Production Planning and

Execution (PP)

SAP AG

SAP ERP
Operations management all activities directly related to the
production of goods and services
- Value chain

Concerned with: planning, directing, and controlling the flow of

information, materials, and services

SAP AG

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SAP ERP

Introduction

MM PP SD
Production scheduling & inventory management influence
how assets are deployed.
Problem: A missed due date or stock-out may cascade
downstream, magnifying the bullwhip effect

SAP AG

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SAP ERP

The bullwhip effect is an observed

phenomenon in forecast-driven
distribution channels. It refers to a trend
of larger and larger swings in inventory in
response to changes in customer
demand, as one looks at firms further
back in the supply chain for a product.
(Wikipedia)

SAP AG

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SAP ERP

If demand is greater than capacity

Option
Choose not to
meet the demand

Result
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

SAP AG

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SAP ERP

Objectives of operations / value chain

Operations managers are continuously involved in balancing

capacity & output, and ERP systems are designed to help
manage this aspect of manufacturing organizations
Provide for cost-efficient operations:
- Buffer inventory for smooth production flow
- Maintain a level work force
- Allowing longer production runs & quantity discounts

Minimum inventory investments:

- Inventory turnover

SAP
6 AG

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SAP ERP

Functionality

SAP divides production into multiple processes

- Production Planning
- Manufacturing Execution
Discrete Manufacturing
Repetitive Manufacturing

- Production Process Industries

Integrated planning tool for batch-orientated process manufacturing
Design primarily for chemical, pharmaceutical, food and beverage
industries along with batch-oriented electronics

SAP AG

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SAP ERP

Client
-

An independent environment in the system

Company Code
-

PP Organizational Structure

Smallest org unit for which you can maintain a legal set of books

Plant
-

Operating area or branch within a company

Manufacturing, distribution, purchasing or maintenance facility

Storage Location
-

An organizational unit allowing differentiation between the various stocks of a

material in a plant

Work Center Locations (in SAP system master data)

-

SAP AG

An organizational unit that defines where and when an operation is performed

Has an available capacity
Activities performed are valuated by charge rates, which are determined by
cost centers and activity types.
Can be machines, people, production lines or groups of craftsmen
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SAP ERP

Global Bike Structure for Production Planning

Client

Global Bike

Global Bike Inc.

Dallas

SAP AG

Global Bike Germany GmbH

Heidelberg

Raw Materials

Raw Materials

Semi-fin. Goods

Semi-fin. Goods

Finished Goods

Finished Goods

Miscellaneous

Miscellaneous

Assembly

Assembly

Packaging

Packaging

Inspection

Inspection

Company
Code

Plant

Storage
Location

(Work Center Location)

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SAP ERP

PP Master Data

Material
Bill of Materials (BOM)
Routing
Work Center
Product Group

Data Model PP
SAP AG

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SAP ERP

Bill of Materials (BOM)

List of components that make up a product or assembly

Wheel Assembly
-

Tire
Tube
Wheel
Hex nut
Lock Washer
Socket Head Bolt

Frame
Derailleur Gear Assembly

Seat Kit
Handle Bar
Pedal Assembly
Chain
Brake Kit
Warranty Document
Packaging

Business Vocabulary PP

SAP AG

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SAP ERP

Bill of Materials (BOM)

Single-Level vs. Multi-Level

Single-Level

Finished Bike
Single-Level

Wheel

Frame Derailleur Seat Handle Bar

Pedal

Chain

Brake

Doc.

Pack.

Tire
Tube
Wheel
Hex nut
Lock
Bolt
Multi-Level
SAP AG

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SAP ERP

Bill of Materials (BOM)

Variant Bill of Materials (BOM)

- Several products with a large proportion of identical parts.
Single-Level

Deluxe Bike (red)

Single-Level

Professional Bike (black)

Aluminum Wheel
Frame red
Derailleur Gear
Assembly
Seat Kit
Handle Bar

SAP AG

Pedal Assembly
Carbon Wheel
Chain
Frame black
Brake Kit
Derailleur Gear
Assembly
Warranty Doc.
Seat Kit
Packaging
Handle Bar

Pedal Assembly
Chain
Brake Kit
Warranty Doc.
Packaging
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SAP ERP

Routing

Routings enable you to plan the production of materials (products).

