Functions in Detail

SAP Advanced Planner & Optimizer

Supply Network Planning

and Deployment

SAP AG

Neurottstrae 16

69190 Walldorf

Germany

iii

Copyright 1999 SAP AG. All rights reserved.

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Supply Network Planning and Deployment December 1999

iii

Contents

Supply Network Planning

and Deployment

Supply Network Planning and Deployment

Introduction

Overview of SAP Advanced Planner & Optimizer

The SAP Business Framework

Benefits of SAP Advanced Planner & Optimizer

Overview of Supply Network Planning

Benefits of Supply Network Planning

Functions of Supply Network Planning

Supply Chain Planning Integration

Supply Network Planning Heuristic

SNP Optimizer

10

Capable to Match

12

Deployment

12

Transport Load Builder

12

Vendor-Managed Inventory

13

Sales and Operations Planning

iii

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media centers for each subject at:
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iii

Supply Network Planning and Deployment

Supply Network Planning and Deployment

Introduction
Problems and Challenges of the Supply Chain
The hallmarks of todays business environment are
volatile demand, decreased customer loyalty, shorter
product life cycles, and tougher global competition. To
survive, organizations need an information infrastructure that allows them to make accurate decisions
in real time and to make customer satisfaction a top
priority, while still remaining competitive and profitable.
The stakes are high. Miscalculations in forecasting that
result in excess inventory can prove fatal. Failing to
meet promised delivery dates can drive away customers. To handle these challenges, manufacturers are
turning to new, advanced planning and scheduling
techniques that generate optimized executable plans
in response to rapid changes in supply or demand.

Data-Driven Process
Huge amounts of data drive these planning and
scheduling processes. Much of it comes from the
organization itself, but other data comes from outside
the organization from suppliers, partners, and even
customers. Unlike the data models used by existing
Enterprise Resource Planning (ERP) systems, supply
chain decision support systems require a new breed
of memory resident data model that can handle vast
amounts of complex data in real time. Until now, if
you wanted an end-to-end solution, you had to
integrate specialized software with your existing ERP
system and built custom interfaces to handle outside
data sources. This can work, but only at an enormously
high cost.

Robust Integration Layer

Because SAP has built a robust integration layer between
SAP APO and the underlying execution system, SAP APO
can gain immediate and seamless access to Online
Transaction Processing (OLTP) business data. While the
data objects contained within SAP APO are, in most
instances, structurally optimized instances of OLTP data,
they remain synchronized through a series of real-time
triggers and messaging, a task that is seamlessly
accomplished through the integration services of the
Business Framework. SAP refers to this technique as
semantic synchronization. The SAP APO server also
integrates with the SAP Business Information Warehouse
using this same mechanism providing unprecedented
access to vital business decision data.

Advanced Optimization Techniques and Technology

In addition to highly specialized data objects, SAP APO
uses a library of advanced optimization algorithms and
a high performance, memory resident data processor
to perform planning and optimization. You can
configure SAP APO to provide task-specific, industryspecific, and company-specific optimization, automated
decision, and real-time event notification to the underlying business processes.
This brochure provides an introduction to SAP APO
and discusses in depth Supply Network Planing, one
of the SAP APO components.

The SAP Supply Chain Management Solution

SAP has introduced the Supply Chain Management
solution to meet the challenges of managing the entire
supply chain from end to end. The SAP Advanced
Planner and Optimizer (SAP APO) is an important part.
With SAP APO, SAP has combined the ERP execution
power of the SAP R/3 System with advanced data
analysis and supply chain management tools.

