SAP ERP

SAP ERP
Page 5-2
© SAP AG
Material Master Data
 Material Master
- Contains all the information a
company needs to manage about
a material
- It is used by most components
within the SAP system
• Sales and Distribution
• Materials Management
• Production
• Plant Maintenance
• Accounting/Controlling
• Quality Management
- Material master data is stored in
functional segments called Views
SAP ERP
Page 5-3
© SAP AG
Material Master Views
Material Master
Basic Data
Sales Data
Controlling Data
Forecasting Data
Purchasing Data
Mat. Plan. Data
Accounting Data
Storage Data
Quality Data
SAP ERP
Page 5-4
© SAP AG
Sales Org. UW00
Sales Org. UE00
Material Master
Client XXX
General Information relevant for the entire organization:

Name
Weight
Unit of Measure
Sales specific information:

Delivering Plant
Loading Grp

Storage Location specific information:

Stock Qty
Storage Loc. FG00
Storage Loc. TG00
SAP ERP
Page 5-5
© SAP AG
Purchasing Information Record
 Framework for Purchase Order
- Contains the relationship
between a vendor and a
material
 Can be created:
- Manually
- Automatically – Quotations
- Automatically – Purch. Orders
 Reporting
- Vendor Evaluation

Material Master Vendor Master
Purchasing
Information Record
SAP ERP
Page 5-6
© SAP AG
Purchasing Information Record
 Allows buyers to quickly determine:
- Which vendors have offered or supplied specific materials
 Info Records contain:
- Data on pricing and conditions
- Last purchase order
- Tolerance limits for deliveries
- Specific lead times
- Availability periods
- Vendor Evaluation data
 Serves as default information for Purchase Orders
5/21/2014 7
Material Master Views
• Basic Data 1
• Basic Data 2
• Classification
• Sales: Sales Org Data 1
• Sales: Sales Org Data 2
• Sales: General/Plant Data
• Foreign Trade: Export Data
• Sales Text
• Purchasing
• MRP 1
• MRP 2
• MRP 3
• MRP 4
• Forecasting
• Work Scheduling
• General Plant Data/Storage 1
• General Plant Data/Storage 2
• Warehouse Management 1
• Warehouse Management 2
• Quality Management
• Accounting 1
• Accounting 2
• Costing 1
• Costing 2
Basic Data, Classification are
not plant-specific
Other views are plant-specific

5/21/2014 8
Material Master Views
Plant 1000
NRG-A Bars
Base unit: CS
Gross wt: 72 lb.

NRG-A Bars
Lead Time: 2 days
Std. Price: 216.80

Plant 2000
NRG-A Bars
Lead Time: 3 days
Std. Price: 223.20

Basic
Data
View
MRP
Views
Non-plant specific
Plant specific
复习: Material Master
• Industry Sector and Material Type
• Views in material Masters

Bill of Materials
Contents of Tutorial
• Definition of a bill of materials
• How a bill of materials is used
• Types of bill of materials
• Bill of materials information
• Benefits of a bill of materials
• Examples of bill of materials
Definition
Bill of Materials (BOM)
• A listing of all the subassemblies, intermediates, parts, and raw
materials that go into a parent assembly showing the quantity of each
required to make an assembly.

Bozarth, Cecil C. and Handfield, Robert B. Introduction to Operations and Supply Chain Management
. Pearson Education, Inc., Upper Saddle River, New Jersey, 2006. p.461.
Definition Explained

• Basically, a bill of material (BOM) is a complete list of the components
making up an object or assembly.
• It is also part of material requirements planning (MRP)
Processes that utilize a BOM
• Production
• Materials planning
• Product costing
• Plant maintenance
How can a BOM be used in your
organization?

• Several software programs are available that store item information
and prepare bill of materials automatically
Types of BOMs
• Static (fixed) bill
• A bill of material for a part that is normally made from the same
components, labor and raw materials.
• Used for standard assemblies, components, and engineer-to-order customer
orders.

• Example:
• A bill of materials for a standard chair
Types of BOMs
• Dynamic (parametric) bill
• A bill of material for a product or part for which size, color, laminate, and
other options can be selected.

• Example:
• A bill of materials for a Dell computer
Types of BOMs
• Single level bill of material
• A bill of material that lists the materials, parts and labor required to make
another part.

• Example:
• A bill of materials to make a Dell computer
Types of BOMs
• Multilevel bill of material
• A bill of material that lists the components, assemblies, and materials
required to make a part, the components, assemblies, and materials required
to make each component and assembly of the part, and so forth.

• Example:
• A BOM for the battery inside the Dell computer.
Structure of a BOM
What information is on a BOM?
1. Quantity
2. Item ID#
3. Description of Item
4. Cost of Item
5. Total Project Cost
Quantity
• Tells user how many of each part is needed for each project

• Example:
• A chair needs 1 seat, 4 legs, 1 back, and 5 nails.
Item ID #
• Tells us which part to order
• Can be any of the following:
• Catalog number, UPC, or any other identification number.

• Example:
• The chair needs a 2PC seat, 5DR legs, 6TU8 back, and 1 inch nails.
Description of Item
• Provides a check that the correct item is being ordered.
Cost of Item
• Cost is included to show how much each part is per item and the total
cost of all like parts.

• Example:
• The cost of a leg is $5 per leg. Then the total price of the legs ordered would
be $20 because there are 4 legs.
Total Project Cost
• Shows the total cost of all items and is also the total cost of the direct
materials used in the project.

• Example:
• Seat-$10, Back-$5, Leg-$5 per leg, Nail-$.5 per nail
• Total Cost of a chair = 10 + 5 + 5*4 + .5*5 = $37.50
Benefits of a BOM

• Optimize engineering, planning and purchasing efforts by providing centralized
and up-to-date information in Make-To-Stock, Repetitive, JIT or Job Shop
environments.

• Improve material management by responding to changes in production.

• Reduce inventory levels and obsolete parts.

• Reduce manufacturing costs.
Benefits of a BOM
• Minimize clerical and engineering efforts by optimizing the tasks of maintaining
and changing multi-level bills.

• What-If capabilities for estimating or quoting.

• Supports variable length part numbers and unlimited descriptive text.

• Easy methods for accessing part information
BOM Example
Quantity ID# Description Unit Price Total Cost
1 6TU8 Back $5/Unit $ 5.00
4 5DR Legs $5/Unit 20.00
1 2PC Seat $10/Unit 10.00
5 1” Nails $0.50/Unit 2.50

Total Project Cost $37.50
BOM Example
161kV H-Frame Tangent
Quantity Catalog No. Description
2 70-foot Wood Pole
1 DP1-457-156-156 Crossarm Shop Assembly
2 DP1-457-156-156W Crossarm, 3-5/8" x 9-1/2" x
32'-0", Laminated
3 5860-3545 Adjustable Spacer Filling
Assembly, 8-3/4" to 12-3/4“
6 W4104-4S Bolt, Washerhead, 1/2" x 10-
1/2", SN
12 W5050-3S Bolt, Washerhead, 5/8" x 5", SN
1 41058BS Bolt, Bent Double End 7/8" x
8", 2SN, 2MF
2 41058BB Bolt, Bent Machine 7/8" x 6", SN,
MF
BOM Example
Project Bill of Materials
Pine Lake HomeSites
Cost Item Quantity Cost/Item Total $
Site Development
Clearing & Grading 1.00 Each 59,429.00 59,429.00
Paving 1.00 Each 114,549.00 114,549.00
Curb & Gutter 1.00 Each 64,232.00 64,232.00
Sanitary Sewer 1.00 Each 158,810.00 158,810.00
Storm Sewer 1.00 Each 61,277.00 61,277.00
Water 1.00 Each 63,602.00 63,602.00
Entrance 1.00 Each 36,000.00 36,000.00
Power & Street Lighting 1.00 Each 9,300.00 9,300.00
Amenity 1.00 Each 270,000.00 270,000.00
Contingency 1.00 Each 35,000.00 35,000.00
Total Site Development $872,199.00
Screenshots of BOM Software
A Example of BOM
• 在 SAP R/3中BOMs 是单层的( single level)
• BOM 中的组成部件(Items)还可以有其自己的 BOM,以此形
成产品多层结构的计算机记录形式
• Multiple BOM-One Product
Item Categories
(N)无库存的部件
(R)可变尺寸的部件. 如:一定尺寸的钢板
(L)有库存的部件
(D)文档型的部件. 如: 部件图纸
BOM的时效性
BOM的有效范围
• Group BOM (没有plant号)
• Plant-special BOM (有plant号)

SAP ERP
Page 5-38
© SAP AG
MM Master Data
Vendor Master Data
Material Master Data
Purchasing Info Record
Output Master Data
Condition Master Data
SAP ERP
Page 5-39
© SAP AG
Vendor Master Data
 Vendor Master
- Contains all the necessary
information needed to business
with an external supplier
- Used and maintained primarily by
the Purchasing and Accounting
Departments
- Every vendor MUST have a
master record
SAP ERP
Page 5-40
© SAP AG
Vendor Master Views
 Client Level
- Address
- Vendor Number
- Preferred Communication
 Company Code Data
- Reconciliation Account
- Terms of Payment
- Bank Account
 Purchase Org Data
- Purchasing Currency
- Salesman’s Name
- Vendor Partners
General Data
Company Code Data
Financial Accounting (FI)
Purchasing Data
Materials Mgmt (MM)
SAP ERP
Page 5-41
© SAP AG
Vendor Master
General Information relevant for the entire organization:

Name
Address
Communication
Client XXX
Company Code US00
Company Code DE00
Company Code specific information:

Acc. Mgmt
Payment
Bank
Purch. Org. US00
Purch. Org. DE00
Purch. Organization specific information:

Incoterms
Currency
© SAP AG
Production
Planning
Work Centers for Fitter Snacker
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Mixer
Mixer
Mixer
Form Bake Pack
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Snack Bar Line
Production (200)
SAP ERP
Page 5-44
© SAP AG
Production Master Data
Company
Code
Valuation
Area
Plant
Material
Master
Work
Center
Bill of
Material
Routing
Capacity
Planning
Production
Orders
Product
Costing
SAP ERP
Page 5-45
© SAP AG
Navigating Material Master Views
Click on tabs to select
Use direction arrows to scroll
Use icon to get list
SAP ERP
Page 5-46
© SAP AG
Material Types
 A Material Type is used to classify materials:
- Defines material attributes like:
• Valuation (value of material as market changes)
• Procurement (internal, external or both)
- Controls screen sequence and number assignment
- Can restrict access using authorization groups
- A number of material types are pre-defined
• Abbreviations are abbreviations of German
terms
- Users can create their own material types
• Usually best to copy a pre-defined type, then
modify