Routings are used as a template for production orders and run
schedules
Routing are also used as a basis for product costing.
Series of sequential steps (operations) that must be carried out to
produce a given product
Routings contain:
- What, Where, When, How

SAP AG

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SAP ERP

Routing

Routing Operation 20
- Attach seat to frame

Work Center ASSY1000

- Assembly Work Center

Time
- 1 minute

SAP AG

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SAP ERP

Material Assignment

Assigned via BOM:

All materials assigned to
first operation

Material

Material

Material

OP OP OP
OP OP
..
0010 0020 0030
0080 0090

OP OP OP
OP OP
..
0010 0020 0030
0080 0090

Material
SAP AG

Material

Assigned via Routing:

Materials can be assigned
to specific operations
Material
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SAP ERP

Work Center

A location within a plant where value-added work (operations or

activities) are performed
- Work Centers can represent
People or Groups of People
Machines or Groups of Machines
Assembly Lines

Work center used to define capacities

-

Labor
Machine
Output
Emissions

Capacities used in
- Capacity requirements planning (CRP)
- Detailed scheduling
- Costing
SAP AG

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SAP ERP

Product Group

Aggregate planning that group together materials or other product

groups (Product Families)
Multi- or Single- Level Product Groups
- The lowest level must always consist of materials

Business Vocabulary PP

SAP AG

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SAP ERP

PP Processes

Production Planning & Execution

-

Forecasting
Sales and Operations Planning (SOP)
Demand Management
Master Production Scheduling (MPS)
Material Requirement Planning (MRP)

Production Order

SAP AG

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SAP ERP

PP Processes

Production Planning & Execution

-

Forecasting
Sales and Operations Planning (SOP)
Demand Management
Master Production Scheduling (MPS)
Material Requirement Planning (MRP)

Production Order

SAP AG

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SAP ERP

Production Planning & Execution

SIS

Forecasting

Sales & Operations

Planning

CO/PA

Strategic Planning

Demand
Management

MPS

Detailed Planning

MRP

Manufacturing
Execution
Order
Settlement
SAP AG

Procurement
Process

Manufacturing Execution
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SAP ERP

Forecasting

Forecasting is the foundation

of a reliable SOP
Accurate forecasts are
essential in the manufacturing
sector
Overstocked & understocked
warehouses result in the same
thing: a loss in profits.
Forecasts are ALWAYS
WRONG

SAP AG

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SAP ERP

Types of forecasting

Demand-Supply mismatch
Types of forecasting
- Moving average
- Weighted moving average
- Exponential smoothing

SAP AG

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SAP ERP

Forecasting

Forecasting Models
-

Trend
Seasonal
Trend and Seasonal
Constant

Selecting a Model
- Automatically
- Manually

SAP AG

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SAP ERP

Sales and Operations Planning (contd.)

Forecasting results presented graphically in SAP ERP

SAP AG

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SAP ERP

Sales and Operations Planning (SOP)

SAP uses historical data

Information Origination
-

Sales
Marketing
Manufacturing
Accounting
Human Resources
Purchasing

Intra-firm Collaboration
- Institutional Common
Sense

SAP AG

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SAP ERP

Sales and Operations Planning (contd.)

Rough-cut planning: common term in manufacturing for

aggregate planning
- Disaggregated to generate detailed production schedules

Once SAP ERP system generates a forecast, the planner can view
the results graphically
Rough-cut capacity planning applies simple capacity-estimating
techniques to the production plan to see if the techniques are
feasible
Planned at an aggregate level in time buckets

SAP AG

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Sales and operation plan with rough-cut capacity

calculation in SAP ERP

28

SAP ERP

Sales and Operations Planning (contd.)