Figure 1: SAP APO Overview

Supply Network Planning and Deployment

Overview of SAP Advanced

Planner & Optimizer
The SAP Advanced Planner and Optimizer builds on
the SAP Business Framework to improve information
flow by incorporating real-time collaborative decision
support, advanced planning, and optimization into the
SAP R/3 System. SAP APO uses a powerful memory
resident analytical engine and highly specialized, highly
config-urable data objects that offer major new
components:
n Supply Chain Cockpit
n Demand Planning
n Supply Network Planning and Deployment
n Production Planning and Detailed Scheduling
n Global Available-to-Promise

Supply Chain Cockpit

Graphical Command Center
The Supply Chain Cockpit component is a graphical
instrument panel for modeling, navigating, and
controlling the all the links in the supply chain. It gives
you a complete view of the entire length of the supply
chain. Its the command center the cockpit from
which you manage your supply chain.
Using the Supply Chain Engineer, you can build an
elaborate graphical representation of even the most
complex supply chain. Once you have built a map of
the supply chain, you can select any part of it and zoom
in to a detailed level. Using a series of event triggers
and alarm conditions, the Alert Monitor can automatically identify problems in the supply chain. It can
also monitor material, capacity, transportation, and
storage constraints, and it can handle such metrics as
delivery performance, cost flow, and throughput.

Demand Planning
Accurate Forecasting
The Demand Planning component is a toolkit of
statistical forecasting techniques and demand planning
features that helps you create accurate forecasts and
plans. Demand Planning is tightly linked to the SAP
Business Information Warehouse, so you can use
advanced Online Analytical Processing techniques to
drill down to detailed levels of data and analyze
historical, planning, and business intelligence.

Because it integrates such a wide set of data, Demand

Planning gives you a sound understanding of all the
factors that affect demand, delivering context-based
demand planning, which raises forecasting to a new
level of sophistication and accuracy. Like the Supply
Chain Cockpit, Demand Planning uses the Alert Monitor
to report exceptions, like orders that exceed forecasts
or orders that fall short of forecast and therefore may
lead to excess inventory if production is not adjusted
accordingly. Using Demand Planing, you can:
n Perform collaborative forecasting

You can collect forecast data from multiple

sources and store it in a common repository so
planners from marketing, sales, logistics, and even
third-party vendors and suppliers can work
together on a consensus forecast.
n Manage product life cycles

You can manage the life cycles of your products

according to such factors as product supercession,
substitution, and cannibalization.
n Plan promotions

You can counteract fluctuations in demand using

promotions that are based on your profitability
goals, product availability, and historical patterns.
You can even predict how price increases or
decreases will affect future demand.
n Forecast new product demand

You can develop accurate forecasts for new

products based on models from similar products,
demand histories, and other factors. You can
monitor the launch of a new product and the end
of a products life using point-of-sale data.
n Perform causal analysis

You can identify and predict how such factors as

demographic changes, environmental variables, and
social or political factors affect demand for your
products. You can analyze actual demand using a
variety of tools, such as multiple linear regression,
and incorporate causal factors like price.

Supply Network Planning and Deployment

Model Your Entire Supply Chain
Using the Supply Network Planning and Deployment
component you can develop a model of your entire
supply network and all of its constraints. Then, using
this model, you can synchronize activities and plan
the flow of material along the entire length of the supply
chain. This allows you to create feasible plans for
purchasing, manufacturing, inventory, and transportation and to closely match supply and demand.

Supply Network Planning and Deployment

Drawing on data in liveCache, a high-performance

memory-resident technology, and using algorithms,
user-developed rules, and policies, the Deployment
component helps you dynamically rebalance and
optimize your distribution network. It also helps you
dynamically deter-mine how and when to distribute
inventory. Using the Supply Network Planning and
Deployment component, you can:
n Model plans at aggregate and detailed levels
n Perform what-if analysis
n Dynamically match supply and demand using

product substitutions
n Use vendor-managed inventory techniques
n Determine the optimum distribution of supply to

meet short-term demand

Figure 2: Supply Chain Engineer

Production Planning and Detailed Scheduling

Global Available-to-Promise

Generate Production Plans Rapidly

Match Supply and Demand with Available-to-Promise

The Production Planning and Detailed Scheduling

component is an integrated set of tools that helps you
respond rapidly to changing market conditions. Using
this component, you can generate production plans and
schedules that optimize resources. The component
offers optimization based on state-of-the-art methods,
such as the theory of constraints and optimization
libraries.