SAP ERP
Page 5-47
© SAP AG
Material Types in Exercises
 ROH: Raw material
- Externally purchased only, no sales view
- Oats, Wheat Germ, Honey, Cinnamon, etc.
 HALB: Semifinished Product
- No purchase or sales view
- Dough for NRG-A and NRG-B bars
 FERT: Finished Product
- Produced internally, has sales views, no purchasing
views
- NRG-A and NRG-B bars
SAP ERP
Page 5-48
© SAP AG
Other Material Types
 HAWA: Trading Goods
 HIBE: Operating Supplies
 VERP: Customer returnable packaging
 LEER: Empty containers
 KMAT: Configurable material
 ERSA: Spare parts
 DIEN: Services
 NLAG: Non-stock, non-valuated material
 UNBW: Non-valuated, stocked material
 FHMI: Production resources/tools
 WETT: Competitive products
 PROD: Product group
 IBAU: Maintenance assembly
SAP ERP
Page 5-49
© SAP AG
Documentation in Material Master
 The SAP R/3 system documents all changes to the material master:

Click for documentation
SAP ERP
Page 5-50
© SAP AG
Documentation in Material Master
SAP ERP
Page 5-51
© SAP AG
Master Data – Bill of Material
 BOMs are represented as single-level relationships between a
material and its components and sub-assemblies
## NRG–A
(case)
## Dough NRG–A
(lb)
## Oats
(lb)
## Wheat Germ
(lb)
## Cinnamon
(lb)
## Nutmeg
(lb)
## Cloves
(lb)
## Honey
(gal)
## Vit/Min Powder
(lb)
## Carob Chips
(lb)
## Raisins
(lb)
## Canola
(gal)
BOM for NRG-A
BOM for
Dough NRG-A
SAP ERP
Page 5-52
© SAP AG
Routings
 Routings define the relationship between a material and the sequence of workcenters
(operations) that are required to produce the material
 Also specifies where sub-components and sub-assemblies are needed in producing the
material
20 10 30 40 50 60
SAP ERP
Page 5-53
© SAP AG
Functions of Production Orders
(part 1 of 2)
 Status Management: Tracking, User-defined status
 Scheduling
 Calculation of Capacity Requirements (detailed)
 Costing/Collection of Costs
 Availability Checks (material, capacity, PRT-
production resources and tools)
 Printing of Paper Orders/related documents
- Assembly drawings and instructions
- Inspection instructions
- Storage regulations
 Material Staging: withdrawal of materials used in
production, e.g. components and sub-assemblies
SAP ERP
Page 5-54
© SAP AG
 Confirmations: quantities, activities, times
 Goods receipt: receipt of completed materials
 Period-end closing: Process cost allocation, overhead
costs, surcharges, WIP (work-in-process) calculation,
variance calculation, order settlement
 Archiving and retrieval
 Many more: rework, serial numbers, as-built, quality
control, etc.

 Production Orders capture actual data—
costs, dates, etc.
Functions of Production Orders
(part 2 of 2)
SAP ERP
Page 5-55
© SAP AG
Status Management
(part 1 of 2)
 Status Management is one tool that can be used to manage released
production orders
 A status can allow, allow with warning, or block a business transaction
 Two status types are available
- System status: internal, predefined, fixed number
- User status: freely definable, set by user
SAP ERP
Page 5-56
© SAP AG
Status Status detail
Status Management
(part 1 of 2)
SAP ERP
Page 5-57
© SAP AG
Planned Orders vs. Production Orders
 Planned Orders are for PLANNING
 Production Orders are for EXECUTION

Planned Order 3 weeks in future
Planned Orders 2 weeks in future
Planned Orders 1 week in future
Production Orders released today
Planning
Execution
SAP ERP
Page 5-58
© SAP AG
Master Data for Production Orders
 Master Data is data that does not change frequently
 Master Data for the production order comes from:
- Material Master
- Bill of Material (BOM)
- Work Center
- Routing
- Production Resources/Tools (PRT)
• Materials like gages, fixtures, test equipment
• Can also be items like drill bits that can be
consumed in production but aren’t consumed
INTO the product
 Most Production Order data comes from BOM and
Routing
1
Order Request
2
Order Creation
3
Availability
Checks
Machine
Reservation
4
Order Release
5
6
Print Order
7
Download to
PDC system
8
Material staging
9
Material withdrawal
posting
10
Upload from
PDC system
11
Variance
Calculation
Confirmation
12
WIP
Determination
13
Goods Receipt
14
15
Order
settlement
16
Archiving &
Deletion
Production
Order
Cycle
SAP ERP
Page 5-60
© SAP AG
Routing Selection
 Different routings can be selected for a product depending on a number of criteria like:
- Raw material used
- Lot size
- Product features/configurations (variants)
 A complicated, automatic selection process can be configured
SAP ERP
Page 5-61
© SAP AG
Bill of Material (BOM)
 The system selects the FIRST Valid BOM it finds
 Validity can depend on:
- Date (engineering changes)
- Customer
- Serial number
SAP ERP
Page 5-62
© SAP AG
Material
Material Assignment
OP
0010
OP
0020
OP
0030
OP
0080
OP
0090
……..
Material
M
a
t
e
r
i
a
l

Material
OP
0010
OP
0020
OP
0030
OP
0080
OP
0090
……..
Material
M
a
t
e
r
i
a
l

Assigned via BOM:
All materials assigned to
first operation
Assigned via Routing:
Materials can be assigned
to specific operations
© SAP AG





Enterprise Systems
Configuration

Production Planning
Master Data

EGN 5620 Enterprise Systems Configuration
Spring, 2012

January 2008 © SAP AG - University
Alliances and The
Rushmore Group, LLC
2007. All rights reserved.
64
Enterprise Operations Planning Process
Execution
Execution
Detailed Planning
High Level Planning
Forecasting
Sales and Operations
Planning
Demand
Management
MPS MRP
Sales Information
System
CO/PA
Manufacturing
Execution
Order
Settlement
Procurement
Process
SAP ERP
Page 5-65
© SAP AG
Sales
Process
BPI – II Final Roadmap
January 2008 © SAP AG -
University Alliances
and The Rushmore
Group, LLC 2007.
All rights reserved.
65
Sales Order
Entry
Check
Availability
Production
Process
Run MPS w/MRP
Convert Production
Proposal
Schedule
and Release
Procurement
Process
Pick
Materials
Goods
Issue
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Receipt
Payment
to Vendor
Completion
Confirmation
Goods
Receipt
Quality
Inspection
Order
Settlement
Post Goods
Issue
Invoice
Customer
Receipt of
Payment
© SAP AG





Production and Planning
Master Data

Concept & Theories







SAP ERP
Page 5-67
© SAP AG
Production and Planning
Production planning is a business process which creates and
maintains production plans for manufacturing of semi-finished
goods or assembly of finished goods

Common manufacturing processes:
 Discrete, and
 Continuous
January 2008 © SAP AG -
University Alliances
and The Rushmore
Group, LLC 2007.
All rights reserved.
67

SAP ERP
Page 5-68
© SAP AG
Production Planning & Execution
Demand
Management
Sales & Operations
Planning (SOP)
MPS
MRP
Manufacturing
Execution
Order
Settlement
Procurement
Process
Strategic
Planning
Detailed
Planning
Manufacturing
Execution
SAP ERP
Page 5-69
© SAP AG
Production and Planning
January 2008 © SAP AG -
University Alliances
and The Rushmore
Group, LLC 2007.
All rights reserved.
69

 Players in the Planning
◦ Strategic Planning
 CEO, COO, CIO, CFO, Controller, Marketing Director
◦ Detailed Planning
 Line Managers, Production Scheduler, MRP
Controller, Capacity Planners
◦ Execution
 Line Workers, Shop Floor Supervisors
SAP ERP
Page 5-70
© SAP AG
Sales and Operations Planning (SOP) - review
 Flexible forecasting and planning tool
 Usually consists of three steps:
- Sales Plan
- Production Plan
- Rough Cut Capacity Plan
 Planned at an aggregate level in time buckets
SAP ERP
Page 5-71
© SAP AG
Demand Management - review
 Link between Sales Planning (SOP) & Detailed Planning
(MPS/MRP)
 The results of Demand Mgmt is called the Demand Program, it is
generated from our independent requirements – planned
independent requirement (PIR) and customer independent
requirement (CIR)

SAP ERP
Page 5-72
© SAP AG
Demand Management
Planned
Independent
Requirements
Customer
Independent
Requirements
Sales Forecast
Demand
Program
MPS / MRP
SAP ERP
Page 5-73
© SAP AG
Planning Strategies
 Planning strategies represent the business procedures for
- The planning of production quantities
- Dates
 Wide range of strategies

 Multiple types of planning strategies based upon environment
- Make-To-Stock (MTS)
- Make-To-order (MTO)
• Driven by sales orders
- Configurable materials
• Mass customization of one
- Assembly orders
SAP ERP
Page 5-74
© SAP AG
Planning Strategy for Make-to-Stock
 Planning takes place using Independent Requirements
 Sales are covered by make-to-stock inventory
 Strategies
- Net Requirements Planning
- Gross Requirements Planning
- Production by Lot Size
- Planning with Final Assembly
SAP ERP
Page 5-75
© SAP AG
Planning Strategy for Make-to-Order
 Planning takes place using Customer Orders
 Sales are covered by make-to-order production
 Strategies
- Make to Order Production
- Planning without Final Assembly
- Planning with Planning Material

