Supply Chain Management with APOSecond Edition

Jörg Thomas Dickersbach

Supply ChainManagementwith APOStructures, Modelling Approachesand Implementation of mySAP SCM 4.1

Second Editionwith 389 Figuresand 65 Tables

123

Dr. Jörg Thomas Dickersbach

E-mail: dickersbach@gmx.de

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ISBN-10 3-540-26029-3 2nd ed. Springer Berlin Heidelberg New YorkISBN-13 978-3-540-26029-5 2nd ed. Springer Berlin Heidelberg New YorkISBN 3-540-02931-1 1st ed. Springer Berlin Heidelberg New York

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Preface

This book rather addresses the question ‘how to implement APO’ than‘why to implement APO’ and is written for people who are involved inAPO implementations. It is based on the APO release mySAP SCM 4.1.The aim of this book is to provide the reader with the necessary back-ground to start with first own steps in the system in the right direction byexplaining the architecture and some basic structures of APO and introduc-ing common modelling approaches.

Although there are already several books published about APO andthere is a detailed documentation of the functions in the system, we haveexperienced a distinct need for explanations regarding the structure and theinteraction of systems, modules and entities. The understanding of the pos-sibilities and necessities on entity level is the basis for the modelling andthe implementation of the business processes. This books mentions addi-tionally many issues which have a great relevance in implementations, butare not mentioned in the literature.

In our experience with APO projects we noticed an ever greater need(which remains more often than not unaware for much too long) to clarifythe implications of the SCM approach for the implementation projects.Since SCM projects with APO differ significantly from R/3 projects, thereare some typical traps in which even experienced R/3 project managers areapt to fall which cause severe problems up to project failure. Especially inthe first chapter common mistakes in SCM projects are pointed out.

The book does not claim to describe all APO functionalities and model-ling possibilities – since the modelling approaches are nearly unlimitedand the product is still evolving, this would be impossible. Instead the fo-cus is set on explaining common approaches especially for the high tech,the consumer goods and the chemical industries. Not included into thescope of this book are the scenarios and functionalities especially forautomotive industry, repetitive manufacturing and aerospace and defence,and some other functionalities as VMI to third party customers, containerresources and campaign planning.

Since the focus of the book lies on the practical use of APO, SCM the-ory in general as well as in connection with APO is not within the scope ofthis book. Therefore instead of the SCM literature the SAP notes of the

VI Preface

online service system (OSS) are quoted. Working with the OSS is anyhowinevitable for any implementation project and an important source for in-formation.

Compared to the first edition this book contains additional topics (astransportation planning, interchangeability, bucket-oriented CTP and sche-duling of complex job chains) and many updates in the functionality – rep-resenting two years’ development.

Finally I would like to thank Jens Drewer and Claus Bosch, who helpedme a lot during the whole project (the chapter about transportation andshipment scheduling was contributed by Jens Drewer), Bernd Dittrich forhis help and comments on transportation planning, and Dr. Stephan Kreipl,Anita Leitz, Bernhard Lokowandt, Armin Neff, Stefan Siebert, Uli Mastand Christoph Jerger for their corrections and comments.

Jörg Thomas Dickersbach June 2005

Contents

PART I – OVERVIEW

1 Supply Chain Management Projects with APO .................................... 31.1 The Supply Chain Management Approach ...................................... 31.2 Supply Chain Management Projects with APO ............................... 61.3 APO Project Peculiarities and Project Management........................ 7

2 SCM Processes and APO Modules ........................................................ 9

3 APO Architecture ................................................................................ 153.1 Technical Building Blocks of APO................................................ 153.2 System Integration Overview......................................................... 173.3 Master Data Overview.................................................................... 183.4 Model and Version ......................................................................... 233.5 Planners .......................................................................................... 253.6 Order Categories............................................................................. 253.7 Pegging........................................................................................... 263.8 Data Locking .................................................................................. 29

PART II – DEMAND PLANNING

4 Demand Planning ................................................................................. 334.1 Demand Planning Overview .......................................................... 33

4.1.1 Demand Planning Process..................................................... 334.1.2 Planning Levels and Consistent Planning ............................. 34

VIII Contents

4.2 Data Structure for Demand Planning ............................................ 364.2.1 Characteristics, Key Figures and Structure Overview .......... 364.2.2 Planning Object Structure and Planning Area ...................... 374.2.3 Configuration of the Planning Object Structure ................... 384.2.4 Configuration of the Planning Area ...................................... 394.2.5 Disaggregation ...................................................................... 414.2.6 Organisation of Characteristic Value Combinations ............ 434.2.7 Time Series ........................................................................... 45