The Global Available-to-Promise (ATP) component

uses a rules-based strategy to ensure you can deliver
what you promise to your customers. Global ATP
performs multilevel component and capacity checks
in real time and in simulation mode to ensure that
you can match supply and demand. You can also perform these ATP checks against aggregated, memoryresident data for even better performance. Global ATP
maintains simultaneous, immediate access to product
availability along the supply chain, so you can be confident that you can meet your delivery commitments.

Using this component, you can:

n Perform forward and backward scheduling on

multiple levels
n Perform detailed capacity planning and material

planning simultaneously
n Synchronize schedules and make scheduling

changes at multiple levels of the bill of materials

(BOM)
n Use what-if scenarios to simulate actual conditions

and consider the effect of various constraints

n Perform interactive scheduling and plan optimi-

zation using a Gantt chart

n Integrate sales and distribution backorder sched-

uling into the manufacturing process

Global ATP draws on a number of criteria to arrive at

a commitment, including:
n Product substitution

If a finished product or component is not available,

the system automatically selects a substitute using
rules-based selection criteria.
n Selection of alternative locations

As with product substitution, Global ATP can

source materials from alternative locations. You
can also integrate this logic with the product
substitution rules.
n Allocation

You can allocate products or components that are

in short supply to customers, markets, orders, and
so on. The ATP calculation and response take these
allocations into consideration.

Supply Network Planning and Deployment

The SAP Business Framework

Integrate New Technology and Legacy Systems
SAP APO is a separate SAP solution with its own release
cycle. It is a Business Component of the Business
Framework, SAPs strategic product architecture,
which is designed to facilitate the seamless and rapid
integration of new business functions and information
technology into existing environments. The Business
Framework provides an open architecture, allowing
its basic elements, the Business Components, to
operate through standardized Business Application
Programming Interfaces (BAPIs). Each of the SAP APO
components, such as SAP APO Demand Planning, can
be implemented as a stand-alone product or as an
integrated part of the Business Framework.

Overview of
Supply Network Planning
The most critical factors in supply chain planning are the
demand-driven and constraint-based nature of advanced
planning. Working with the Supply Chain Engineer and
Supply Chain Cockpit components, the Supply Network
Planning component gives you all the features you need
to perform advanced supply chain planning. It helps you
make the right decisions at the right time.

Planning and Optimization

Plan at Aggregate and Detailed Levels

Benefits of SAP Advanced

Planner & Optimizer

The Supply Network Planning component plans at both

aggregate and detailed levels, primarily on a tactical
planning horizon. Planning objectives are subject to a
variety of constraints, such as transportation,
warehouse capacity, major production capacities,
calendars, costs, and profit.

SAP APO provides a number of benefits, including the

following:

You can define the components planning strategies to

model different environments, including:

n Completeness

n Make to stock

SAP APO supports all of the key supply chain planning and optimization functions and processes
traditionally found in stand-alone advanced planning and scheduling solutions.

n Package to order
n Assemble to order (with or without final assembly)

n Performance

The SAP liveCache memory resident computing

technology enables forecasting, planning, and
optimization functions to be executed in real time.
n Independence

SAP APO performs planning functions and processes outside of the OLTP system, ensuring greater
flexibility and high availability of the SAP APO server.
n Openness

SAP built SAP APO to function in heterogeneous

environments. It interoperates with SAP R/3, thirdparty, and legacy OLTP systems.
n Integration

SAP APO is seamlessly integrated with the R/3 System

so you can integrate all the links in your supply
chain. A robust and sophisticated integration layer
facilitates the use of SAP APO with additional
optimization and forecasting algorithms.

Figure 3: Bucketed Planning Periods

These strategies influence how production is planned

and how forecast is consumed. SAP APO uses time
buckets (a collection of days of data summarized into a
column) to plan independently of the planning horizon.
You can define the granularity of the time buckets.

Supply Network Planning and Deployment

Simulate and Store Multiple Versions

You run planning activities, such as interactive planning,
and heuristics and optimization techniques, in simulation
mode, and then store them as individual versions. You
can recall these versions later, evaluate and compare
them, and then release them as live planning data.

Shorten Planning Cycles

When you change plans, the system propagates
changes forward and backward through the network,
which leads to very short planning cycles. The system
supports interactive planning via online simulation and
the integrated Alert Monitor.

