Exploring Tools and Concepts of Demand Management in Detail

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 Cloud Public Edition as a planned independent requirement (PIR).

As indicated before, SAP S/4HANA Cloud Public Edition still offers the following planning tools for sales and operations planning tasks:

• Flexible planning

• Standard SOP

However, consider that these planning tools are not strategic and are replaced by SAP IBP functionality.

Demand management is the management of independent requirements. The behavior of independent requirements in MRP (for example, whether they are effective or consume other requirements) is determined by the type of requirements or the planning strategy.

Planned independent requirements are stock requirements that can be derived from a forecast of future demand. In make-to-stock production, you start procurement of the affected materials without waiting for specific sales orders. This procedure allows you to reduce delivery times. Moreover, you can use forecast planning to spread the burden evenly across your production resources.

You can create sales orders (customer independent requirements) in Sales and Distribution (SD). For example, while planning for specific customers, it is necessary that customer requirements are considered by requirements planning directly, depending on their requirement type.

Sales orders can be used as exclusive requirement sources for which procurement is specifically triggered (make-to-order production). Alternatively, you can group sales orders with planned independent requirements to create the total requirements. Consumption is possible with Planned Independent Requirements (PIR).

SAP IBP is a new, state-of-the art platform for real-time, integrated supply chain planning. It is built on SAP HANA, for Cloud deployment. SAP IBP is being developed to deliver integrated unified planning, across sales and operations, demand, inventory, supply and response planning, as well as the supply chain control tower for dashboard analytics and monitoring.

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 (more precisely: SAP IBP for Demand) is the strategic alternative side by side scenario for Demand Planning.

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. 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.

In many business cases historical data can be used to forecast future market demand. Mathematical techniques are used for this purpose.

The following is a list of standard forecasting techniques:

• Moving average

• Constant model

• Trend model

• Seasonal model

• Exponential smoothing

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 in question.

You can use various constant models for products with historical data that changes little over time.

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.

The figure, Demand Planning Process Flow, shows the DP cycle. The past sales order quantities provide the basis for forecasting future demands. In addition, market intelligence or one-off events such as trade fairs, are included in the forecast. As a result of this forecast, the demand plan is released as PIR. Release provides the basis for procurement and production planning and may be consumed by the current sales orders.

You have learned already that demand management is the management of planned independent requirements and their interaction with real customer requirements. The result, 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 a bit closer now using our Bike Company example:

• Planned independent requirements (PIR):

  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) or SAP S/4HANA Cloud Public Edition (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.

You have been introduced to the planning strategies term already. 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 is 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).

• Sub-Asssembly 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, since 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 properties as well as own pros and cons. The choice of strategy depends on the business process and the nature of the product.

In SAP S/4HANA Cloud Public Edition, planning strategies are numerical codes that represent different approaches to production planning and control.

Pure Make-to-Stock Production (called planning strategy 10 in SAP) is one basic strategy for make-to-stock production. Let's take a closer look at how this strategy works:

Planning strategy 10 can be used, for example, for mass production or manufacturing of low-cost items (for example, C parts that are usually of minor value).