned independent requirements (PIRs) both on finished product level (for example, strategies 10 and 40) as well as an assembly level, including their final assembly (strategy 70). The PIRs itself result of an upstream forecast calculation process, or can be created manually, which considers, for example, sales order items of the past. These PIRs represent expected future sales order items. Depending on the used strategy, sales orders can consume PIRs on header level (strategy 40), on assembly level (strategy 70), or will not affect them (strategy 10).

Make-to-stock production strategies are typically used to ensure a smooth and well-balanced production plan (strategy 10). Deviation on the demand side will be covered by warehouse stock.

With planning strategy 10, sales orders do not directly impact the planning situation. This image illustrates the process of planning strategy 10:

Imagine that the Bike Company plans to produce 50 bikes. This planning is done at the finished product level using PIRs. Now, if a sales order for 10 bikes is received, the PIRs are not immediately consumed. Instead, the 10 bikes are delivered from the existing stock in the warehouse. The reduction of PIRs occurs at the moment of the goods issue.

The Bike Company can choose planning strategy 10 when they have a continuous demand for their bikes. This strategy doesn't automatically start production in case the sales demands are higher than the forecast. In this case, the planner at the Bike Company must manually adjust the forecast.

Planning with final assembly is one of the most common planning strategies in make-to-stock production. It is similar to planning strategy 10, but with a key difference: sales orders are relevant for planning and can consume planned independent requirements (PIRs):

In our scenario, the Bike Company has planned the production of 50 bikes per month. If we receive a sales order for 55 bikes, a shortage of 5 bikes occurs. In this case, using planning strategy 40, the system automatically triggers the planning of the additional 5 bikes to eliminate the shortage.

Planning strategy 40 allows you to focus on flexible, automated, and fast reaction to customer demand. This strategy allows for flexibility, automation, and a rapid reaction to customer orders. The Bike Company can apply planning strategy 40 to their assembled bikes, ensuring that they can meet customer demands.

With planning strategy 70, the Bike Company can handle the production planning of variants, for example, of bike variants with different bicycle gears.

In this strategy, the Bike Company procures the necessary bike assemblies, excluding the gear variants, without waiting for specific sales orders. When a customer places an order for a particular variant, the final assembly process is carried out using the already stocked assemblies.

Planning strategy 70 is typically used in scenarios where products have configurable or customizable features. We will follow up on this "Sub-Assembly Planning" subsequently.

You have learned that with planning strategy 40, sales orders can consume planned independent requirements. Next, let’s discover how exactly consumption is performed. The Bike Company can choose between different consumption modes. Watch the following video to learn more about them:

As you have seen in the video, consumption is an interaction between customer requirements and PIRs. In this strategy, PIRs are only seen as placeholders for future sales orders. Using consumption periods, you can limit the consumption. In case a customer demand is lying outside this consumption period, the consumption will not take place.

The consumption mode determines the direction on the time axis in which the incoming sales orders are to consume the PIR.

Maintain the consumption parameters (consumption mode, forward and backward consumption periods) in the material master.

The consumption indicator on the item screen for the Planned Independent Requirements must allow consumption with reservations and dependent requirements.

If you map this strategy together with a final assembly that takes place in make-to-order production, you must also set the individual or collective entry to "collective" in the material master of the assemblies.

In the following, you will learn about sales order-related planning strategies. Take a look at the following image, which illustrates different planning strategies. You may notice that some of the make-to-order planning strategies have similar names to the make-to-stock planning strategies. While the names may appear similar, it is important to understand that these strategies have distinct purposes and are designed to cater to different production scenarios.

In make-to-order production, for example, planning strategy 20, the production planning is initiated only when a sales order is received. PIRs are not used in this strategy.

Using the planning strategy 50 – assigned to the final product – it is possible to produce/procure sub components in advance.

Make-to-order production is a planning and inventory management approach that focuses on producing or procuring materials specifically for certain sales order items. Instead of producing or stocking items in advance, make-to-order considers individual customer orders before initiating the production process. This approach helps to minimize excess inventory and reduce the risk of carrying unsold products.

Let’s take a closer look at the steps of planning strategy 20:

Imagine that the Bike Company receives 2 sales orders. With planning strategy 20, each sales order is planned separately. The system does not perform a net requirements calculation between individual sales orders or with the make-to-stock warehouse stock. In make-to-order production, lot-for-lot order quantity is used as the default lot-sizing procedure, independent from the setting in the material master.