Disaggregating the sales and operations plan

- Companies typically develop sales and operations plans for product
groups
- SAP ERP system allows any number of products to be assigned to a
product group
- Sales and operation plan disaggregated
Production plan quantities specified for the group are transferred to the
individual products that make up the group

Concepts
SAP AG

in Enterprise Resource Planning, Fourth Edition

29

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SAP ERP

Sales and Operations Planning (contd.)

Product group structure in SAP ERP

SAP AG

30

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SAP ERP

Demand Management

Links the sales and operations planning process with detailed

scheduling and materials requirements planning processes
Output: master production schedule (MPS)
- Production plan for all finished goods

SAP AG

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SAP ERP

Production Strategies

Three general approaches to production

- Make-to-stock items: made for inventory (the stock) in anticipation of
sales orders
- Make-to-order items: produced to fill specific customer orders
- Assemble-to-order items: produced using a combination of make-tostock and make-to-order processes

in Enterprise Resource Planning, Third Edition

Concepts
SAP AG

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SAP ERP

Make-to-order

Products/services that are made to customers specs but only

after an order is received.
Product/service is customized
Volume is low
Inventory level high
Lead time is generally long

SAP AG

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SAP ERP

Make-to-order

Examples
-

Tailor made suit

Commercial airplane
Wedding cake
Professional services (law case, prescriptions, some medical
procedures, etc.)
- Hair styling

SAP AG

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SAP ERP

Assemble-to-order (built-to-order)

Standard components are produced in anticipation of demand.

Once an order is received, components can be combined in
different ways to accommodate different customer specs.
Some customization
May have semi-finished goods inventory
Delivery time shorter than make-to-order.

SAP AG

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SAP ERP

Assemble-to-order (built-to-order)

Examples
- Computers (Dell)
- Track homes
- Cars built to customers specs

SAP AG

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SAP ERP

Make-to-stock

Products produced for immediate sale or delivery in anticipation

of demand.
Product is standardized.
Produced in large volumes.
May have finished goods inventory
Instant or short delivery time.
Each unit is produced or assembled by going through same
series of operations in same order.

SAP AG

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SAP ERP

Make-to-stock

Examples
- Off-the-shelf items
- Big ones
Cars
TV sets

- Small ones
Toothpaste
Candy

SAP AG

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Overview of Product Strategy

SAP ERP

Different types of organizations have different operations

considerations

Demand Management -> Master Production Schedule (MPS)

Takes into considerations production capacity, required materials,
and production strategy
Triggered by forecasts and actual orders -> production and
purchasing activities
Available to promise future gross requirements not currently
committed to a customer

SAP AG

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SAP ERP

Materials Requirements Planning (MRP)

- With the MPS, the BOM, and the Inventory Status Report,
MRP systems:

Identify raw materials needed

Calculate lead times and safety stock levels
Determine the most cost-effective order quantities
Produce a detailed schedule of accurate purchase orders

Economic Order Quantity (EOQ) inventory

management technique in which each raw material item
is analyzed for its ordering and carrying costs to
determine optimum ordering quantities

SAP AG

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4
1

SAP ERP

Consumption-Based

Lot
Size
Reorder
Point

Safety Stock
Replenishment
Lead Time
SAP AG

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SAP ERP

ManufacturingSystemsEvolution

Materials Requirements Planning (MRP) computerized

production planning and inventory control system used
to control ordering and manufacturing processes. Needs
following information.
- Bill of material (BOM) full list of raw materials necessary
to produce a single item
- Master production schedule (MPS) production schedule
for finished goods based on current orders plus forecasted
requirements
- Inventory status file contains on-hand inventory balances
of every part held in inventory
Open orders orders not yet filled
Lead time time that elapses between placing an order for raw materials
and receiving them
Lot sizing: determining production quantities and order quantities

SAP AG

2010 by Marianne Bradford. All rights reserved

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4
3

SAP ERP

Lead Times and Lot Sizing

When it comes to purchasing raw

materials, what are
- Lead Times?
- Lot Sizes?
and why do I care?