Solution Techniques
Generally, you can use two different approaches to
find the best solution to an optimization problem: exact
and heuristic. With global exact methods (like linear
programming), you apply well-defined, proven algorithms to obtain the optimal solution. Heuristics are
local optimization methods based on empirical experience. There is no guarantee that the solution is optimal,
but an effective heuristic can deliver a feasible solution
that is close to the optimum. Supply Network Planning
uses several optimization techniques:
n Simplex-based algorithms

The simplex method is an algebraic procedure for

solving linear programming problems. The
method, which is based on Gaussian elimination,
iteratively searches for the corner points of the
feasible region as candidates for an optimum
solution. SAP APO leverages the robust, well-tested
ILOG library functions (CPLEX), which includes a
variation called the interior-point method, to solve
problems efficiently. In addition, CPLEX
automatically detects network flow problems and
solves them with special network flow algorithms.
n Branch and bound methods

This is a divide-and-conquer strategy for solving

discrete problems. These methods use a depthfirst search strategy for traversing the search space.
The system systematically trims the search tree by
pruning branches that only lead to infeasible solutions and those that arent as good as the best solution found so far. For business scenarios, a complete
branch and bound search usually requires a prohibitively long run time, but Supply Network Planning
speeds up the search by using filtering techniques.

Figure 4: Interactive Planning

n Constraintbased Propagation

Constraint-based Propagation (CBP) is the most

advanced technique, combining logic programming and artificial intelligence. CBP exploits existing
constraints to deduce additional constraints and to
detect inconsistencies among possible solutions.
This propagation method eliminates much of the
search space, and the system can find a feasible
solution faster by traveling the search tree. SAP APO
uses the ILOG library for fast constraint propagation.

Inventory Planning
Supply Network Planning enables you to assign optimal
safety stock and target stock levels to all inventories
throughout the supply network. The system bases
safety stock calculations on lead times, forecast variability, and customer service levels. You can assign a
variety of inventory strategies and parameters to products based on product characteristics, such as ABC classifications. The parameters of the inventory policies can
be time phased to address planning issues, including:
n Phase in and phase out in a product life cycle
n Seasonal demands that lead to inventory build up
n Promotional demands

Supply Planning
Smooth Material Flow
The Supply Network Planning component smoothes out
the flow of materials through the supply chain and
considers such issues as time phasing, distribution and
material requirements, capacity constraints, and quotas.

Supply Network Planning and Deployment

This allows you to:

n Replenish inventory based on a time-phased order

logic
n Make optimal decisions about sourcing
n Optimize the product mix
n Plan the trade-off between production runs and

inventory costs
n Plan an optimal supply path in a multistage pro-

duction environment
n Create supply allocations for customers and chan-

nels
To simultaneously plan distribution, Supply Network
Planning provides production and procurement capabilities and advanced heuristics, such as repair-based planning strategies, linear programming techniques, and
constraint-based programming. You can combine these
techniques as needed. For example, you can use the
linear optimizer to determine the quota arrangements.

Deployment and Transport Load Building

Automatic Deployment Logic
The Deployment function in Supply Network Planning
determines the optimized inbound and outbound
distribution of available supply in response to shortterm demand, including customer orders, stock transport requirements, and safety stock requirements.
Deployment logic considers a wide variety of shortterm constraints, including transportation, warehouse
handling capacity and calendars.

Optimize Transportation Loads

The Transport Load Builder (TLB) component of
Supply Network Planning optimizes transport loads
by grouping available products based on the Deployment recommendations. It creates loads of multiple
products and ensures that vehicles are filled to maximum capacity.

Vendor-Managed Inventory
Using Supply Network Planning, you can implement a
Vendor-Managed Inventory (VMI) strategy. The component handles all the processes, including modeling
customers as locations in the network, integrating
information with Electronic Data Interchange (EDI)
messages using the Internet or intranets, and automating replenishment.