4.3 Planning Book, Macros and Interactive Planning.......................... 464.3.1 Planning Book....................................................................... 464.3.2 Macros................................................................................... 514.3.3 Fixing of Values.................................................................... 55

4.4 Statistical Forecasting .................................................................... 564.4.1 Basics of Forecasting ............................................................ 564.4.2 Data History .......................................................................... 574.4.3 Univariate Forecast Models .................................................. 574.4.4 Multiple Linear Regression (MLR) ...................................... 594.4.5 Forecast Execution ................................................................ 594.4.6 Life Cycle Planning .............................................................. 63

4.5 Promotion Planning........................................................................ 654.6 Dependent Demand in Demand Planning ...................................... 714.7 Collaborative Forecasting .............................................................. 744.8 Background Planning ..................................................................... 754.9 Release of the Demand Plan........................................................... 77

4.9.1 Topics for the Demand Plan Release .................................... 774.9.2 Forecast Release.................................................................... 784.9.3 Forecast After Constraints .................................................... 804.9.4 Transfer to R/3 ...................................................................... 81

5 Forecast Consumption & Planning Strategies...................................... 835.1 Make-to-Stock................................................................................ 835.2 Make-to-Order................................................................................ 845.3 Planning with Final Assembly ....................................................... 855.4 Planning Without Final Assembly ................................................. 875.5 Planning for Assembly Groups ..................................................... 895.6 Technical Settings for the Requirements Strategies....................... 90

Contents IX

PART III – ORDER FULFILMENT

6 Order Fulfilment Overview .................................................................. 95

7 Sales .................................................................................................. 977.1 Sales Order Entry ........................................................................... 977.2 Availability Check Overview......................................................... 98

7.2.1 Functionality Overview for the Availability Check.............. 987.2.2 ATP Functionality for Document Types............................... 99

7.3 Master Data & Configuration....................................................... 1027.3.1 Master Data for ATP........................................................... 1027.3.2 Basic ATP Configuration.................................................... 1027.3.3 Time Buckets and Time Zones ........................................... 105

7.4 Product Availability Check .......................................................... 1077.4.1 Product Availability Check Logic....................................... 1077.4.2 Product Availability Check Configuration.......................... 109

7.5 Allocations.................................................................................... 1127.5.1 Business Background and Implications .............................. 1127.5.2 Configuration of the Allocation Check ............................... 1147.5.3 Allocation Maintenance and Connection to DP.................. 1187.5.4 Collective Product Allocations ........................................... 119

7.6 Forecast Check ............................................................................. 1197.7 Rules-Based ATP ......................................................................... 1207.8 Transportation & Shipment Scheduling ....................................... 1307.9 Backorder Processing ................................................................... 132

8 Transportation Planning ..................................................................... 1418.1 Transportation Planning Overview .............................................. 1418.2 Master Data and Configuration .................................................... 143

8.2.1 Master Data for TP/VS........................................................ 1438.2.2 Geo-Coding ......................................................................... 1488.2.3 Configuration of the CIF..................................................... 150

8.3 TP/VS Planning Board ................................................................. 1508.4 TP/VS Optimisation ..................................................................... 1528.5 Scheduling .................................................................................... 1558.6 Carrier Selection........................................................................... 1568.7 Collaboration ................................................................................ 1578.8 Release and Transfer to R/3 ......................................................... 158

X Contents

PART IV – DISTRIBUTION

9 Distribution & Supply Chain Planning Overview.............................. 1619.1 Distribution & Supply Chain Planning Scenarios........................ 1619.2 Applications for Distribution & Supply Chain Planning ............. 1639.3 Order Cycle for Stock Transfers .................................................. 1679.4 Integration of Stock Transfers to R/3 ........................................... 1699.5 SNP Planning Book...................................................................... 174

10 Integrated Distribution & Production Planning................................ 17910.1 Cases for Integrated Planning .................................................... 17910.2 SNP Optimiser............................................................................ 181

10.2.1 Basics of the Supply Network Optimiser.......................... 18110.2.2 Optimiser Set-Up and Scope............................................. 18210.2.3 Costs and Constraints........................................................ 18310.2.4 Discretisation .................................................................... 18510.2.5 Technical Settings ............................................................. 188

