Difference between Optimizer and Profit Optimization

[Former Member]

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

[satish_waghmare3 · Accepted solution]

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

[former_member628052]

Hi All,

My understanding of the 2 modes in TS Supply optimizer available in SAP IBP is as below.

Suppose you have 2 products A and B with below financial figures-

1) Total Cost for A is 500 Eur and Revenue(Selling price x Qty) is 1200 Eur and hence the profit is 700 Eur.

2) While the total cost for B is 300 EUR and Revenue(Selling Price x Qty) is 1100 Eur and hence the profit is 800 Eur.

In case of capacity constraints, Delivery Maximization Mode (Non-delivery cost based optimizer) will prioritize product A as it will try to avoid loss of sales/Non-delivery cost i.e. 1200 EUR while Profit based optimizer will prioritize product B as it will try to maximize profit i.e. 800 EUR.

Profit based optimizer is particularly useful for organizations, with products with varying prices for different customers/regions or negotiable(Projects). If the prices are relatively same then may be cost based optimizer will be beneficial for the organizations. Its an organization dependent decision, which one to use.

I hope it helps.

Best Rgds

Abhishek

[Former Member]

Hi Josep,

You can go through application help for more details-

Supply Planning Optimizer - SAP Integrated Business Planning - SAP Library

Thanks,

Rohit