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Former Member

Difference between Optimizer and Profit Optimization

Hello,

As far as I understand the difference between them is that Optimizer is minimizing costs and Profit Optimization is minimizing Gross Profit.

My question lies on if in Profit Optimization  NonDeliveryCostRate is equal to Total Saleable Price by definition,  then with both methods we should obtain the same results.

Optimizer = minimize sum of costs including Nondliverycostrate

Profit Optimizer= minimize profit which is sum of costs including TotalSaleablPrice=NondeliveryCostRate

Why is my statement wrong?  Which is the difference between them?

Thank you very much in advance.

Best Regards,

Josep Tomas Olive

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2 Answers

  • Best Answer
    Oct 31, 2015 at 05:38 PM

    Hi Joseph

    Below may not answer your question completely -

    Cost Minimization works to determine the most cost-effective solution based on the costs defined in the model(on in another words it tries to minimize the total costs of the supply plan). If Penalty costs for non-delivery is considered as non-profit. idea is to maximize the gorss profit - to find out optimal and feasible - production, procurement and distribution plan.  Please refer configuration for SCM Operator/ OPTIMIZE -  "Use Penalty Cost"  and "Minimize Non-Delivery Cost" settings defines the optimization mode in IBP.

    This is from APO on Profit Maximization (but it may help get some clue) -  {  The total profit achieved by a plan is calculated according to the following formula: Total of all delivered location products, multiplied by the penalty costs for non-delivery that have been defined for these location products, minus all the costs defined in the optimizer cost profile (such as production costs, storage costs and transportation costs). }

    In IBP we do have keyfigures which has similar naming (as given above from APO) to maintain various costs. Example - Price or Non Delivery Rate, Production Cost, Transportation Cost, External Procurement Cost, Inventory Holding Cost, Safety Stock Violation Cost, these all can be maintained as Fixed or Per Unit Rate.

    Just my two cents on this topic

    Hope this will help.

    Thank you

    Satish Waghmare

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    Former Member
    Nov 02, 2015 at 09:02 AM

    Hi Josep,

    You can go through application help for more details-

    Supply Planning Optimizer - SAP Integrated Business Planning - SAP Library

    Thanks,

    Rohit

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