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S&OP in industrial equipment industry - best practices and most appropriate tools: IBP?

Dec 07, 2017 at 02:19 PM


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Dear Experts,

I am asking for your help and valuable experience on S&OP and planning processes applied to the industrial equipment industry.

The typical IE scenario:

- finished product BOM made up of 20 k components

- long lead times for the FP ( 5-9 months)

- difficult to forecast future sales

- every sales order corresponds to a WBE, and a project, with many different activities:

1) engineering planning (design etc )

2) material planning (based on the product configuration) >> bom explosion and MRP

3) assembly

4) testing ( in house) and installation (client site)

5) post shipping, warranty etc etc

All of this activities are linked and distributed in the timeline through:

- WBS cost structure

- activity relationships ( start /end, start/start, etc etc...)

In such scenario i found very difficult to define an efficient S&OP process, as well as to find a tool that can help in such a process by considering and evaluating the effort , workload and financial impact of the future pipeline of projects.

There are basically two options on the market:

A) considering a typical "material planning" advanced tool (such IBP S&OP)

B) considering a typical "project management" advanced tool (such PPM, MS project, Oracle Primavera)

Option A limitations: there's no project structure in SAP IBP and S&OP; the key figures are "flat", and referred to a SKU ( SKU, QTY, DATE) >> how can we consider the effort/cost related to the project activities mentioned above?

Option B limitations: there's no MRP/heuristic planning in the project managent tools. You can properly plan the project activities, not the material cost and distribution over the time.

So...did any of you face such a challenge in their past implementations? which way did you go for?



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1 Answer

Best Answer
Matheus Korndoerfer
Dec 14, 2017 at 12:43 PM

Hello Mauro,

I'm not sure which specific effort/cost related to the project you're referring to, but Optimizer aims to minimize the total cost of the supply plan, for example:

  • Production, procurement, and transportation
  • Non-delivery or late delivery of products to satisfy demands.
  • Falling below the target inventory level or going over the maximum inventory level.
  • Violation of manually adjusted values (for example, adjusted customer demand) or minimum values (for example, minimum production receipts).
  • Inventory holding

In addition, you can define how the optimization will plan according to the following criterias:

  • Profit maximization: optimizer maximizes profit, where profit is the difference between total revenue and overall cost.
  • Delivery maximization: optimizer determines the proportion of all customer demands that can be satisfied without taking into account the profitability of each product, but respecting all constraints in the supply chain.

The costs related to Optimizer are the folowing:

  • Non-delivery costs of products sold to market
  • Late delivery costs (per unit rate)
  • Production costs (fixed and per-unit rate)
  • Transportation costs (fixed and per-unit rate)
  • External procurement costs (fixed and per-unit rate)
  • Inventory holding costs (per-unit rate)
  • Safety-stock violation costs (per-unit rate)
  • Maximum inventory violation costs (per-unit rate)

You can find more information about it in our SAP Help Portal Time-Series-Based Supply Planning Optimizer. Please let me know if you have further questions or doubts.

Best regards,

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Dear Matheus,

thanks for your feedback. I have checked the link you provided on the Optimizer.

Looks like a very interesting engine/algorithm to optimize the material cost.

But it is still not project-organized.

Imagine being a company that sells produces VERY COMPLEX PROJECTS in the B2B market, each project composed of 5 to 10 finished products, with BOMs containing around 20/30 thousand parts each.

Each sale is not "independent", but connected to each other. You have time relationships between one sale and the other.

You want to know what is the impact of the future pipeline (plan) made up of possible sales in terms of:

- materials (FP BOM EXPLOSION: raw material, commercial parts, engineered parts, etc etc) >> both as COST and WORKLOAD on the vendors and internal work centers

- engineering activities ( network activities in ECC)

- assembly and installation activities ( network activities in ECC)

In an ideal world, this could be achieved by having a sort of "simulative" projects (or WBS) in ECC, and a powerful reporting tool showing the impact of having such projects in the future pipeline.

Being ECC limited in terms of performances and not having an appropriate simulative environment, i was lookking around searching for an alternative solution.

IBP S&OP looks promising in terms of reporting and performances, but i cannot find any reference to the management of simulative projects (and/or importing projects/WBS from ECC) in IBP.