SAP ERP
Page 5-76
© SAP AG
Master Production Scheduling (MPS)
 MPS creates and maintains a weekly schedule of production for
meeting independent demands.
SAP ERP
Page 5-77
© SAP AG
Material Requirement Planning (MRP)
 In MRP, the system calculates the net requirements while
considering available warehouse stock and scheduled receipts from
purchasing and production
 During MRP, all levels of the bill of material are planned
 The output of MRP is a detailed production and/or purchasing plan
 Detailed planning level
- Primary Functions
- Monitor inventory stocks
- Determine material needs
• Quantity
• Timing
- Generate purchase or production orders
SAP ERP
Page 5-78
© SAP AG
Demand-Independent vs. Dependent
 Independent Demand – Original source of the demand.
 Dependent Demand – Source of demand resides at another level.
SAP ERP
Page 5-79
© SAP AG
Net Requirements
Procurement
Proposal
Firmed Receipts
Firmed Orders
or Purchase
Requisitions
Requirements –
Planned Ind. Req.,
Reservations
Sales Orders,
Etc.
Stock
Safety Stock
Shortage
SAP ERP
Page 5-80
© SAP AG
Lot sizing
 Static
- Based on fixed values in the Material Master
 Periodic
- Groups net requirements together from multiple periods
 Optimum
- Calculates the optimum lot size for a several periods of net
requirements
SAP ERP
Page 5-81
© SAP AG
Procurement Type
 External Procurement
- Purchase Requisition
- Purchase Order
- Schedule Line
 Internal Procurement
- Planned Order
- Production Order
- Process Order
SAP ERP
Page 5-82
© SAP AG
Multi-Level Scheduling
Time
Finished Product
Assembly 1
Semi-Finished Good
Raw Material
Component
Requirements
Date
Planned Order
Purchase Requisition
SAP ERP
Page 5-83
© SAP AG
MRP vs. Consumption-Based
 Whether or not a material is planned using MRP or Consumption
Based is determined by the MRP Type on the MRP1 screen of the
Material Master
MRP
VB – Reorder-Point
Consumption Based
VV – Forecast Based
RP – Replenishment
PD – MRP
VSD – Seasonal MRP
SAP ERP
Page 5-84
© SAP AG
Consumption-Based
Lot
Size
Replenishment
Lead Time
Safety Stock
Reorder Point
SAP ERP
Page 5-85
© SAP AG
Output of MRP
MRP
Planned Order
Convert to
In-House
Production
Production
Orders
Process
Orders
Purchase
Requisitions
Purchase
Orders
Schedule
Lines
External
Procurement
© SAP AG







Production and Planning
Master Data

SAP Implementation




SAP ERP
Page 5-87
© SAP AG
Business Process Integration
January 2008 © SAP AG -
University Alliances
and The Rushmore
Group, LLC 2008.
All rights reserved.
87
R
u
l
e
s

MM
PP
SD
FI SD MM
FI
PP
SAP ERP
Page 5-88
© SAP AG
Business Process Integration
January 2008 © SAP AG -
University Alliances
and The Rushmore
Group, LLC 2007.
All rights reserved.
88
M
a
s
t
e
r

D
a
t
a

PP
PP
Production
Process
Schedule
and Release
Shop Floor
Documents
Goods
Receipt
Order
Settlement
Goods
Issue
Production
Proposal
(Planning/Other)
Completion
Confirmation
Capacity
Planning
Production Process (Make-to-Stock)
SAP ERP
Page 5-90
© SAP AG
PP: Master Production Schedule (MPS)
 MPS focuses on independent demand items only and serves as an input to
MRP to generate subsequent dependent demands.
ESET
EPEN Stand Giftbox
Cartridge Crown Cap Barrel
MPS run
MPS Items
Non-MPS
Items
SAP ERP
Page 5-91
© SAP AG
Elements of A Production Order
January 2008 © SAP AG -
University Alliances
and The Rushmore
Group, LLC 2007.
All rights reserved.
91
Raw Materials &
Sub-Components
Bill of Material
Components
(Production Parts
List)
Work
Center
Operations
Production
Routing
Production
Order
SAP ERP
Page 5-92
© SAP AG
Business Process Integration
January 2008 © SAP AG -
University Alliances
and The Rushmore
Group, LLC 2007.
All rights reserved.
92
PP
PP
SAP ERP
Page 5-93
© SAP AG
Organization Data
 Client
 Company code
 Plant
 Storage location
 Shipping point
 Work Center
January 2008 © SAP AG -
University Alliances
and The Rushmore
Group, LLC 2007.
All rights reserved.
93

SAP ERP
Page 5-94
© SAP AG
Enterprise Structure
Plant
(P0XX)
Client (600)
Chart of
Accounts
Company
Code (C0XX)
Fiscal Year
Variant (2012)
Credit Control
Area
Purchasing
Organization
Purchasing
Group
Shipping
Point
Sales
Organization
Distribution
Channel
Division
Sales Area
Controlling
Area
SL10 SL20
Work
Centers
WC 10 WC 20
SAP ERP
Page 5-95
© SAP AG
Organization Data - Work Center
 Unique production or assembly area
 May include
- Equipment
- Groups of equipment
- Production lines
- Employees
- Groups of employees
 Operations carried out at work center
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95
SAP ERP
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© SAP AG
Organization Data
 Plant specific organizational units
- MRP controller
- Production controller/production scheduler/planner group
- Person responsible (financially)
 Non-plant specific organizational units
- Capacity planner

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96

SAP ERP
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© SAP AG
Business Process Integration
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97
M
a
s
t
e
r

D
a
t
a

PP
PP
SAP ERP
Page 5-98
© SAP AG
Master Data for Production Planning
 Bill of Material Master Data
 Work Center Master Data
 Work Center Control Key
 Product Routing
 Material Types Allowed in Production
 Controlling Activities For Production
 Activity Prices
 Materials


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98


SAP ERP
Page 5-99
© SAP AG
Bill of Materials
BOM is a hierarchical structure of the materials needed to produce a
finished goods or semi-finished goods.
BOMs in SAP are defined as single-level, but can be constructed multi-
level by nesting several single-level BOMs.
Nesting refers to a hierarchy in which a bill of materials contains its
own bills of materials.


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Bill of Material Master Data
 Bill of Materials (BOM) are created as single-level or multi-level
relationships between one parent material and the sub-component
material
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100
EPEN
Barrel Cap Crown Cartridge Band Clip
Bill of Material Master Data
 Variant Bill of Materials (BOM)
- Several products with a large proportion of identical parts.
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101
EPEN - Red
Red
Cartridge
Band Etc.
Black
Cartridge
Band Etc.
EPEN - Black
Bill of Material Master Data
 Multiple versions of Bill Of Materials (BOM)
- One product produced from alternative components or processes,
where the differences are small (usually the quantity of a component).
- BOM 1 = lot size 1 - 100
- BOM 2 = lot size 101 – 999
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102
Black
Cartridge
(Make)
Band Etc.
EPEN - Black
Black
Cartridge
(Buy)
Band Etc.
EPEN - Black
Bill of Material Master Data

January 2008 © SAP AG - University Alliances and The Rushmore
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103
Semi-finished
goods
Raw
Material
Semi-finished
good
Finished Good
Raw
Material
Raw
Material
Raw
Material
Raw
Material
SAP ERP
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© SAP AG
Bill of Material Master Data
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104
SAP ERP
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© SAP AG
Bill of Material Master Data
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105
SAP ERP
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© SAP AG
Bill of Material Master Data
BOM in SAP consists of a header section and an item section.
Header section includes data that apply to entire BOM, such as
finished material number, plant, usage, validity, status, and base
quantity.
The BOM is valid from the date specified in the header.
Usage identifies the purpose for which the BOM can be used. For
example, 1 is for production.
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SAP ERP
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© SAP AG
Bill of Materials Master Data
Items section identifies all materials needed to make finished goods or
semi-finished goods identified in the header.
Item category determines how material is used in the BOM.
Data for each item are:
- material number,
- description, quantity, and
- item category.


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SAP ERP
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© SAP AG
Bill of Material Master Data
(item category)
L: Stock item
N: Non-stock item
R: Variable –size item
T: Text item used to include notes and comments within the BOM.
Notes may explain how to use the material or identify any unusual
assembly requirement.
D: Document item used to include document such as engineering
drawings, assembly instructions, and photographs.

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SAP ERP
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© SAP AG
Bill of Material Master Data
K: Class item used in variant BOMs to identify a class or group of
items. A variant BOM is used to create multiple versions.
M: Intra material, or phantom items used as a logical grouped set of
materials that could collectively be considered as a single material.
Phantom material is not an actual material and is mostly temporarily
used during production planning.
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SAP ERP
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© SAP AG
Bill of Material Master Data
Where is the Bill Of Materials (BOM) used?
1. MRP uses BOM to determine dependent requirements
2. Controlling uses BOM to calculate product costs
3. Production uses BOM to issue the proper quantities of components
and raw materials to the shop floor
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SAP ERP
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© SAP AG
Work Center
 Work center is a location where value-added work needed to
produce a material is carried out.
 A work center can be a machine, a group of machines, an entire
production line, a work area, or a person or group of people who are
responsible for completing operations.
 A work center is a resource that can be used for a variety of
purposes and for multiple processes.
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SAP ERP
Page 5-112
© SAP AG
Work Center
 Work center used to define capacities
- Labor
- Machine
- Output
- Emissions
 Capacities used in
- Capacity requirements planning (CRP)
 Detailed scheduling
 Costing
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SAP ERP
Page 5-113
© SAP AG
Work Center
 Assigned
- Cost center
- Human Resources (HR)
• Qualifications
• Positions
• People
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SAP ERP
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© SAP AG
Work Center
 Work Centers have multiple views of:
- Basic data
- Default values
- Capacity overview
- Scheduling
- Cost center assignment
- Technical data


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SAP ERP
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© SAP AG
Work Center
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115
 Basic data section:
- Name, and description of the work center
- Person or group of people who are responsible for completing
operations
- Task list: a list of operations that are required to accomplish a
task. Operations are the specific tasks that must be completed,
such as drilling, cutting, assembling. In production, a task list
takes the form of a product routing or a master recipe.
- Standard value key: used to assign standard or planned values
for operations, such as setup and execution time. Companies
use these values to calculate costs, execution times, and
capacity requirements.