10.3 Capable-to-Match....................................................................... 18910.3.1 CTM Planning Approach .................................................. 18910.3.2 Prioritisation, Categorisation & Search Strategy .............. 19210.3.3 CTM Planning................................................................... 19410.3.4 CTM Planning Strategies .................................................. 20010.3.5 Supply Distribution ........................................................... 202

11 Distribution Planning ....................................................................... 20511.1 Master Data for Distribution Planning ....................................... 20511.2 SNP Heuristic ............................................................................. 20811.3 Planned Stock Transfers............................................................. 20811.4 Stock in Transit .......................................................................... 21011.5 Storage & Handling Restrictions................................................ 21111.6 Sourcing ..................................................................................... 213

12 Replenishment .................................................................................. 21512.1 Deployment ................................................................................ 215

12.1.1 Deployment Overview ...................................................... 21512.1.2 Deployment Heuristic ....................................................... 21612.1.3 Fair Share Between Distribution and Sales Orders........... 22212.1.4 Deployment Optimisation ................................................. 225

12.2 Transport Load Builder .............................................................. 228

Contents XI

PART V – Production

13 Production Overview........................................................................ 23713.1 Production Process Overview .................................................... 23713.2 Applications for Production Planning ........................................ 241

13.2.1 Scenario and Property Overview ...................................... 24113.2.2 Lot Size ............................................................................. 24613.2.3 Scrap.................................................................................. 248

13.3 Feasible Plans ............................................................................. 25013.4 Master Data for Production ........................................................ 253

13.4.1 Production Master Data Overview.................................... 25313.4.2 Resource for SNP.............................................................. 25613.4.3 PDS and PPM for SNP...................................................... 25813.4.4 Resources for PP/DS......................................................... 26313.4.5 PDS and PPM for PP/DS .................................................. 26813.4.6 Integration to PP-PI........................................................... 273

13.5 Dependencies to the R/3 Configuration ................................... 275

14 Rough-Cut Production Planning....................................................... 27714.1 Basics of Rough-Cut Production Planning................................. 27714.2 SNP Heuristic ............................................................................. 28014.3 Capacity Levelling ..................................................................... 28214.4 SNP Optimisation for Production Planning ............................... 28314.5 Capable-to-Match (with SNP Master Data) ............................... 28514.6 Scheduling in SNP...................................................................... 28614.7 Integration to PP/DS and R/3 ..................................................... 289

14.7.1 Process Implications of Rough-Cut & Detailed Planning. 28914.7.2 Integration to PP/DS ......................................................... 29014.7.3 Integration to R/3 .............................................................. 294

15 Detailed Production Planning........................................................... 29515.1 Basics of PP/DS.......................................................................... 295

15.1.1 Order Life Cycle and Order Status ................................... 29515.1.2 Scheduling and Strategy Profile........................................ 29715.1.3 Planning Procedure ........................................................... 29915.1.4 Real Quantity .................................................................... 300

XII Contents

15.2 Heuristics for Production Planning ............................................ 30015.2.1 Concept of Production Planning and MRP Heuristic ....... 30015.2.2 Production Planning Heuristics......................................... 30115.2.3 MRP Heuristic................................................................... 30415.2.4 Net Change Planning and Planning File Entries ............... 30515.2.5 Mass Processing................................................................ 305

15.3 Consumption Based Planning .................................................... 30815.4 Material Flow & Service Heuristics........................................... 30815.5 Tools for Visualisation and Interactive Planning ....................... 310

15.5.1 Product View..................................................................... 31015.5.2 Product Overview ............................................................. 31415.5.3 Product Planning Table ..................................................... 314

15.6 Reporting .................................................................................... 31615.7 Special Processes for Production Planning ................................ 319

15.7.1 MRP Areas ........................................................................ 31915.7.2 Production in a Different Location ................................... 321

15.8 Capable-to-Match (with PP/DS Master Data)............................ 322

16 Sales in a Make-to-Order Environment............................................ 32316.1 Process Peculiarities and Overview ........................................... 32316.2 Capable-to-Promise .................................................................... 325

16.2.1 Steps Within the CTP Process .......................................... 32516.2.2 Configuration of the CTP Process .................................... 32616.2.3 Problems with Time-Continuous CTP.............................. 32816.2.4 Bucket-Oriented CTP........................................................ 33016.2.5 Limitations for CTP .......................................................... 333

