Integrated Distribution &
Production Planning
(DP/PP)
EGN 5623
Enterprise Systems Optimization
(Professional MSEM)
Fall, 2011
Integrated Distribution
Planning & Production Planning
(DP/PP)
Theories & Concepts
EGN 5623
Enterprise Systems Optimization
(Professional MSEM)
Fall, 2011
SCM Overview
SCM aims at managing and optimizing the information flow
and the material flow through a network of suppliers,
manufacturers, distributors, and customers.
SCM Overview
SCM Overview
Traditionally, distribution planning and production planning
are carried out, independent of each other. Each seeks its
own local optimum.
In SCM, distribution planning and production planning
decisions should be integrated to promote global optimum.
This integrated distribution and production planning aims at
:
•Reducing the costs for sourcing products and raw materials,
•Improving customer service,
•Dramatically reducing on-hand stocks, and
•Making better use of company resources.
An Integrated DP/PP Problem
An Integrated DP/PP Problem
An integrated DP and PP problem:
Suppose a supply chain system contains two distribution
centers (XXW1 and XXW2) and two plants (XX01 and
XX02). There are two finished products for selling: GIN
and KORN. GIN is produced in both plants XX01 and
XX02, and KORN is only produced in plant XX02. The
key semi-finished good for both products is ALC, which is
only produced in plant XX01 and can be sent from the
plant XX01 to XX02. The DC XXW1 is supplied from
both plant and DC XXW2 is supplied only by XX02 (see
the Figure 10.1)
This is a classical transportation problem.
An Integrated DP/PP Problem
Some planning decisions include:
1. Determine the source for warehouse XXW1:
• Procure GIN from XX01 or XX02, depending on the
load in plants XX01 and XX02.
2. Prioritize production for plant XX02:
• Produce GIN for both warehouses XXW1 or XXW2,
depending on whether XX01 has the capacity to
supply additional quantities to XXW1.
3. Prioritize the production in plant XX02:
• Produce GIN or KORN, depending on the product
priorities.
An Integrated DP/PP Problem
1. Handle ALC:
• to ship ALC to XX02 or process it in XX01, depending
on the production costs, the market and the product
priorities and the demand structure in XX02.
2. Balance the loads for GIN between plants XX01 and XX02
• depending on the production costs, the lot size
dependent production costs and the capacity extension
costs and possibilities.
3. Make trade off
• To optimize the lot size that strikes a balance between
set-up cost and storage cost, while improving sales
flexibility.
The SNP Optimiser
Objective:
The SNP optimiser is to plan the entire supply chain
(i.e., from distribution, production to procurement) at
optimal costs by modelling the complete supply chain
as linear equations and solve them by linear
programming (LP) or mixed integer linear programming
(MILP).
The difference between the two (LP and MILP) lies in
the consideration of discrete decisions, as lot size
intervals.
The SNP Optimiser
Objective function:
Min {Sproduct [(D –S) * Penalty + S * Cost supplychain]}
where
D: the total demand quantity;
S: total supply quantity (which is product and location
dependent).
•
•
•
The supply chain costs contain cost for production,
procurement, transport, storage and handling.
The penalties are cost for lateness, non-delivery and
safety stock violation.
SNP optimizer considers only one time interval at a
time.
The SNP Optimiser
The constraints for the plants are:
PGIN-XX01<= CGIN-XX01
PGIN-XX02 + PKRON-XX02 <= CGIN-KRON-XX02
PGIN-XX02 <= CGIN-XX02
PKRON-XX02 <= CKRON-XX02
PALC-XX01<= CALC-XX01
PGIN-XX01+ PGIN-XX02+ PKRON-XX02 <= BOM Ration * PALC-XX01
Where
P: is the produced quantity,
C: is the production capacity.
The SNP Optimiser
•
The penalties for non-delivery and lateness are
maintained in the product master either globally or
locally (by product-location).
•
The supply chain costs are maintained in the master
data for product, PDS, PPM, resource capacity variant
and transportation lane.
•
The SNP optimiser takes the production, transport,
storage and handling costs into account for global
optimization.
The SNP Optimiser
By setting these costs, we can model for decisions such as:
• Extend production capacity in a plant or procure from a
different plant considering increased production and
transport costs,
• Extend production capacity in a plant or procure
externally
• Switch to a more expensive transport method to speed
up the transportation,
• Switch to another source if a transport capacity is
already consumed, and
• Produce and ship just in time to minimise storage
costs.
The more sourcing alternatives exists, the more complicated
the planning problem becomes.
The SNP Costs
Cost are used in SNP optimization to define the objective
function.
Related SNP costs are listed in Table 10.2
The SNP Costs for Optimisation