SAP ERP
Page 5-116
© SAP AG
Work Center
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SAP ERP
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© SAP AG
Work Center
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117
 Default Values: for operations performed at the work
center.
 Control Keys: specify how an operation or a sub-
operation is scheduling, how costs will be calculated,
and how operations will confirmed once they are
completed in the work center.
 Wage data: used by processes in human capital
management, such as payroll.
 Standard value keys: identify the normal time elements
– the activities that consume time associated with the
work center. Typical time elements are setup time,
machine time, labor time, and teardown time.
SAP ERP
Page 5-118
© SAP AG
Work Center
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118
SAP ERP
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© SAP AG
Work Center
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119
 Available capacity defines how much work can be
performed at the work center.
 A work center can include more than one resource or
capacity, such as labor and machine.

 Scheduling basis determines the specific capacity to be
utilized for production.
SAP ERP
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© SAP AG
Work Center
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120
SAP ERP
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© SAP AG
Work Center
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SAP ERP
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© SAP AG
Work Center
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122
A work center is associated with a cost center which is a
container for accumulation of costs. Costs associated
with operations completed in a work center are
calculated using formulas that utilize the costs and
standard values associated with each activity type, for
example, setup, labor, and machine.
SAP ERP
Page 5-123
© SAP AG
Work Center
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SAP ERP
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© SAP AG
Work Center Control Key
 Scheduling
 Determine capacity requirements
 Inspection characteristics required
 Confirmation required
 Rework
 Cost
 Schedule external operations – std values

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SAP ERP
Page 5-125
© SAP AG
Product Routing
 A list of tasks or operations that must be performed to convert a
material to a part, component, or product.
 Routing is a sequence of operations which detail the manufacture of
a product
 Routings are used as a template for production orders and run
schedules as well as a basis for product costing.

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SAP ERP
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© SAP AG
Routing
 Routing are used to determine:
- Operations
- Work centers
- Material components
- Production resources and tools
- Quality Checks
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SAP ERP
Page 5-127
© SAP AG
Routing
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127
SAP ERP
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© SAP AG
Routing
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128
SAP ERP
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© SAP AG
Routing
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SAP ERP
Page 5-130
© SAP AG
Routing Use
 Routings will be used in
- Scheduling (dates, times)
- Costing
- Capacity planning
- Production orders

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130
Routing
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131
Standard
Sequence
Alternate
Sequence
Parallel
Sequence
Operation 10
Operation 20
Operation 30
Operation 40
Operation 10
Operation 20
Operation 30
Operation 40
Operation 25
Operation 20
Operation 10
Operation 30
Operation 40
Operation 25
SAP ERP
Page 5-132
© SAP AG
Material Types Allowed In Production
 Multiple material types may be used in a routing/BOM
- Raw materials
- Semi-finished product
- Trading goods are allowed but not standard
- Text or Reference materials common
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SAP ERP
Page 5-133
© SAP AG
Display Routing List
 A collective report displaying the available routings and the material
allocations to operations
 Four General Types
- Operations Related
- Component Related
- PRT Related
- General List (Operation Control Ticket
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SAP ERP
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© SAP AG
Controlling Activities for Production
 Used to perform internal cost allocation, where activities by a cost
center are measured
- Labor time
- Machine hours
 Output activities are valued
 Allocation of an activity type is always made with the allocation cost
element created in activity type planning

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134
SAP ERP
Page 5-135
© SAP AG
Activity Prices
 Prices (costs) for planned activities
- Fixed or Variable
• Labor = $$/hour
• Machine = $/hour
• Overhead = %
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SAP ERP
Page 5-136
© SAP AG
Product Group
 Aggregate planning that group together materials or other product
groups (Product Families)
- Manufacturing procedure
- Product design
- Market niche, etc.
 Proportional Factors (Percentages for components)


SAP ERP
Page 5-137
© SAP AG
Product Groups
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137
• Multi-level or single-level
– A product group is multi-level if it contains other product groups
– Lowest level in a product group hierarchy always consists of materials.
– A product group is single-level if its members are materials only
– A material or product group can be a member of more than one owner
product group
SAP ERP
Page 5-138
© SAP AG
Business Process Integration
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PP
PP
SAP ERP
Page 5-139
© SAP AG
MRP Control Parameters
 Environment
- Number range
 Master Data
- Materials Requirements Planning controllers
- Float times
 Planned Orders
- Conversion order type
- Dependant requirement availability

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139

SAP ERP
Page 5-140
© SAP AG
MRP Control Parameters (continued)
 Planning run
- Bill of Material (BOM) selection
- External procurement
- Planning horizon
 Availability Check
- Material
- Production Resource/Tool (PRT )
- Capacity
 Scheduling Control Parameters

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140

SAP ERP
Page 5-141
© SAP AG
General Planning Parameters
 Order Type Control Parameters
- Types of routings, BOM’s per order type: manually or automatically
- Availability checking
 Create Confirmation Parameters
- Reservations
- Status Updates
 Define Valuation of Goods Received
- Moving Average Price Control evaluation

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141

SAP ERP
Page 5-142
© SAP AG
Material Master Planning Parameters
 Materials Requirements Planning views for materials
 Work Scheduling views for manufactured products
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142

© SAP AG








PEN, Inc.




Production and Planning
Master Data
SAP ERP
Page 5-144
© SAP AG
Pen Inc. Business Module II for
Selling Finished Goods by Production
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144
Pre-Sales
Activity
Sales
Order
Delivery Billing
Planned
Order
Production
Order
Completion
Confirmation
In
Inventory
Plant or
Warehouse
Availability
Check
NO
YES
Goods Issued
to Delivery
Goods from
Production Order
General
Ledger
Accounts
Inventory
Postings
Accounts
Receivable
Issue Goods
to Production
Order
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Receipt
Accounts
Payable
NO
Or
SAP ERP
Page 5-145
© SAP AG
Activity Type/Price Planning
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145
SAP ERP
Page 5-146
© SAP AG
Production Group
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146
SAP ERP
Page 5-147
© SAP AG
Orders, orders, orders
 Planned Order (planning)
- A request created in the planning run for a material in the future
(converts to either a production or purchase order)
 Production Order (execution)
- A request or instruction internally to produce a specific product at a
specific time
 Purchase Order (execution)
- A request or instruction to a vendor for a material or service at a
specific time
© SAP AG

Production and
Supply Chain
Processes
MIS 2101: Management Information Systems
Douglas M. Schutz
Based on material developed by C.J . Marselis, Munir Mandviwalla.
and Mart Doyle
SAP ERP
Page 5-149
© SAP AG
Learning Objectives
 Describe the steps in the production planning
process.
 Describe Fitter Snacker’s production and materials
management problems.
 Describe how a structured process for production
and materials management planning enhances
efficiency and decision making.
 Describe how production planning data in an ERP
system can be shared with suppliers to increase
supply-chain efficiency.
149
Problems at Fitter Snacker (FN)

Production manager schedules
production based on
experience, rather than formal
planning techniques
SAP ERP
Page 5-151
© SAP AG
Consequences of the Failure to Use
Formal Planning Techniques
Inaccurate delivery promises to
the customer
Inability to effectively manage
shortages/overages when the
order is placed
151
SAP ERP
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© SAP AG
What is Material Requirements Planning
(MRP) and what is its relation to
Enterprise Resource Planning (ERP)?
SAP ERP
Page 5-153
© SAP AG
Facilitating the Production Plan
 Production plan answers the following types of
questions:
1) How much product should we make?
2) When should we make the product?
3) How much ____ materials should we procure and when?
 A successful company must be able to
- Develop and execute a good production plan
- Make adjustments when customer demand differs
from the forecast

Three Categories/Approaches
of Production Systems
1. Make
to Stock
2. Make
to Order
3. Assemble
to Order

Fitter Snacker’s
Manufacturing Process

155
R
a
w

M
a
t
e
r
i
a
l

W
a
r
e
h
o
u
s
e

Mixer
Mixer
Mixer
Mixer
Form Bake Pack
F
i
n
i
s
h
e
d

G
o
o
d
s

W
a
r
e
h
o
u
s
e

Snack Bar Line
Produces
200 bars/minute,
3,000 lb/hr
Operates 1 8-hour shift per day
Mixes 4,000 lbs/hr
Excess capacity to ensure line doesn’t shutdown
Changing from NRG-A to NRG-B bars takes 30 minutes
SAP ERP
Page 5-157
© SAP AG
Production Problems in
―Un-integrated‖ Systems
Communication Inventory Accounting
What are some of these problems?
SAP ERP
Page 5-158
© SAP AG
Production Problems in
―Un-integrated‖ Systems
 Problems due to poor communications between Marketing
and Production
- Sales promotions, large orders, stockouts, increased procurement and production
costs
 Problems related to inventory management
- Not real-time, based on finished goods, large order production capacity conflicts,
unable to accurately adjust production schedules, oversupply in raw materials
 Problems related to accounting
- Difficult to accurately estimate costs
158
SAP ERP
Page 5-159
© SAP AG
Production Planning Process
 What are the
major steps in the
SAP R/3
Production
Planning Process?
(of any typical high-
volume manufacturer
such as Fitter Snacker)?
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales
Forecasting
Purchasing Production
Starting
Inventory
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales
Forecasting
Sales
Forecasting
Purchasing Production
Starting
Inventory
Starting
Inventory
SAP ERP
Page 5-160
© SAP AG
Major Steps in the SAP R/3
Production Planning Process are:


1.Sales Forecasting
2.Sales and Operations Planning
3.Demand Management
4.MRP

160
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© SAP AG
161
An Integrated Process
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales
Forecasting
Purchasing Production
Starting
Inventory
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales
Forecasting
Sales
Forecasting
Purchasing Production
Starting
Inventory
Starting
Inventory
Predicts future
demand for
products
Break production
plan down into
smaller time
increments
Create production
schedule based on
production plan from
demand management
Uses the schedule to
determine products
and staffing
Determines what
company should
produce
Requires starting
inventory levels
and sales forecast
based on capacity
Determines
amount and
timing of raw
material orders
Takes quantity and
timing information
from MRP and
creates orders for
suppliers
162
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales
Forecasting
Purchasing Production
Starting
Inventory
SAP ERP
Page 5-163
© SAP AG
1) Sales Forecasting
 In an integrated system, where do I get the
information to support my sales forecast?
 Simple Sales Forecasting example:


Jan. Feb. March April May June
Previous Year (cases) 5734 5823 5884 6134 6587 6735
Promotion Sales (cases) 300 300
Previous Year base (cases) 5734 5823 5884 6134 6287 6435
Growth: 3.0% 172 175 177 184 189 193
Base Projection (cases) 5906 5998 6061 6318 6476 6628
Promotion (cases) 500
Sales Forecast (cases) 5906 5998 6061 6318 6476 7128
Sales Forecasting
SAP ERP
Page 5-164
© SAP AG
2) Sales and Operations Planning (SOP or S&OP)
 What question does S&OP answer?
Sales and Operations Planning Dec. Jan. Feb. March April May June
1) Sales Forecast 5906 5998 6061 6318 6476 7128
2) Production Plan 5906 5998 6061 6318 6900 6700
3) Inventory 100 100 100 100 100 524 96
4) Working Days 22 20 22 21 23 21
5) Capacity (Shipping Cases) 7333 6667 7333 7000 7667 7000
6) Utilization 81% 90% 83% 90% 90% 96%
7) NRG-A (cases) 70.0% 4134 4199 4243 4423 4830 4690
8) NRG-B (cases) 30.0% 1772 1799 1818 1895 2070 2010
Jan. Feb. March April May June
Previous Year (cases) 5734 5823 5884 6134 6587 6735
Promotion Sales (cases) 300 300
Previous Year base (cases) 5734 5823 5884 6134 6287 6435
Growth: 3.0% 172 175 177 184 189 193
Base Projection (cases) 5906 5998 6061 6318 6476 6628
Promotion (cases) 500
Sales Forecast (cases) 5906 5998 6061 6318 6476 7128
Sales Forecasting
SAP ERP
Page 5-165
© SAP AG
Demand Strategies
 If demand is greater than capacity…
Option Result
Choose not to meet
the demand
Lost sales
Reduce promotional
expenditures
Potential lost
sales
Use overtime to
increase capacity
Increased costs
Build up inventory in
earlier periods
Increased costs
and lost inventory
0
5
10
15
20
25
30
35
Time
Supply
Capacity
SAP ERP
Page 5-166
© SAP AG
Forecasting in an Integrated System
 Accurate historical sales
values available for
forecasting
 ―Fix‖ historical sales:
- If production was unable to
meet demand, sales does
NOT represent actual
demand
- Unusual conditions like
weather
- The effect of sales
promotions

Sales provided from
Sales and Distribution
(SD) module
Field where planner can
“correct” the sales value
SAP ERP
Page 5-167
© SAP AG
Sales and Operations Planning
(SOP) Case Study
 Kellogg’s achieved significant savings from coordinated Sales
and Operations Planning (SOP)
 Changed focus based on how they were evaluated; in the past:
- Marketing and Sales: Evaluated on tons of cereal sold
What is wrong with that measure?
- Manufacturing: Evaluated on tons of cereal produced
- No one evaluated on profit!
 Kellogg’s new sales order process focused on profit
 Kellogg’s has reduced capacity, inventory and capital needs
while increasing sales
168
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales
Forecasting
Purchasing Production
Starting
Inventory
SAP ERP
Page 5-169
© SAP AG
3) Demand Management
 What does ―Demand Management‖ do?
Week 1
Demand Management 1/2 - 1/5
Monthly Demand NRG-A 4134
NRG-B 1772
Working Days in Week 4
Working Days in Month 22
MPS NRG-A 752
Weekly Demand NRG-B 322
752
22
4
4134 






322
22
4
1772 






4/22
represents
how many
work “weeks”
are in each
month
170
Sales and Operations Planning
Demand Management
MRP
Detailed
Scheduling
Sales
Forecasting
Purchasing Production
Starting
Inventory
SAP ERP
Page 5-171
© SAP AG
4) MRP’s Bill of Material (BOM)
 What is a BOM?
Ingredient NRG-A NRG-B
Oats (lb) 300 250
Wheat germ (lb) 50 50
Cinnamon (lb) 5 5
Nutmeg (lb) 2 2
Cloves (lb) 1 1
Honey (gal) 10 10
Canola Oil (gal) 7 7
Vit./Min. Powder (lb) 5 5
Carob Chips (lb) 50
Raisins (lb) 50
Protein Powder (lb) 50
Hazelnuts (lb) 30
Dates (lb) 70
Quantity
SAP ERP
Page 5-172
© SAP AG
Lead Times and Lot Sizing
 When it comes to purchasing raw
materials, what are…
- ―Lead Times‖?
- ―Lot Sizes‖?

and why do I care?
SAP ERP
Page 5-173
© SAP AG
5) Purchasing and ERP
 Benefits if my production planning system is integrated with my procurement system
Options to evaluate vendors
Convert MRP data to
a purchase order
SAP ERP
Page 5-174
© SAP AG
Production and Accounting in an Integrated System
 What benefits do
I get when my
production
systems are
integrated with
my accounting
systems?
Material
received (for
MRP) and the
purchase order
SAP ERP
Page 5-175
© SAP AG
Implications for
Supply Chain Management (SCM)
 How quickly does information flow from the
retailer all the way back to the raw materials
suppliers when demand changes in:
- Un-integrated system?
- Integrated system?
Supplier
R
a
w

M
a
t
e
r
i
a
l
s
Manufacturer Wholesaler Retailer
C
u
s
t
o
m
e
r
Goods
Goods Goods Goods Goods
$
$ $ $
$
Information Information Information Information Information
Supplier
R
a
w

M
a
t
e
r
i
a
l
s
Manufacturer Wholesaler Retailer
C
u
s
t
o
m
e
r
Goods
Goods Goods Goods Goods
$
$ $ $
$
Information Information Information Information Information
SAP ERP
Page 5-176
© SAP AG
Supply Chain Integration
 What kind of benefits do I get when I integrate
my supply chain with my ―partners‖?
SAP ERP
Page 5-178
© SAP AG
SCM with Customer Collaboration:
Case Study – Wal-Mart
 POS (Point of Sale) data from bar code scanners is recorded
in a data warehouse at Wal-Mart headquarters
 Wal-Mart uses data mining techniques to predict what
customers will buy at different times of the year
 Data is shared with Wal-Mart suppliers to plan production
 Wal-Mart also allows its 5,000 suppliers to directly access its
data warehouse through its Retail Link program
 Wal-Mart is leading the effort to leverage RFID technology

SAP ERP
Page 5-179
© SAP AG
SCM Critical Success Factors
1) Business-driven strategy
– Focus on customer
2) Management Commitment
– Driven top down from the business supported by MIS
3) Supplier/Partner Expectation Management
– Change Management
4) Internal Expectation Management
– training and information
5) Learning Period Acceptance
– takes time
SAP ERP
Page 5-180
© SAP AG
180
Summary
 An ERP system strategy can improve the efficiency of
production and purchasing processes
 Begins with Marketing sharing sales forecasts
 Production plan is created based on forecast and
shared with Purchasing so raw materials can be
properly ordered.
 Production planning could be done without an
integrated system, but ERP containing MRP enables
Production to be linked to Purchasing and Accounting
 Data sharing increases efficiency and accuracy

© SAP AG
Sales & Operations Planning
– Two Decades of Learning at
BASF
Alan L. Milliken CFPIM CIRM CSCP
April 14, 2007
Advancing Productivity, Innovation,
and Competitive Success
Region
IV
Alan L. Milliken CFPIM CIRM CSCP
• 20+ years at major manufacturing sites working in Production, Logistics,
Process & Quality Control, Industrial Engineering, Training, and Scheduling
• 11+ years as a Supply Chain Consultant and APICS Instructor including two
years in Mexico City helping BASF Mexicana improve their supply chain
• Identified by an independent consulting firm as one of three APICS
members who best answer the question, “What is a Supply Chain Manager?”
• Served as an SME (Subject Matter Expert) on the team that developed the
new Certified Supply Chain Professional (CSCP) program.
• Served as an SME on the team that developed the new Certified Forecasting
Professional (CFP) for the Institute of Business Forecasting (IBF)
• Engineering Degree from Auburn University and MBA from Clemson
University
Objectives of the Presentation
• Define formal Sales & Operations Planning (S&OP)
• Describe the primary steps in the formal S&OP Process and
explain the purpose of each
• Relate the inputs and outputs of each step in the process
• Identify the participants in and responsibilities for each
primary step
• Discuss Key Performance Indicators (KPI’s) for each step in
the process
S&OP Process Overview
S&OP is the process with which we bring together all the plans
for the business (customers, sales, marketing, development,
manufacturing, sourcing, and financial) into one integrated set of
plans.
The objective of Sales & Operations Planning is to arrive at a
business “Game Plan” to help manage and allocate critical
resources to meet the needs of the customer at the least cost to do
so.
What is formal Sales & Operations Planning?
Source: APICS Illustrated Dictionary
S&OP links
Strategic
Planning to
Operations
S&OP as part of ERP


Sales & Operations
Planning


Master
Scheduling
Detailed Planning
& Scheduling
C
A
P
A
C
I
T
Y

P
L
A
N
N
I
N
G



F
O
R
E
C
A
S
T
I
N
G
&
D
E
M
A
N
D


Business
Planning
High Level Enterprise Resource Planning Model
Annually
Monthly
Weekly
Daily
Strategic
Planning
2-10 Years
Forecast
Only
Forecast
Only
Forecast
Only
Forecast &
Orders
Orders
Only
Rough-cut
Capacity
Planning
Capacity
Requirements
Planning
Resource
Planning
SKU by Customer by Location
SKU by Customer
Stock Keeping Unit (SKU)
Package Size
Model / Brand
Subfamily
Family
Business
Unit
Total
Company
S&OP Levels
Too Aggregated
Too Detailed
Forecasts are more
accurate higher in
the hierarchy
Actual Demand is
collected at the
detailed level.
S&OP in Product Hierarchy
S&OP is usually performed at an aggregated level (e.g. Product Family or Group)
S&OP is a Five-Step Process:
Pre-S&OP and
Executive S&OP
may be combined
into one meeting
The Basic S&OP Grid:
History is included to
highlight past plan-to-
actual performance
Inventory Plan = Planned
Opening Inventory + Planned
Production - Planned Sales
Actual Inventory = Opening
Inventory + Actual Production -
Actual Sales
Marketing &
Sales Product
Definition
Product
Demand
Capital
Master
Schedule
Business
Plan
Workforce
Availability
Finance
Materials Operations
Human
Resources
Engineering
Management
Capacity
S&OP Process
S&OP is a Cross-Functional Process
Must champion the process
• improved customer service
• reduced inventory
• lower manufacturing & distribution costs
• better control of overall business performance
• increased team work within and across functions
Benefits of S&OP
If implemented and used effectively, S&OP will yield major
benefits to the firm:
Steps in the S&OP Process
Step 1: Updating Input Data
Results:
• High Inventory
• Low Service
• High Unit Cost
• Poor Decisions
Remember the GIGO Principle. It
takes much effort to ensure
accurate & timely data is driving
the process.
S&OP
Planning
Process
Data
E
R
R
O
R
Key input data (e.g. inventory, sales, production, KPI’s,
etc..) should be updated as soon after month-end as feasible.
Typically, 2-3 business days are allowed for this sub-
process. Key Performance Indicators (KPI’s) for data
gathering include:
 Accuracy of the data
 Timeliness of sharing the data
 How well the data conforms to agreed upon formats
Step 1: Updating Input Data (Continued)
“Take care to get what you like or you will be forced to
like what you get.” George Bernard Shaw
Step 2: Demand Planning – Process Overview
Marketing & Sales are responsible for this step in the S&OP
process. The output is used to drive supply planning.
The key performance measure for output is accuracy and for the
process step is meeting timing commitments.
Review and update
forecast
(Marketing & Sales)