Sales and Operations Planning

Sales and Operations Planning (SOP) is a process that
gives you the ability to direct your business by integrating marketing plans with supply chain management. This integrates all business processes into one
overall plan. SAP APO delivers SOP by seamlessly integrating the SAP APO data mart, the propagation of networks in liveCache, and the Key Performance Indicator
(KPI) reporting capabilities.

Benefits of
Supply Network Planning
Supply Network Planning is a complete, high-quality
solution based on leading client/server technology and
SAPs acknowledged business expertise.
Supply Network Planning delivers multiple benefits. It
is:
n A fast solution

Because it is a component of SAPs Business Framework, you can implement Supply Network Planning
rapidly and at a low cost.
n An open solution

Supply Network Planning is not limited to the R/2

or R/3 Systems. Using open interfaces, you can
combine Supply Network Planning with both SAP
and non-SAP data and tools.
n A function-rich solution

Supply Network Planning gives you all the tools

you need to develop complex plans and adapt them
to your ever-changing business.
n An adaptable solution

If you change your business processes or environment, Supply Network Planning can adapt to these
changes rapidly and without breaking the bank.
n A robust, business-driven solution

Based on SAPs proven expertise in R/3 client/

server technology and in real-world business
processes, Supply Network Planning is built to
work the way you do.

Supply Network Planning and Deployment

Functions of Supply Network Planning

Supply Chain Planning Integration
Integration Saves Time, Cuts Costs
There are two dimensions to integration. The first aspect
is integrating supply planning with an Enterprise
Resource Planning (ERP) system to provide master data
elements and data, like on-hand inventory and purchase
orders. The second is the seamless integration of
Demand Planning, Supply Network Planning, and
Production Planning and Detail Scheduling. This
integration means that data only needs to be entered
once, which saves you time and money and reduces
errors. It also means that your system uses one consistent set of data, so you never have inconsistent answers
or information.
Figure 5: Integration

Supply Network Planning Heuristic

The SNP heuristic performs requirements planning
throughout the entire supply chain network to determine how your organization can best satisfy customer
demand. It optimizes your supply chain to meet stringent customer service levels, while simultaneously
minimizing inventory levels and synchronizing the flow
of material. The heuristic, based on a repair-based planning approach, efficiently plans complex distribution
networks in production environments that are spread
across multiple sites. You can define several planning
horizons to control the SNP heuristic results.

Demand Guidelines
The system represents demand as the demand forecast
or actual customer orders. You can specify a demand
fence to determine when you should use actual
customer orders instead of the demand forecast and
when you should use the maximum of demand forecast
and actual customer orders. Forecast consumption
logic combines the demand forecast with customer
orders.

Requirements Planning
The underlying concept of the SNP heuristic nets the
demand for a product (or product family) and the
location level against inventory, products in transit,
and fixed production. The heuristic then recalculates
requirements for the sources for the products while

taking quota arrangements, lead times, calendars, and

lot-sizing rules into account. The system repeats this
process for each level in the network until it generates
all the production and purchase requirements. The
process generates requirements for intermittent
products, raw materials, and finished goods.

Proactive Resource Utilization

You can execute a capacity check after the infinite
requirements planning run is completed. This capacity
check allows you to determine how planned orders
affect your resources and to quickly determine whether
your plan is feasible or not. The capacity check tells
you when resources will be overloaded and which tools
you will need to balance the load. This allows you to
proactively plan resource utilization and to decide how
to modify production plans so you can meet demand
before going into production.

Capacity Leveling
If capacity becomes overloaded, an alert will display
the problem. In this case, you must perform simulative
planning by manipulating resource utilization to
balance resource usage, then view the impact of the
changes to ensure that the change has not overloaded
another resource. Once you save the changes, the
production plan or transportation plan becomes the
basis for the daily production schedule.

Supply Network Planning and Deployment

You can adjust the plan in several ways:

n You can shift the capacity load backward to satisfy

demand with high priorities without due date

violations.
n You can shift capacity load related to low-priority

demand and minimize due date violations based

on demand priorities.
n You can remove demands with certain priorities

from the load.

Demand priority depends on demand types, such as
customer orders, safety stock and forecast, and user
selection. If the capacity is not sufficient for the most
important demand type, you can define priorities by
product, product family, customer, or location.

