Replenishment Strategies in SAP ERP

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Replenishment Strategies in SAP ERP

Replenishment strategies can be setup by way of the MRP type on the material master'sMRP1 screen. In combination with lot sizing, various safety stocks, lea times an other

inicators, the replenishment strategy is efine. It is important to unerstan that thereplenishment strategy is not !ust "P#$ or "%1$. It is the combination in which the four

MRP screens are set up, that etermines what strategy is actually e&ecute by the system.

o make up an e&ample( if the MRP type "P#$ is combine with a safety stock, then we

are communicating to the system that we want to e&ecute the replenishment for that part

as a combination of consumption base planning, whilst primarily waiting or planning foreman. )e cover eman spikes with the safety stock, but the actual replenishment

happens strictly after the eman comes in.

In the following we will iscuss possible replenishment strategies( how they work, how

they may be set up an configure an what kin of results shoul be e&pecte. *pecialfocus is given to the analytics that can be use to etermine what strategy most likely

works best for any given situation. )hat works well for a specific item toay, might not

work so well tomorrow. +n item with very preictable consumption might suenly

receive spikes in eman an is not fit for the current replenishment strategy anymore.his is why it is so important to unerstan all strategies an their implications, so that

the right strategy can be applie when the circumstances call for it. If the material planner

knows one, two or three strategies an oes not know how to switch from one to another,your supply chain will function suboptimally. I have seen places where the MRP

controller i not even have authorization to work in change moe on the four MRP

screens in the material master. I was setting lot sizes, lea times, strategies, MRP types

an the like as per re-uest. Many times the list of usable MRP types is limite to P#, an%.

/es, it looks like you are coaching a football team an the offense has e&actly two plays

they can choose from0 run the ball left or through the mile. /our -uarterback neverlearne how to throw the ball.

et2s introuce an put together a playbook with which you an your team rip up the

efense an move the ball 3prouct4 in the most effective way across the playing fiel

3your network4.

A Playbook for Replenishment Strategies

Plan on #eman 3P#4, the most wiely use replenishment strategy in the *+P universe,

also re-uires the most manual labor. In no way woul I ever say 5on't use P#5, but give

me a break( you use it for 67 percent of your raw an packaging materials8 )ell, maybeyou on't an then I'm particularly prou of you. *ince you are efinitely the e&ception.
http://scn.sap.com/community/erp/logistics-mm/blog/2012/05/30/replenishment-strategies-in-sap-erphttp://scn.sap.com/community/erp/logistics-mm/blog/2012/05/30/replenishment-strategies-in-sap-erp


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P# is eterministic an therefore, in its purest form, waits for eman before it springs

into action. If there is eman an the MRP run gets e&ecute, a supply proposal is

generate to cover that eman. 9o magic, no automation, nothing. It's as simple as that.efore your ki oesn't ask for a bathroom you on't look for one, right8 +n as long as

she gives you enough lea time you on't have a problem 3ever took your three kis on a

stroll through mitown Manhattan, though84

9o eman, no supply: )hich works really well when the purchase part is e&pensivean therefore costly to store, its consumption is highly variable an unpreictable an the

lea time to procure is short. ut when your prouction lines starve because a component

is missing, your customers are tol that you can't eliver the Porsche because you planthe stanar cigarette lighter on eman or your bakery starts making pretzels after you

walk in to buy one 3or your butchers starts raising pigs after you orer a pork sausage4;

then we are in real trouble:

/our P#s shoul be worth the constant attention they nee. It is ok to carefully watch

an monitor how much of


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+lso, if you are very far away from foo let2s say on a marathon run where you can2t

stop an sit own for lunch > you may eat some e&tra carbohyrates beforehan so that

your energy level is very high an gets you through a long lea time. +n last, butcertainly not least, you want to think about your service level. )hat is the percentage of

time that woul be acceptable for you to wither away8 39ow this metaphor oes not work

that well anymore4.

hese three variables etermine where you set your reorer level. he more preictablethe consumption, the lower the reorer level nees to be. he longer the lea time, the

higher the reorer level nees to be. +n the higher your e&pectation to never run out

3e.g. a 66? service level4, the higher the reorer level for safety. In the latter case thereorer level moves up e&ponentially. his kin of thinking will also help us to etermine

at what situation reorer level planning oes not make sense anymore. @bviously, if you

have unpreictable consumption in combination with a long lea time an highe&pectations to never run out, you shoul look for another strategy. /our reorer level,

an therefore your inventory holing, is too high.