Demand
Plan
Internal
Demand
Market
Intelligence
Customer
Orders
Sales
Forecast
Inputs
Outputs
Process
Step 2: Demand Planning – Activities
• Generate new forecast (IT if automated)
Marketing/Sales:
• Review new forecast, revise if needed, and approve for updating
of S&OP grid
• Review previous months’ forecasting performance and identify
root causes for data outside tolerance
• Provide status for new product introductions
• Document assumptions and risks associated with new forecast
Management Overrides Go Here
Product Family or Group
History
Step 2: Demand Planning – Sample Plan
The final plan is used to update the S&OP Grid and drive supply
planning.
Example where only Bulk Product can be forecasted:
Material
(Prod-Pkg)
PRD (Bulk) Material_De
scr.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
20-Mth
SUM
20-Mth
Avg.
Std
Dev'
CoV
1 10 Packaged - 4 - 2 2 2 - 2 - 2 2 - 2 - 2 2 - 2 2 - 26 1 1 90%
2 10 Packaged - - - - 1 - - - 5 - - - - - - - - - - - 6 0 1 376%
3 10 Packaged - - - 1 - - - - 1 - - - - - 2 4 - - - - 8 0 1 249%
4 10 Packaged - 3 2 - 4 1 2 - - - 1 - 2 3 - - - - - 2 20 1 1 130%
5 10 Packaged - - 1 - 1 - - - - - - 2 - - - - - 1 - - 5 0 1 220%
SUM 10 Bulk - 7 3 3 8 3 2 2 6 2 3 2 4 3 4 6 - 3 2 2 65 3 2 65%
Example where Product-Package can be forecasted:
Material
(Prod-Pkg)
PRD (Bulk) Material_De
scr.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
20-Mth
SUM
20-Mth
Avg.
Std
Dev'
CoV
6 11 Packaged 5 5 2 2 2 2 2 4 2 2 6 2 5 6 2 5 2 2 2 5 68 3 1 40%
Example of a Material (Prod-Pkg) that should be Made-to-Order:
Material
(Prod-Pkg)
PRD (Bulk) Material_De
scr.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
20-Mth
SUM
20-Mth
Avg.
Std
Dev'
CoV
7 11 Packaged 2 - - - - 2 - - 1 2 - - - - 1 - 2 - - 2 12 1 1 147%
Step 2: Demand Planning – Forecastability
The accuracy of the forecast depends heavily on whether or not the forecasting tool is applicable to
the history data. One test to determine this is the Coefficient of Variation (COV). COV = Standard
Deviation of Period-to-Period Sales/ Average Period Sales. If COV >0.8, conventional forecasting
such as moving average should not be used.
Step 2: Demand Planning –Symptoms
You Need a Formal S&OP Process
Shareholder
or Owner
Board of
Directors
Profits
Revenue
Forecast
Sales
Manager
3-Year Plan
Sales
Representative
Actual
Sales
Top-Down Directives Conflict Significantly with Current Market Conditions:
A formal S&OP Process will
ensure alignment across
organization & planning levels.
Marketing/Sales Suffer with the “Field of Dreams”
Syndrome
“If we make it, they will come!”
Well guess what, in many cases we made it and they did not come.
Output
Forecast
Manufacturing
Inventory
Step 2: Demand Planning –Symptoms
You Need a Formal S&OP Process
A formal S&OP process will ensure cross-functional review of forecasting performance.
Bill, this is Jim. I
want to make an
appointment with
you to discuss our
Demand Planning
process?
Inventory
The Supply Chain Manager contacts the
Marketing Manager.
+10%
Oh, Hi Jim. Actually
we don’t have a
formal Demand
Planning process.
However, I’m
updating the latest
forecast at this very
moment.
The Marketing Manager responds.
The Scope of Marketing/Sales Participation is Limited
Step 2: Demand Planning –Symptoms
You Need a Formal S&OP Process
Step 2: Supply Planning – Process Overview
Supply Plan
by
Production
Family
Demand
Plan
Develop and Review
Production &
Purchasing Plans

Assess Manufacturing &
Supplier Capabilities

Integration of Supply Planning
Inputs
Outputs
Process
Inventories
Manufacturing operations and purchasing are responsible for the
Supply Planning step of the S&OP process.
The key KPI for the process output is the deviation between
planned and actual supply. For the process itself, timely &
accurate data to drive the next step is most important.
Step 2: Supply Planning – Activities
• Develop the preliminary supply plan based on the demand
plan
• Perform Resource Planning (Capacity Planning) for key
resources
• Identify and resolve imbalances in demand & supply as
feasible
• Identify imbalances to be reviewed by management
Key activities for the Supply Planning sub-
process include:
Step 2: Supply Planning – Sample Plan
Machine Hours
& No. of
Batches are Key
Resources
Jim, what is going on in
Production. Fred did not
make the rate decrease we
had in the S&OP Plan and
Inventory is out-of-control.
Production
Sales
Inventory
Step 3: Supply Planning –Symptoms You
Need a Formal S&OP Process
Manufacturing & Business Goals are not Aligned
Congratulations Fred,
your unit cost in
production was below
plan last month and
I’ve been authorized to
give you a bonus.
Plant Manager
JIM
Step 4: Demand-Supply Balancing – Process
Overview
The Master Scheduler will typically facilitate the balancing of
demands with supply once the preliminary S&OP plans are
developed.
The primary objective is to resolve any imbalances at the least
cost to do so.
Demand
Plan
Supply
Plan
Balance Demand/Supply

Balance 1
Load vs.

Capacity

Model /
Option
Against
Inventory
Policy
Customer
Service vs.
Inventory
Balance 2 Balance 3
Supply
Plan
Demand
Plan
Updated
Financial
View
Updated
Inventory
Targets
Resource
Recommend-
ations
S&OP
Meeting
Agenda
Exceptions
Inputs
Outputs
Process
Step 4: Demand-Supply Balancing – Activities
• Make decisions regarding demand-supply balancing
• Resolve issues and formulate recommendations
• Document the issues that could not be resolved and the
alternatives for each
• Convert the plans to financial units for management review
• Develop the agenda for the executive S&OP
Note: Depending on the size and complexity of the business, this
step may require a formal meeting or may be done leveraging
communications technology (e.g. shared files).
Step 5: Executive S&OP Meeting
The purpose of this meeting is to approve recommendations, make
decisions, and issue the firm’s “game plan.”
Sample Agenda – Executive S&OP Meeting
• Review of Overall Business Performance
• Review & Discussion of Key Performance Indicators
• Discuss Status of New Product Introductions
• Family-by-Family Review and Decisions
• Approve Production/Supplier Rate Changes
• Collective Impact on the Business Plan
• Review of Decisions Made & Action Items Assigned
• Critique of the Meeting
Step 5: Outputs & Objectives of Executive
S&OP Meeting
The outputs of the meeting are the Meeting Minutes,
modifications to the Business Plans, and the finalized S&OP
Plan. Collectively, these are referred to as the “Game Plan.”
Objectives for the meeting include:
• Make final decisions for issues raised during the S&OP process
- accept or change proposals
- choose from alternatives provided
• Compare the financial numbers from the S&OP Plan to the current
Business Plan and reconcile the two. Finalize the S&OP Plan.
• Review current performance for Customer Service, Inventory, etc.. ,
and make any necessary changes to plans or targets.
• Review New Product Issues, Special Projects, and Business Level
Issues and make the necessary decisions.
Step 5: Sample S&OP Plan in SAP
DEMAND
SUPPLY
RESOURCE
PLANNING
INVENTORY
Note: Most ERP Systems provide a platform to enable S&OP
Step 5: Sample S&OP Plan in EXCEL
Historical Performance
Plan
Step 5: Sample S&OP Business Scorecard
Period Ending: December, 2006 KPI ScoreCard
TREND
DEC STATUS
ROLLING
12 MONTH
Total Sales ($M) J. Doe
Contribution Margin ($ OK J. Doe
Total Demand (M lbs) OK J. Smith
Demand vs. S&OP OK J. Smith
Forecast Accuracy OK J. Smith
Total Production (M OK B. Jones
Production vs. S&OP OK B. Jones
S&OP Capacity OK B. Jones
Total Finished Goods OK J. Green
Inventory vs. S&OP OK J. Green
DII (PIT) Raw Materials OK J. Green
DII (YTD) Raw OK J. Green
DII (PIT) Finished OK J. Green
DII (YTD) Finished OK J. Green
DII (PIT) OK J. Green
DII (YTD) OK J. Green
Non-Saleable OK J. Green
On-Time Shipping OK D. Easy
Actual Ship Qty. vs. OK D. Easy
Total Fixed OK D. Easy
LOWER
LIMIT
REPORTING MONTH
OWNER
FINANCIAL
SBU A
PREVIOUS
MONTH
TARGET
UPPER
LIMIT
DEMAND
PRODUCTION
INVENTORY
LOGISTICS
Keys to Success
S&OP is Journey not a Destination
Get the basics
in order
Continuous
Improvement
Learn by
Doing /Align
Efforts
Focus the
S&OP
Process
Task# Task Description
1 Conduct Initial Briefing/Education
2 Determine S&OP Team Members:
- Demand Plan Owner
- Supply Plan Owner
-S&OP Spreadsheet Developer
- Consultants (e.g. Finance)
-Functional Leaders
3 Set dates for Next 12 S&OP Meetings
4 Planning Groups Identified
5 Planning Horizon Decided
6 S&OP Spreadsheets Designed
7 S&OP Spreadsheets Programmed
Task# Task Description
8 S&OP Performance Measures Selected
- Actual vs. Planned Demands
- Actual vs. Planned Supply
- Actual vs. Planned Inventory
- Customer Service Performance
- Financial Performance
etc., etc.
9 S&OP Performance Measures Reported
10 S&OP Meeting Agenda Issued
- Demand/Supply/Inventory Review
- Performance (KPI) Review
- Issues needing a decision
- Special Projects
11 First S&OP Meeting Conducted
S&OP Basics – Early Implementation Tasks
Responsible Person and Due Date required for each task.
Get the Basics in Place:
Sample S&OP Planning Calendar
SUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY
1 (1) 2 (2) 3
4 5 (3) 6 (4) 7 (5) 8 (6) 9 (7) 10
11 12 (8) 13 (9) 14 (10 15 (11) 16 (12) 17
18 19 (13) 20 (14) 21 (15) 22 (16) 23 (17) 24
25 26 (18) 27 (19) 28 (20) 29 (21) 30 (22) 31
The Journey
Begins
Update Actuals
into FCST
Model
Mktg. Finalizes
Demand FCST
Dmnd Plng
Mtg.- Final
Plan Due
Supply Plan
Finalized
(Mtg.?)
S&OP Mtg. -
Exceptions
Resolved
Sr. Mgmt.
Approves
S&OP Plan
Approved
S&OP Plan to
SAP
KPI Scorecard
Available
All team members must meet sub-process due dates to ensure success.
Focus the Process:
Includes planned and actual as well as volume and
value.
Includes estimated profit margins.
Sample S&OP Grid with Financials
Only white rows require entry; other data is populated
automatically or calculated automatically.
The S&OP Plan must be aligned with the Financial Business Plan
Learn by Doing/Align Financials:
© SAP AG
Sample Key Performance Indicators (KPI‟s) for
the S&OP Process
• Overall Process
- Customer Satisfaction (e.g.
OTD)
- ROI/ROA/Cash Flow,etc..
- Market Share
- Inventory Performance
• New Product Planning
- Due Date (milestones)
- Velocity (time to market)
- Revenue/Cost