SNP Optimizer
In addition to the SNP heuristic, Supply Network
Planning provides linear optimization techniques
based on simplex-based algorithms and branch and
bound methods. They are:
n Basic solve

The optimizer creates an optimal solution based

on all available data. This method is the normal
simplex method in which all the variables are
continuous.

Figure 6: SNP Optimizer

n Discrete

The optimizer creates an optimal solution based on

all available data. This method is the same as the basic
solve technique, except that some variables can be
made discrete using the profiles. Transportation is
made discrete using the lot size profile, and
production is made discrete using the production
process model.
n Time aggregation

The optimizer speeds up the solution process by

grouping data according to time buckets. It solves
the problem for the earliest time bucket first, then
proceeds sequentially through the remaining time
buckets.
n Product decomposition

The optimizer speeds up the solution process by

building groups of products and solving the
problem one product group at a time.
n Priority decomposition

The optimizer speeds up the solution process by

grouping according to priorities. It solves the
highest priority problem first, then proceeds
sequentially through the remaining groups in
order of priority.
n Incremental

The optimizer speeds up the solution process by

allowing you to select a subset of products for
optimization.

Supply Network Planning and Deployment

Easy-to-Use Optimization

Common resource constraints include:

Usually, there is a tradeoff between the quality of the

solution and the flexibility of the model. You must
evaluate the result and then enrich or refine the model.
Certain assumptions or approximations that you make
in the process may invalidate the model, but the SAP
APO models are versatile enough to handle the diverse
needs of different industries. The algorithms have been
thoroughly tested to provide a best-of-breed solution.
SAPs optimization solver is easy to use and extremely
flexible.

n Market demand

Reconcile Conflicting Goals

The objective functions specify the business goals that
you are trying to achieve. Many problems involve more
than one measure of merit. The result of SAP research is
a suite of models that address multiple conflicting goals.
You assign weights to these goals to create priorities.
You can combine the following goals:
n Transportation costs
n Storage costs
n Handling costs
n Production costs
n Penalty costs for not satisfy specific demands (such

as safety stocks) or for late delivery

You can choose to maximize profit or minimize costs.
Constraint functions describe the physical or logical
limitations in a supply chain. To improve your companys
productivity and profitability, you must alleviate the
constraints that limit the performance of the system.
The SAP APO Optimizer addresses variable and functional constraints.

Variable Constraints
Variable constraints reflect the basic properties of the
variables, for example, non-negativity or integration of
production volume. These constraints usually define the
domains for the decision variables, such as search space.

Functional Constraints
Functional constraints depict the structural relationship of the activities and resources. When you allocate
resources to activities, demands must not exceed the
availability.

Market demand ultimately determines how much

your company will produce. The market dictates
your products and your production plan. Loss of
sales is usually caused by a plants inability to meet
customer requirements at the required time, price,
and quality. An example of this type of constrain is
customer orders. Sometimes there are specific
priorities for customer orders. The SAP APO Optimizer either enforces the prioritization of customer
orders strictly (meaning it does not delay one customer order for another with a lower priority), or
it can model constraints as soft constraints (meaning
it penalizes lateness according to priorities).
n Material availability

Material availability is a fundamental production

requirement, but pricing is not the only relevant
criterion. If a vendor delivers the raw material late
or the material is defective, the production process
is disrupted.
n Resource capacity

Machines, tools, and labor must be synchronized

to ensure production proceeds smoothly and on
time. Both capacity and materials may be soft constraints in the sense that extra capacity and materials can be purchased at an additional cost for midterm planning. For short-term detailed scheduling,
however, these would be hard constraints. The bottleneck resource may also change over time as supply
or demand changes.
n Infrastructure logistics

Infrastructure logistics includes temporal constraints and sequencing constraints in operations

management and processes routing. For example,
after a part is heat treated, there may be a waiting
period before the next step can begin. Or there
could be precedence constraint in the routing. For
example, the first process order produces an intermediate product that is consumed by the second
process order.
n Organizational issues

Company policies, marketing strategies, union rules,

individual practices and government regulations are
all organizational issues that produce constraints.
They are often overlooked, but managerial and behavioral constraints are the roots of many problems.