@h; an on2t forget about the other imensions0 value an size. *alt, something that is

cheap an oes not take up much room, is assume to be in inventory at all times 3Iwouln2t go back to a restaurant that coul not get me a salt shaker on the table, after I

aske for it4. Aven if the use is unpreictable, or it takes a long time to get it, or I never

want to run out. It still makes sense to bring it back in after it breaks through an even veryhigh reorer level, since it is cheap to hol an easy to store.

@f course you coul also plan salt on eman, but the point is, that if you o that you

woul have to watch your salt at all times an with the reorer level proceure you get

automation( you on2t have to watch it( it2s out of the way an plans itself.

*+P ARP provies you with four stanar reorer level proceures to choose from3technically there is a fifth one for timephase planning which we will cover later40

%, the most basic of them all, where you set your reorer level manually an

MRP !ust simply creates a supply proposal when inventory breaks through thatlevel

%1, which also uses e&ternal re-uirements, like a sales orer, within the

replenishment lea time only, to calculate when the reorer level is broken

%M, where the reorer level 3an the safety stock4 is calculate automatically by

the material forecast

+n %B which is a combination of %1, using e&ternal re-uirement s an %M,which calculates reorer level an safety stock using the material forecast

e careful with the automate reorer level proceures. hey use consumption patterns,

lea time an service level to calculate reorer levels an if one of the parameters is off,your inventories might go through the roof. I always suggest to set the proceure to

Cmanual2 an simulate a calculation proceure without saving it. If you o it that way,

you can perform "whatifs$ an monitor what2s happening without risk.


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efore we get to other consumption base replenishment strategies, I woul like to

e&plore another metho, which is very often confuse with a reorer level proceure an

is not controlle by the MRP type on the MRP1 screen. =owever, it is a consumptionbase replenishment strategy nonetheless0 Danban:

In its original, simple sense, Danban uses two bins with a certain -uantity of parts ineach, an when one is empty, replenishment is e&ecute while the other bin > or its

content > is use up. /ou !ust have to esign the -uantity available in each bin, so as tohave enough in one bin to not run out while the other is fille back up.

*o when o you use that kin of thing8 Instea of a reorer level proceure8 ecause it2s

the same thing8 I on2t think so. Eoing back to our energy e&ample, it becomes clear thatthere are situations where you cannot simply trae a reorer level proceure for Danban.

I on2t have a secon bin of energy that I can switch to, while I fill the empty one up. @n

an airplane you usually have more than one tank an on my 16FG Money MBH+, I was

able to switch over to the right wing tank before the left wing tank emptie out, but that is

simply not always possible 3hmm; was my fuel supply really Danban controlle84.)hen you fill Rum into bottles from a tank over the bottling line, you on2t want to

switch back an forth between two tanks but rather start the replenishment process for theblening at some point when that one available tank gets to a level where the

replenishment lea time fills it back up to where it nees to be, before you run out.

Danban is great for parts neee on an assembly line. /ou put two bins of screws on

there an the worker takes what she nees. )hen the bin is empty, she takes screws fromthe secon bin an sens the empty one to the warehouse for replenishment.