• Demand Planning
- Forecast Accuracy
- Sales Plan Performance
• Supply Planning
- Plnd. vs. Actual Production
- On-time Supplier Delivery
- Prime Yield
- Cost to Acquire
Continuously Improve:
Focus on Performance-to-Target and Trends in Performance
S&OP - Barriers to Success
• Process Ownership is with Planning not the Leadership Team

• Lack of understanding of the S&OP Process

• Insufficient resources for process implementation

• Inadequate performance measurement

• Resistance to giving up individual freedom to achieve best overall
results
S&OP is a Key Process at BASF
2006
Supply
Chain
Project
The Supply Chain Project of the Year 2006 Award goes to the “Implementation of a Global Sales & Operations Planning
Process in the EVN Business.” The award pays tribute to innovative supply chain solutions and outstanding performance in
the implementation of supply chain concepts. The award is sponsored by Dr. Kurt Bock, CFO for BASF Group.
BASF Corporation – 5-Year Stock Performance
At BASF, “We don’t make a lot of the products you buy, we
make a lot of the products you buy better.”
(PPS in USD)
Source: YAHOO.com
S&OP is one of many things BASF Corporation has
done well to improve overall performance.
© SAP AG
Enterprise Wide Information Systems


The Procurement Process



Instructor: Richard W. Vawter

SAP ERP
Page 5-225
© SAP AG
Objectives
Rather than selling, as you studied in the Customer Order Management process, you will now
be focusing on the purchasing process. You will be able to:
- Describe the basic business process of procuring stock materials in an ERP System.
- Discuss the integration points in procurement to Financial Accounting and Inventory
Management.
- Execute the procurement process in the SAP R/3 System.
- Discuss the reporting and analysis tools used by R/3 in the procurement cycle.
SAP ERP
Page 5-226
© SAP AG
Topics
 Organizational Elements and Master Data
 Business Process for Procurement
 Reporting and Analysis
Procurement
The primary SAP R/3
application modules that
support the Procurement
process are:
- Materials Management
• Purchasing
• Goods Receipts
• Invoice Verification
- Production Planning
• Purchase Requirements
- Financial Accounting
• Payment Processing
• Materials Valuation
Sales &
Distribution
Materials
Mgmt.
Production
Planning
Financial
Accounting
Controlling
Fixed Assets
Mgmt.
Quality
Mgmt.
Plant
Maintenance
Human
Resources
Workflow
Industry
Solutions
R/3
Client / Server
ABAP/4
Project
System
SAP ERP
Page 5-228
© SAP AG
Organizational Elements
 The SAP R/3 Procurement business process uses the following organizational elements:
Company Code Plant Storage Location
Purchasing Organization Purchasing Group
SAP ERP
Page 5-229
© SAP AG
Master Data
The following master data is used in the Procurement cycle:
- Material master
- Vendor master
SAP ERP
Page 5-230
© SAP AG
Material Master Primary Views
 Basic Data
 Material Resource Planning
 Stocks in Inventory
 Accounting
 Storage
 Warehouse Management
 Purchasing
 Sales
 Work Scheduling
 Quality Management
 Forecasting
 Classification
SAP ERP
Page 5-231
© SAP AG
Vendor Master
 The Vendor Master includes all data necessary for processing business transactions and
corresponding with vendors.
 Information is shared between the accounting and purchasing departments.
 All data is grouped into three categories:
- General data
- Company code data
- Purchasing data
SAP ERP
Page 5-232
© SAP AG
Topics
 Organizational and Master Data
 Business Process for Procurement
 Reporting and Analysis
SAP ERP
Page 5-233
© SAP AG
Procurement Cycle
 The procurement cycle may consist of eight processes:
8. Payment
3. Requisition assigned
to a Vendor
5. Order follow-up
2. Source
determination
1. Requirements
determination
4. Order processing
Purchase Order
Purchase Order
6. Goods receipt and
inventory management
Purchase Order
Purchase Order
7. Invoice verification
SAP ERP
Page 5-234
© SAP AG
Business Process Flow for Procurement
 The main documents and transactions in the Procurement
process are:
Planning, Reporting, and Analysis
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Posting
 Note: Payments to vendors are usually made at specified times
(e.g. at the end of the month).
 Payment amounts are determined according to the „open‟
invoices posted on the system.
Purchase Requisition Processing
Material Resource
Planning
Direct Entry
Determine source of supply
Purchase requisition Release strategy
Purchase Order
Purchase Order
Purchase Order
Purchase order
or
SAP ERP
Page 5-236
© SAP AG
Purchase Orders
 A purchase order is a formal request to a vendor to provide certain materials or services
under specific conditions (quantity, price, delivery date, etc.)
Planning, Reporting, and Analysis
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Posting
SAP ERP
Page 5-237
© SAP AG
Purchase Order Processing
Purchase Order
Purchase Order
Purchase Req.
Service
Consumable material
Stock material Account assignment
(cost center, asset,
project…)
Purchase
Order
• Standard
• Sub contract
• Consignment
•Third-party
Purchase
Order
• Standard
• Sub contract
• Consignment
• Third-party
Statistics
Order History
Direct Entry
or Purchase
Requisition
SAP ERP
Page 5-238
© SAP AG
Goods Receipt
 When goods are received from a purchase order, the item data is copied from the
purchase order into the goods receipt document.
Planning, Reporting, and Analysis
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Posting
Goods Receipt for Stock Material
 Entering the goods receipt increases the inventory
level of a material that is procured for stock.
 Inventory Management (MM module)
controls and records all goods movement,
form purchase order receipt through the
plant, to consumption
Purchasing
documents
Items
1.
2.
3.
Warehouse / stores
Goods
Receipt
Vendor
SAP ERP
Page 5-240
© SAP AG
Results of a Goods Receipt Posting
 Transaction documents are created both for materials management and finance.
Goods Receipt
Posting
Accounting
document
Stock quantity
Consumption statistics
Point of consumption
Cost center Order
Transfer
Order
Purchasing data:
Order item, Order history
Goods receipt
slip
Material
document
G/L accounts:
Consumption account
GR/IR account
SAP ERP
Page 5-241
© SAP AG
Invoice Processing
 This last step in the procurement process includes invoice
verification and updating accounts payable in the FI module.
Planning, Reporting, and Analysis
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Posting
 Payment will then be made later based upon the „open‟ invoices
posted on the system
SAP ERP
Page 5-242
© SAP AG
Invoice Verification Environment
 Invoice verification accesses data from purchasing, inventory
management, material master, and vendor master files.
Purchase
Order
Vendor
Invoice
Goods
Receipt
Purchase Order
Purchase Order
Invoice
verification
G/L accounts
Assets
Cost centers
Projects
Orders
Material master
Vendor master
Posting an invoice in the R/3 System
updates purchasing and accounting data
Posting an invoice in the R/3 System
updates purchasing and accounting data
SAP ERP
Page 5-243
© SAP AG
Vendor Payment
 Accounts payable reads the invoice file and pays all posted
invoices due. (Payment runs can be automated to occur at
specific times.)
Motor Sports International
1234 Main Street
New York, NY 10181
1 4 4 9
Date _______________
Pay to: ________________________________________
________________________________________________________
_______________
12930 39040 2020 20202 10923 1449
_________________
Vendor
1000
Bank
1000
Payment
program
Payment
program
Released
Invoice
Financial
Accounting
Procurement Integration
Purchase Order
Goods Receipt
Invoice Verification
PP FI FI
MM
Purchase Order
Invoice
SAP ERP
Page 5-245
© SAP AG
Topics
 Organizational and Master Data
 Business Process for Procurement
 Reporting and Analysis
SAP ERP
Page 5-246
© SAP AG
Reporting and Analysis
 Standard Reporting provides List Displays (pre-defined programs) by:
- Vendor
- Material
- Account assignment
- Material group
- Purchase order number
- Tracking number
 General Analysis
 Order Value Analysis
 Inventory Transaction Analyses
SAP ERP
Page 5-247
© SAP AG
Logistics Information System (LIS)
 The Logistics Information System (LIS) contains several information systems such as:
- Purchasing Information System
- Inventory Controlling
- Sales Information System
- Shop Floor Information System
 LIS extracts its data from the operative applications; it offers many different views on this
information.
SAP ERP
Page 5-248
© SAP AG
Logistics Information System (LIS)
 The LIS exists for the entire logistics system in R/3
 The LIS contains several information systems such as:
- Sales Information System
- Purchasing Information System
 The LIS extracts data from the operative applications; offering it
in many different views, the depth of which is determined by the
user.
 Inventory Controlling
 Shop Floor Info System
Sales
Information
System
Purchasing
Information
System
Inventory
Controlling
Shop Floor
Information
System
Maintenance
Information
System
Quality Mgmt
Information
System
Sales and
Distribution
(SD)
Materials
Management
(MM)
Production
Planning
(PP)
Plant
Maintenance
(PM)
Quality
Management
(QM)
Logistics Information Library
R/3
Logistics
Information
Systems
Logistics
Processing
Systems
SAP ERP
Page 5-249
© SAP AG
In Summary
 The basic procurement process includes:
- Purchase requisition
- Purchase order
 Procurement master data includes the vendor and material master
files.
 At various times during the Procurement process, integration occurs
between the PP, MM and FI modules.
 The two reporting tools used in the procurement environment are:
- Standard Reporting
• List Displays  General Analysis  Inventory Analysis
- Logistics Information System
• Purchasing Information System  Inventory Controlling System
 Goods receipt
 Invoice processing
© SAP AG
Consumption-based
Planning
SAP ERP
Page 5-251
© SAP AG
Material Planning
Material Planning
(MRP Procedures)
Independent Demand
(Consumption-based
Planning)
MRP-Material
Requirements Planning
Reorder point
planning
Forecast-based
planning
Time-phased
planning
Manual reorder
point
Automatic reorder
point
SAP Terms
SAP Exercise
SAP ERP
Page 5-252
© SAP AG
Planning Process
External procurement In-house
production
Planning Run
Planned Order
Conversion
Production
Order
Purchase
Requisition
Purchase
Order
Schedule
Line
Can be
automatic
SAP ERP
Page 5-253
© SAP AG
Planning Process
 Planned Order:
- Recommendation by the MRP planning process of quantity and
timing of production or purchase order
 Production Order:
- Actual order given to shop floor to commence production. May be
electronic or paper. Can include production details (routing, quality
requirements, drawings, instructions, etc.)
SAP ERP
Page 5-254
© SAP AG
Planning Process
 Purchase Requisition:
- Request to purchasing to create purchase order
 Purchase Order
- Request to vendor to supply materials
 Schedule Line
- Direct request to vendor for materials, covered by scheduling
agreement (blanket PO)
SAP ERP
Page 5-255
© SAP AG
Reorder Point Processing
Reorder Point
Safety Stock
Time
Replenishment
Lead Time
L
o
t