SAP AG

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SAP ERP

Measures of Operations

Lead Time vs Cycle Time

Lead time clock starts when the request is made and ends at
delivery.
Cycle time clock starts when work begins on the request and ends
when the item is ready for delivery.
Cycle time is a more mechanical measure of process capability.
Lead time is what the customer sees.
Time is an important aspect of operations. As a result, we want to:
-

SAP AG

Eliminate unnecessary operations

Minimize duration of necessary operations
Minimize delays before, after, and during operations
Minimize dependencies between operations and create parallel
operations
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SAP ERP

Multi-Level Scheduling
Requirements
Date

Planned Order
Purchase Requisition

Finished Product
Assembly 1
Semi-Finished Good
Raw Material
Component
Business Vocabulary PP

Time
SAP AG

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Production Proposal
Order
Settlement

Goods Receipt

1
16

Production
Order
Cycle

13

11

Confirmation
9

Goods Issue

Order Release

Availability
Checks

SAP ERP

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

Planning
Execution

Production Orders released today

SAP AG

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SAP ERP

Production Order

Production orders are used to control production operations and

associated costs
- Production Orders define the following

Material produced
Quantity
Location
Time line
Work involved
Resources used
How to costs are settled

Once an order has been released it is ready for execution, we can

at this time
- Print shop floor documents
- Execute goods movements
- Accept confirmations against the order
SAP AG

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SAP ERP

Availability Check

Automatic check to determine whether the component, production

resource tools, or capacities in an order are available
- Can be automatic or manually executed
- Determines availability on the required date

Generates an availability log

- Displays results of the check
- Missing parts list
- Reservations that could not be verified

SAP AG

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SAP ERP

Material Withdrawal

When a production order is created it references a BOM to

determine the necessary components to produce the material.
It then places a reservation on each of the components.
Upon release of the order (or operation) you can withdraw the
reserved materials from inventory
- Reservation is updated
- Inventory is updated
- Costs are assigned to the order as actual costs

SAP AG

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SAP ERP

Confirmations

Confirmations are used to monitor and track the progression of an

order through its production cycle
- Confirmation can be done at the operation or order level

Exact confirmation shortly after completion of an operation is

essential for realistic production planning and control
Data that needs confirmation include
SAP AG

Quantities yield, scrap, rework

Activity data setup time, machine time
Dates setup, processing, teardown started or finished
Personnel data employee who carried out the operation, number of
employee involved in the operation
Work center
Goods movements planned and unplanned
Variance reasons
PRT usage
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SAP ERP

Goods Receipt

Acceptance of the confirmed quantity of output from the production

order into stock
- Effects of the Goods Receipt

Updates stock quantity

Updates stock value
Price stored for future valuation changes
Production order is updated

- Three documents are created

Material document
Accounting document
Controlling document

SAP AG

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SAP ERP

Order Settlement

Consists of settling the actual costs incurred in the order to one or

more receiver cost objects
Settling a Production Order to Stock
- Debt posting is made to the Production Order with the value of the
material
- Difference between the debt posting and credit posting is posted to a
price difference account
Material
80

Prod. Order
100

Price Diff.
20

* Material Price is determine by the quantity produced

times the Standard Price in the Material Master.
SAP AG

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SAP ERP

Order Settlement

Costs analyzed
- Primary
Materials, labor, etc.

- Secondary
E.G. Administrative overhead

Cost Analysis Reporting

- Calculate and analyze planned costs, target costs, and actual costs of
the production order.
- Calculate and analyze variances
- Standard Cost -> Cost Variance

SAP AG

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