Supply Network Planning and Deployment

Capable-to-Match
Capable-to-Match (CTM) functions match a large set of
prioritized customer demands and forecasts to a set of
categorized supplies considering the current production
capacities and transportation capabilities in a multistage
production environment, as in the semiconductor
industry. CTM is based on constraint-based propagation
techniques and goal-oriented programming.
Preprocessing tools provide a set of categorized supplies
and prioritized demands as input to the CTM Engine,
which then performs a fast check of production
capacities while considering transportation capabilities.

In before production searches (or most to least), the

system first searches through all supply categories for
finished or semifinished products before it resorts to
ordering production for that item. The search is
conducted top down. The system first searches the
production process model for finished products, then
intermediate products, then raw materials.
In after production searches (or least to most), the
system searches for categories after an attempt is made
to produce the item.

Time-Dependent Production Processes

You can define different production processes,
including product flow, for different time intervals. The
CTM engine chooses only production processes that
are valid at the representative time.

Model Alternative Components

You can implicitly model alternative components by
annotating a list of alternatives within the bill of
material, or you can model alternative components
explicitly by defining a set of product substitutions for
a given product.
Figure 7: CTM Process

Prioritize by Demand
CTM prioritizes demands, such as customer orders
or forecasts from SAP APO Demand Planning, based
on such characteristics as customer priority, location,
and product priority.

Supply Categorization
CTM performs supply categorization based on the
available supply and user-defined inventory limits, such
as amount of inventory or planned deliveries.

CTM Engine
The CTM engine delivers the functions you need to
control supply and demand. The CTM engine process
can be divided into two steps. In the first step, the
CTM engine builds the CTM application model using
the specified supply network model. In a second phase,
the CTM engine matches demand to supply considering
production capacities and transportation capabilities
and using constraint-based propagation. CTM searches
before production and after production.

10

Identification of Raw Material

A special product category identifies material that is
available in an infinite quantity. But for the consumption of this product, a purchase requisition must be
created.

Process Flows Based on Demand

You must select a specific process flow based on the
set of characteristics of a given demand. For a planning
process that covers several physical plants, you must
be able to restrict the production and distribution
network to a set of allowed plants. In addition, the
CTM engine can handle the plant substitution rules of
SAP APOs Global ATP component.

Product Substitution Rules

CTM considers a set of demand characteristics for each
product and a prioritized list of substitute products
using Global ATP rules.

Supply Network Planning and Deployment

By-Products and Co-Products

Because several different products can result from a
testing process, high-tech companies, such as semiconductor companies, use inverted bill of material
structures similar to process manufacturers.

Deployment
Pull and Push Deployment

Partial Satisfaction and Partial Shipment

If partial satisfaction of one demand is allowed, CTM
takes this into account (in other words, demand can
be split). CTM also considers the possibility of partial
shipments.

Late Demand Handling

The due date can be postponed for late demands. If
this is done immediately before the handling of further
demands, scheduling the late demand can cause
further late demands. This is called the domino
strategy. To avoid this effect, it is useful to postpone
unsatisfied demands to the end of the matching
process, which is the strategy used by airline
reservation systems.

Time-Dependent Process Parameter for Yield

To describe a time-dependent learning curve as it is
found in semiconductor companies, CTM offers an
easy way to overwrite operation scrap or yield values
for a specific time interval.

Time-Dependent Capacity Consumption:

Because of the rapid change of master data and other
relevant planning data, CTM provides an easy way to
overwrite
n Capacity consumption values
n Duration values
n Quantities of input components
n Quantities of output components for a specific time

interval

Figure 8: Pull Versus Push Deployment

Deployment uses push logic to calculate deployment

when the Available-to-Deploy (ATD) quantity can
adequately cover the demand within the system You
specify a push rule to identify how the push logic is to
be implemented. With pull distribution, all demand
within the pull deployment horizon is met through
deployment. Distribution occurs according to the due
date specified at the distribution centers. With pullpush distribution, all the demand within the pull
deployment horizon is met through deployment immediately, without regard to the requirement dates specified by the distribution centers. With push distribution,
all the requirements defined in the system are met
through deployment immediately