S
i
z
e

SAP ERP
Page 5-256
© SAP AG
Reorder Point Processing
 When the inventory level for a product that is planned
using consumption-based planning reaches the ROP,
an order for the material is NOT created automatically
 Consumption-based planning uses the Material
Requirements Planning (MRP) planning process to
create purchase orders
 The MRP planning process is typically run overnight
on a daily basis
- Historically, might have used weekly runs
- Time until MRP planning run is executed should be
considered in ROP calculation (daily runs, add 1
day to lead time)
SAP ERP
Page 5-257
© SAP AG
Forward Scheduling for
External Procurement
T
o
d
a
y

(
R
e
l
e
a
s
e

D
a
t
e
)

P
u
r
c
h
a
s
e

O
r
d
e
r

D
a
t
e

G
o
o
d
s

R
e
c
e
i
p
t

D
a
t
e

A
v
a
i
l
a
b
i
l
i
t
y

D
a
t
e

Processing Time
For Purchasing
Planned Delivery Time
Goods Receipt
Processing Time
Replenishment Lead Time
SAP ERP
Page 5-258
© SAP AG
MRP Planning Process
 For a company with thousands of materials to plan, the computing resources needed to
calculate material plans can be significant
 To make sure that:
- Only those calculations that are necessary are performed:
- Only on materials that need planning
 Two ―filters‖ are used:
- Planning Run Type
- Planning Horizon
SAP ERP
Page 5-259
© SAP AG
Planning Run Types
 NETCH: Net change in the total horizon
- In the MRP Planning Process, materials are planned if there have been any:
• Changes in material stocks (receipts, issues)
• Addition of purchase requisitions, purchase orders, planned orders, dependent requirements
• Changes in Material Master Data (Lot Size, ROP, etc.)
SAP ERP
Page 5-260
© SAP AG
Planning Run Types
 NETPL: Net change in the planning horizon
- Same at NETCH, EXCEPT:
• Changes must occur within the planning horizon
• Planning horizon keeps MRP planning process from making plans for future periods that:
– Do not impact current operations
– Will be made irrelevant through the dynamics of business
SAP ERP
Page 5-261
© SAP AG
Planning Run Types
Planning Horizon
N
E
T
C
H

Planning Horizon
N
E
T
P
L

Order/
Requisition
Requirement
Time
SAP ERP
Page 5-262
© SAP AG
Plant Parameters: Planning Horizon
SAP ERP
Page 5-263
© SAP AG
Planning Run Types
 NETUPL: Regenerative Planning
- Plans all materials for total planning horizon
• Good idea to run this option regularly (e.g. every weekend), even though it is more resource intensive
– Customizing changes don’t trigger planning under NETCH or NETPL
– ―Time passage‖ problem with NETPL
SAP ERP
Page 5-264
© SAP AG
NETPL: Potential Problem
Planning Horizon
N
E
T
P
L

Today
Planning Horizon
N
E
T
P
L

Today
Solution: Run NETUPL
Passage of time is not an ―event‖
Would require monitoring to detect
SAP ERP
Page 5-265
© SAP AG
Planning File
 A Planning File entry exists for each material
- Keeps track of changes that would require material to be planned under NETCH or NETPL
options
- MRP Planning process looks at planning file entries for each material to see if it should be
planned
SAP ERP
Page 5-266
© SAP AG
Planning File
Low-level
Code
NETCH
Indicator
NETPL
Indicator
SAP ERP
Page 5-267
© SAP AG
Planning Run Options
Planning Run Type:
NETCH
NETPL
NETUPL
Create Purchase Req:
1 – Purchase Requisitions
2 – Purchase Requisitions in Opening Period
3 – Planned Orders

Defined by Schedule Margin Key
Usu. does not impact
consumption-based planning
SAP ERP
Page 5-268
© SAP AG
Planning Run Options
Planning mode:
Determines how system deals with previous
plans (planned order, purchase requisitions)
Create MRP List:
1 – Yes
2 – Depending on Exception Messages
3 – No
Scheduling:
Determines level of detail in schedule
calculation for production orders
Display results before they are saved
Lets planner make changes before the
results are saved
SAP ERP
Page 5-269
© SAP AG
Planning Run Options
 With consumption-based planning in practice:
- You would not run MRP for a single material, but do it as part of a group (MRP Area based on
storage location)
- You would have it scheduled to run automatically
- You would have it either:
• Create purchase requisitions automatically
• Create schedule lines
SAP ERP
Page 5-270
© SAP AG
Net Requirements Calculation
R
e
o
r
d
e
r

P
o
i
n
t

Stock
Firm Planned
Orders
Purchase
Orders
Order Proposal
for Lot Size
Shortage
Fixed Purchase
Requisitions
How does safety stock
figure into this process?
SAP ERP
Page 5-271
© SAP AG
Exercise: Material Master Data
MRP Type:
VB sets consumption-based planning

Reorder point

Lot size:
FX is fixed lot size

Fixed lot size:
Quantity in an order
SAP ERP
Page 5-272
© SAP AG
Exercise: Material Master Data
Plnd delivery time:
Vendor part of lead time

SchedMargin key:
Sets opening period, among other
things

Safety stock:
Desired stock level when
replenishment order arrives

How does it work in SAP R/3?
SAP ERP
Page 5-273
© SAP AG
Exercise: Stock/Requirements List
Stock/Requirements List:
Your one-stop shopping location for
all things material
SAP ERP
Page 5-274
© SAP AG
Exercise: MRP Planning Run
MRP control parameters:
Planning run parameters
discussed previously
SAP ERP
Page 5-275
© SAP AG
Exercise: MRP Planning Run
Planning run results displayed:
Purchase requisition created
SAP ERP
Page 5-276
© SAP AG
Exercise: Purchase Requisition
Can easily create purchase
order from S/List
SAP ERP
Page 5-277
© SAP AG
Exercise: Purchase Order
Purchase order screen is
where the requisition is
converted to a purchase
order
Vendors selected
Price determined
SAP ERP
Page 5-278
© SAP AG
Exercise: Receive Purchase Order
Goods Receipt Screen:
In practice, could just be a bar-code scan
Links receipt to purchase order
Tell SAP R/3 system where goods have
been stored

SAP ERP
Page 5-279
© SAP AG
Exercise: Goods Issue
Goods Issue Screen:
When goods are issued, something has
to absorb costs (project, production
order, cost center)
In this case, we will charge costs to the
warehouse cost center (P020)
What is the downside to charging to a
cost center?
Exercises:




212. Create primary cost elements
213. Create secondary cost elements
214. Create cost element groups
215. Create statistical key figure
216. Create controlling document number ranges
217. Define controlling settlement document number ranges
246. Maintain plant parameters for production planning
258. Create vender master records centrally
265. Create bill of materials
266. Create person responsible for work center
267. Create work center location
269. Create capacity
270. Create activity type labor
271. Set activity prices
272. Create work center for production




Exercises:




273. Create finished products routing
274. Display routing list
275A. Create material master for production group
275B. Assign numbers for product group



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