Material forecast0 I have not yet seen an *+P installation where the MRP type %% is use

to its full potential. =ere are my five cents0

irst off0 a %% can also be use for finishe goos. It2s !ust that *+P never thought aboutconfiguring that option into the initial version, so they in2t customize the stanar

software elivery that way. /ou will have to maintain some entries for %% in

customizing transaction 8888 before you can sell a %% prouct in a sales orer. here are

many situations that woul call to set a finishe prouct to %%. +s an e&ample, you cancreate a forecast in the material rather then in *J@P an then copy the %% forecast as a

%* into eman planning. his has the avantage that you have perfect, iniviual

control over the prouct2s forecast an the ae avantage that sales orers consumethat forecast.

*o what oes the %% o8 It is a consumptionbase replenishment strategy, in that it

maintains inventory in anticipation of actual eman. he inventory is replenishe to a

forecast which is base on the materials own consumption history. =ence Cmaterialforecast2. his is a goo strategy when you have preictable eman but the lea time to

replenish is long. *ince you put Cartificial2 eman out there by way of a forecast, MRP is

able to generate all supply elements way ahea of time an all you have to o is to turnthe re-uisition into an orer at the ate the system tells you to o so. ut beware( it oes


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not take eman spikes into consieration. +ny changes in eman will flow into the

consumption pattern an eventually be picke up by the forecast moule. he system

might increase or ecrease the forecast or tell you that the current unerlying moel oesnot hol water anymore. *o, like all the other strategies, you can only use a %% when it

fits the bill. #on2t blame *+P when you use %% for a finishe prouct an you complain

that it oes not pick up immeiately on a eman spike. It simply won2t.

It2s like a s-uirrel planning for his family for the winter. Rocky has a forecast in his heaan brings walnuts in to provie for the upcoming winter season. *houl he become

unusually hungry, he !ust eats up what he has an oes not bring in more to cover that

spike. here are no more nuts: *o it is with your long lea time items that are preictable.If it takes K months to bring in peach skin micro fiber from Lhina, you on2t want

aitional sales orers introuce nervousness into your procurement scheule; because

it !ust won2t o any goo anyway.

/ou can cover variability in eman( but in case of the %% you o this with safety stock.

Aither static, forecast a!uste, or ynamic with a range of coverage profile. @nce thesafety stock is eplete you run out an the service level egraes.

+ %% provies a high egree of automation, but it nees to be monitore an *+P

provies various options to o so. @ne of the parameters you can look at to see how goothe forecast was, is the error total 3*4. It looks at each perio where there was a forecast

an subtracts the forecast values from what was actually consume. +s the consumption

most likely iffers from the forecast, the -uestion is0 how much ifferent8 If theunerlying moel 3constant, tren, season or seasonal tren4 is correct then the error

shoul sometimes e&cee an sometimes fall short of what was forecaste an over the

long run average out an appro&imate zero.

+nother parameter calculate by the forecasting app is mean absolute eviation 3M+#4.his is a measure of variability an forecast -uality. he M+# is calculate by aing up

all absolute values of Arror an iviing it by the sum of the actual consumption values.

his provies you with a measure on how much the actual consumption eviates from theforecast on average. he smaller the M+#, the better the forecast was( the smaller the

average eviation, the better.

9ow the system is able to calculate the tracking signal for you which is etermine

taking the error total ivie by the M+#. If you think about it( when that coefficient ishigh, then you have amn error total which is high above zero 3therefore a ba moel

unerlying your forecasting4 an a low mean absolute eviation 3meaning that

consumption follows some pattern, !ust not the one you ha selecte4. @r, in ifferentterms, the error total shoul be close to zero an therefore if you get a high number out of

the formula *NM+#, you have such a high error total that you might have to change

gears an select a ifferent strategy altogether.

)hat is being compare to the tracking signal 3* O *NM+#4 in *+P is the trackinglimit. It is maintaine on the forecast screen an in stanar is set to .H. If the tracking


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limit is e&ceee by the tracking signal, you get an e&ception message in MPQQ an you

can even set the system so that a new moel selection proceure is automatically

initialize.

Replenishment Strategies in SAP ERP

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