The SNP Costs
The penalty costs for safety stock are defined with the
number of stock-out days.
The storage costs are calculated as stock quantity multiplied
by the number of time buckets (or in addition, multiplied by
the number of days per bucket), according to the setting.
Costs for delay and non-delivery are maintained in the
product master, for three demand types, corresponding to the
demand priorities (set in the optimiser profile per demand
type):
1: customer demand,
5: corrected forecast demand, and
6: forecast demand.
The SNP Costs
The most critical issue in using the SNP optimiser is the
appropriate maintenance of the costs.
For example, if storage costs are too high, it may result in no
production at all, because supply chain costs exceed the
penalties for non-delivery or permanent transport
The SNP Constraints
The constraints for the optimisation are the demand, the
capacities, the material availability and the production and
stock transfer horizons.
Most of these constraints are controlled in the optimiser
profile as listed in Table 10.3.
The user may define a priority for each demand type. The
user may also set priority in the optimiser profile in the “hard
prioritisation” checkbox.
Constraints for SNP Optimiser
The Discrete Optimiser
Discretization is required in the following cases:
1. Lot-size dependence
• Such as decreasing costs due to less set-up or
increasing costs if procurement contract are
exceeded,
2. Technical restriction
• When it requires different master data, e.g. if the
production process or the resource changes for huge
lot sizes,
3. Fixed resource consumption
• Such as set-up,
4. Technical restrictions
• When it requires a fixed lot size, a lot size rounding, or
a minimum lot size, and
5. Extension of the standard capacity.
Discretization for Optimiser
•
The use of discretization parameters in each bucket
complicates the planning problem, as it is a NP-hard
problem in nature.
•
Try to limit the use of discretization parameters and
discrete buckets.
•
The SNP optimiser makes use of a medium-term plan, to
review each discretization step to see if it is really
necessary.
Discretization for Optimiser
Cost functions are created for procurement, production, and
transport and are assigned to the product master
(procurement), PDS /PPM (production) and means of
transport view of the transportation lane (transport).
Decreasing production costs can be modelled in two ways:
one is to assign a cost function to PPM, the other one is to
use two PPMs: one with higher cost, and the other one with
lower cost but a minimum lot size. Depending on the
modeling, the curve for the cost per quantity is different (see
Figure 10.5).
Cost Function for varying
Capacities
Cost Function for Varying quantities
Discretization for the Optimiser
The SNP solution time depends on the number of locations,
products and buckets.
To reduce the solution time, the user may aggregate the time
buckets – e.g. by decreasing the granularity within the time
horizon.
The main issue for SNP optimiser is
1. To maintain the relevant costs and
2. To integrate interactive planning steps into scenario
(See an example in the SAP implementation).
Capable-to-Match (CTM)
•
Capable-to-match (CTM) is an APO tool to perform
DP/PP interactively
•
To run CTM, the user needs to prioritize demand
elements, categorize supply elements, match demands
with the supplies, according to a strategy to search
existing stocks, planned receipts, and/or with production.
•
CTM planning is a first-come, first-serve heuristic; as a
result, shortages may occur to late comers.
•
CTM approach usually applies when demand priorities
(e.g. demand type, customer priorities, product priorities)
exists
Capable-to-Match (CTM)
CTM is a heuristic approach; it does not optimize.
There is no re-planning for the created orders for other
demands.
The structure of CTM is shown on the Figure 10.8.
Like the SNP optimizer, the user needs to first set up the
CTM planning engine.
Structure of CTM
Capable-to-Match (CTM)
CTM Procedure:
1. Prioritize demands and orders, and categorize supplies
(production and/or stocks), according to the planning
mode and the search strategy;
2. Load the master data and the transaction data (demands
and orders) into CTM engine;
3. Run CTM to match demands with supplies in a locationby-location procedure.
• All supply categories and the production are taken
into account for each location, according to the search
strategy.
CTM Profile
All relevance settings for CTM planning are made within the
CTM profile.
CTM profile defines the planning parameters, and triggers
CTM planning.
Figure 10.9 outlines the CTM profile. For example, the CTM
scope is defined by
the master data selection.
order selection
CTM time stream (e.g., time bucket definition)
CTM Profile
CTM Categorization and Search
Strategy