Fair Share Deployment

If demand exceeds supply, Deployment uses fair share
logic to calculate deployment based on the availableto-deploy quantity, the open sales orders, the safety
stock, and the forecast. You specify a fair share rule
in the product master data to identify how the fair share
logic is to be implemented. You can:
n Distribute the stock proportionally to all distri-

bution centers according to demand

n Raise the stock levels in all distribution centers to

approximately the same percentage of target stock

level
n Distribute the stock according to priority of the

demand at the distribution centers

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Supply Network Planning and Deployment

In addition, you can specify priorities for single orders,

such as customer order or forecasts, by location and
product. You first satisfy the demand with higher
priority using the available supply. If demand exceeds
supply in a demand class with same priority, you can
apply fair share in this class.

Transport Load Builder

The Transport Load Builder (TLB) uses the results of
the deployment run (single product transport recommendations) to create transport orders for multiple
products. It ensures that your transportation vehicles
are filled to their maximum capacity and that no
transportation vehicle is dispatched unless it is filled
to at least its minimum capacity. This minimizes your
transportation costs.
The system checks the planned transport orders
against the minimum and maximum values that you
have defined in the system. If the planned transport
orders do not meet either the minimum or maximum
requirements, the system activates an alert and you
can readjust the TLB plan.

order volume, taking existing warehouse stocks and

economic lot sizes into account. This estimated
demand represents a fairly precise starting point for
the rest of the supply chain.
The data required for VMI planning stocks, on-order
quantities, and sales forecasts is typically transmitted
using EDI messages and is stored as persistent data in
SAP APO. This automates the process and helps to
prevent errors.
Depending on the agreement between business
partners in a VMI relationship, you can set up
SAP APO to create actual sales orders in R/3, which
minimizes the administrative work involved.

Sales and Operations Planning

The Sales and Operations Planning (SOP) process is
a business planning process that monitors several
plans and reaches a consensus between different
teams. For example, the sales, marketing, manufacturing, and finance teams agree on a common plan
with elements that pertain to each group.
The objectives of SOP are to:

Vendor-Managed Inventory
The goal of Vendor-Managed Inventory (VMI) is to
include key customers in supply chain planning. For
VMI to work, you must integrate your customers
stocks and sales forecasts into your system. VMI
planning produces sales orders in the short term and
planned sales orders in the medium term. Before these
orders are actually created, transport load building
algorithms in SNP calculate optimized transport loads
and ensure product availability.
In Supply Network Planning, you create a VMI customer (both a ship-to and a sell-to customer) as a
location. It is networked with the rest of the supply
chain using a transport relationship that you define in
the Supply Chain Engineer. For planning purposes, a
customer of this type is treated in exactly the same
way as a distribution center or production plant. You
can assign products to a VMI location and define the
locations planning attributes.
If your VMI customers do not provide sales forecasts,
you can create the forecast using the SAP APO Demand
Planning component. Unlike conventional sales
planning, you forecast consumer demand instead of
incoming orders. The Supply Network Planning
component then calculates the anticipated incoming

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n Fulfill the business plan and measure actual per-

formance against business goals

n Ensure the feasibility of plans and minimize back-

logs
n Effectively manage decisions and changes in

demand and supply to synchronize the supply

chain
The SOP process relies heavily on information, including sales forecasts, backlogs, inventory, production,
lead times, shipments, and financial targets.
The seamless integration of the liveCache data into
the multidimensional data structure of the InfoCubes
in the SAP APO data mart allows you to set up an SOP
environment that meets your specific needs. Using the
Demand Planning and Supply Network Planning
components, you can incorporate SOP into the supply
chain planning process.
The SOP InfoCube represents an integrated set of plans.
You can define planning books to view SOP data in
grids and charts, and you can define thresholds to
create alerts in the Alert Monitor if the variance
between plans is outside the user-defined tolerances.
You can integrate costs and prices into SOP InfoCubes
in the data mart to generate a view of the information
based on revenue, cost, profit, and volume.