In material requirements planning (MRP) in SAP S/4HANA Cloud Public Edition, the Bike Company has to procure or produce each material separately. You will learn more about individual or collective indicator settings in the next section.

The produced bikes for one sales order cannot be exchanged or used for another sales order. Each sales order has its own separate stock, which is managed directly within the corresponding sales order.

The sales order stock and the requirement are reduced by a goods issue to the sales order.

Make-to-order makes sense on the following conditions:

• If it is difficult to forecast the finished product (strategy 70)

• If you need the ability to reserve material for certain sales orders

As mentioned previously, the Bike Company can either produce each material individually, or they can consolidate the requirements for multiple sales orders that use the same material. In SAP S/4HANA Cloud Public Edition, this is controlled by the individual or collective indicator settings. Watch the following video to learn more:

You make the settings for this strategy in the master of the finished product (MRP 3). The individual/collective indicators for the assemblies need to be set accordingly in the corresponding master.

The individual/collective requirements indicator in the material master determines whether a component is procured for a specific customer requirement in an individual segment.

The following are the options for the individual/collective requirements indicator:

• SAP S/4HANA Cloud Public Edition Indicator 1:

  The SAP S/4HANA Cloud Public Edition Indicator 1 for individual requirements means that the material is being specially manufactured or procured for a sales order. An individual segment is specially created for each requirement. An individual requirement is only created if the higher-level material does not generate a collective requirement.

• SAP S/4HANA Cloud Public Edition Indicator 2:

  The SAP S/4HANA Cloud Public Edition Indicator 2 for collective requirements means that the material is produced or procured for various requirements. The requirements are contained in the net requirements segment.

• Empty SAP S/4HANA Cloud Public Edition Indicator:

  An empty SAP S/4HANA Cloud Public Edition indicator means that the component is planned in the same way as the higher-level assembly. If the SAP S/4HANA Cloud Public Edition indicator represents the finished product produced in make-to-order production and the indicator is blank, the constraint for make-to-order production replaces the entry with 1, which means individual requirements only.

In the example shown in the figure, Individual/Collective Indicator – Example (I), two individual segments (for sales orders A and B) are created for the shaft.

If you want to control the material item for each BOM individually in SAP S/4HANA Cloud Public Edition, use the Explosion type field in the component’s item data (General Data view). The setting in the SAP S/4HANA Cloud Public Edition BOM overrides the setting in the material master.

All materials that appear under one material in collective requirements in the BOM are planned as collective requirements (inheritance) irrespective of the setting in the material master.

The receipt of the sales order triggers the final assembly. The sales order appears within an individual customer segment in which planning is performed separately for the sales order. In the next planning run, the system creates a planned order for the newly created sales order in the individual customer segment. This planned order can be converted into a production order, which then allows final assembly.

In the planning segment, however, the planned order quantity for the planned order without conversion indicator (with the order type VP) is reduced by MRP in accordance with the new requirements situation.

In this strategy, you manage the sales order in the individual customer planning segment. Alternatively, you can manage the sales order in the net requirements segment (planning strategy 52). If you choose this procedure, you have to work with the lot-sizing procedure with lot-for-lot order quantity. In this case, you must not maintain the rounding value, rounding profile, and the minimum or maximum lot sizes. Furthermore, stocks are not taken into account.

Consider a situation in which a planned independent requirement of 100 pieces exists and you receive a sales order for 40 pieces, which consumes the planned independent requirements. In this situation, the sales order for 40 pieces remains in the individual customer planning segment and a planned independent requirement for 60 pieces in the forecast segment. As soon as you plan the product again in the next planning run, the system creates a planned order for 40 pieces in the individual customer planning segment, which you can convert into a production order. At the same time, the system reduces the existing planned order in the planning segment from 100 to 60 pieces.

If a large part of the value added process occurs at final assembly, use planning without final assembly (planning strategy 50). The final assembly is not triggered until a sales order is available. The storage level is always below the finished product level.

If you do not wish to create IndR (that is, of VP status) planned orders in all BOMs for a particular material, you can assign the Planning off explosion control indicator in the Basic Data for the BOM item. You define this indicator under Define Explosion Types in Customizing for BOMs.