Two way to generate the supply categorisation:
1. Assigning an ATP category (e.g. stock or production
order) and/or category groups to each supply
category, and
2. defining limits per location-product and assigning the
limits to each supply category (see Figure 10.11).
• After the supply limits are defined, the supply
categories are assigned to the supply limits in the
categorisation profile.
The main purpose of the supply categorisation is to keep the
inventory level above a certain limit.
Supply Categorisation
CTM Categorisation and Search
Strategy
The search strategy defines the sequence in which the
supplies are matched with demands.
All the planning steps defined in the search strategy – the
matching of supplies and the production – are carried out
location-by-location.
The sequence of the locations is determined by the priorities
(see Figure 10.12), where the location SOURCE1 has a
higher priority than SOURCE2, so first all the planning steps
are performed for the location SOURCE1.
Supply and Demand Matching –
Search Strategy
CTM Planning
CTM takes into account, the transportation lane priority, the
location priority, and the product priority; and uses them to
make decisions as shown in Figure 10.14.
The transportation lane priority is used for sourcing
decisions. The location and product priorities become
significant when shortage occurs (in which the demand with
the highest priority is considered first).
Priorities for CTM
Aggregation for CTM
By activating the aggregation selection in CTM profile, all
orders can be aggregated to match resources according to
the CTM time stream.
Figure 10.16 illustrates the impact of the three aggregation
options:
•no aggregation,
•demand aggregation at the start of CTM time steam, and
•demand aggregation at the end of CTM time steam.
Aggregation for CTM
Integration to ERP
There is a parameter in CTM, to specify if we want to
transport receipt objects individually or not.
1. If we want to transport individually, then each supply (e.g.
stock, planned order) will be transferred immediately,
2. Otherwise, the transportation is based on the number of
demands. (see Figure 10.19)
Transport Receipt Objects
Individually
Planned Stock Transfers
CTM considers the duration for goods issue, transport, and
goods receipt to schedule stock transfer orders.
Goods issue and goods receipt are maintained in the
product master in days (unit of measurement used), and
transport duration is maintained in the transportation lane in
hours (unit of measurement used).
Figure 11.3 shows the scheduling for stock transfer orders.
Scheduling of Stock Transfer Orders
Storage Resource
Handling Capacity
Capacity consumption of handling resources for goods issue
and goods receipt is calculated using handling capacity
consumption entries in the product master.
The capacity is represented by handling resources
(Resource type “H”) and assigned to the location.
Capacity consumption is calculated as order quantity times
capacity consumption for each day of the goods receipt and
goods issue time.
Integrated Distribution &
Production Planning
SAP Implementation
EGN 5623
Enterprise Systems Optimization
(Professional MSEM)
Fall, 2011
Maintain Distribution Definitions in
SCM System
Define Transfer of SNP Orders in
SCM System
Create Integration Model for
Transactional Data in SAP ERP system
Create Integration Model for
Transactional Data in SAP ERP system
Activate Integration Model for Plnd.
Order and Prod. Order in SAP ERP System
Activate Integration Model for Plnd.
I
Order and Prod. Order in SAP ERP System
Calendars in SAP APO
HW 5: Exercises
Module 8 (Section 2)

Supply Chain Model

Maintain supply chain model in SCM system
Calculate transportation zone coordinates in SCM system
Transportation mode and means


◦
Maintain means of transport in SCM system
Assign means of transport to transportation lanes in SCM system
Create transportation lanes in SCM system
Mass generation of transportation lanes
Display created transportation lanes
Assign materials to transportation lanes
Create quota arrangements in SCM system






◦
Quota arrangements for external procurement
Master product setting
Model consistency check


◦
◦
Create profile
Check the consistency of the model
Exercises:
Module 9 (Section 2)

Introduction

Maintain the integration setting in SCM
 maintain distribution definitions in SCM system
 Maintain Objects specifics settings in SCM system
 Define transfer of SNP orders in SCM system

Create integration model for transactional data in SAP ERP system

Activate integration model for plnd. Order and prod order in SAP ERP
system

Create integration model for purch. Orders and purch. Req. in SAP ERP
system

Activate integration model for purch. Orders and purch. Req. in SAP ERP
system

Create integration model for sales order

Activate integration model for sales order