16.3 Multi-Level ATP ........................................................................ 33416.3.1 Steps Within the Multi-Level ATP Process ...................... 33416.3.2 Configuration of the Multi-Level ATP ............................. 33616.3.3 Limitations for Multi-Level ATP...................................... 337

17 Detailed Scheduling ......................................................................... 33917.1 Planning Board ........................................................................... 33917.2 Basics of Detailed Scheduling.................................................... 344

17.2.1 Scheduling Strategies ........................................................ 34417.2.2 Error-Tolerant Scheduling ................................................ 34617.2.3 Finiteness Level ................................................................ 347

17.3 Scheduling Heuristics................................................................. 34717.4 Sequence Dependent Set-Up...................................................... 351

Contents XIII

17.5 Sequence Optimisation............................................................... 35517.5.1 Optimisation as Part of the Planning Process ................... 35517.5.2 Optimisation Model and Scope......................................... 35617.5.3 Optimisation Controls Within the Optimisation Profile ... 35817.5.4 Handling and Tools for Optimisation ............................... 364

18 Production Execution ....................................................................... 36718.1 Planned Order Conversion ......................................................... 36718.2 ATP Check and Batch Selection ................................................ 36918.3 Production Order Handling ........................................................ 370

19 Modelling of Special Production Conditions ................................... 37319.1 Alternative Resources................................................................. 37319.2 Modelling of Labour .................................................................. 37719.3 Overlapping Production ............................................................. 37819.4 Fix Pegging and Order Network ................................................ 37919.5 Push Production.......................................................................... 383

PART VI – External Procurement

20 Purchasing ........................................................................................ 38720.1 Purchasing Overview ................................................................. 387

20.1.1 Process Overview.............................................................. 38720.1.2 Order Life Cycle and Integration to R/3 ........................... 387

20.2 Suppliers and Procurement Relationships.................................. 39120.3 Supplier Selection....................................................................... 39220.4 Scheduling Agreements.............................................................. 39420.5 Supplier Capacity ....................................................................... 397

21 Subcontracting.................................................................................. 40121.1 Subcontracting Process Overview.............................................. 40121.2 Modelling of the Production at the Receiving Plant .................. 40221.3 Modelling of the Production at the Supplier .............................. 40421.4 Subcontracting Process Variants ................................................ 40821.5 Subcontracting in SNP ............................................................... 410

XIV Contents

PART VII – Cross Process Topics

22 Stock and Safety Stock..................................................................... 41522.1 Stock Types in APO................................................................... 41522.2 Safety Stock................................................................................ 416

23 Interchangeability ............................................................................. 42123.1 Interchangeability Overview ...................................................... 42123.2 Interchangeability in DP............................................................. 42223.3 Interchangeability in SNP .......................................................... 42323.4 Interchangeability in PP/DS ....................................................... 42423.5 Interchangeability in ATP .......................................................... 426

24 Exception Reporting......................................................................... 42724.1 Basics of Alert Monitoring......................................................... 42724.2 Alert Types ................................................................................. 42924.3 Alert Handling............................................................................ 43324.4 Alert Calculation in the Background.......................................... 43524.5 Supply Chain Cockpit ................................................................ 435

PART VIII – System Integration

25 Core Interface ................................................................................... 43925.1 Overview of the Core Interface .................................................. 43925.2 Configuration of the Core Interface ........................................... 43925.3 Integration Models and Data Transfer ....................................... 44225.4 Master Data Integration.............................................................. 44625.5 Transactional Data Integration ................................................... 45025.6 Operational Concept................................................................... 452

25.6.1 Organisation of the Integration Models ............................ 45225.6.2 Organisation of the Data Transfer..................................... 45325.6.3 Data Consistency............................................................... 45425.6.4 Queue Monitoring ............................................................. 454

26 Integration to DP .............................................................................. 46126.1 Data Storage in Info Cubes ........................................................ 46126.2 Data Loading Structures............................................................. 46326.3 Data Upload................................................................................ 466

Contents XV

Appendix

References ............................................................................................. 471

Abbreviations ........................................................................................ 477

Scheduling of Background Jobs ............................................................ 479

Transactions and Reports ...................................................................... 483

Index….................................................................................................. 495

Part I – Overview

1 Supply Chain Management Projects with APO

1.1 The Supply Chain Management Approach

For a long time the focus in logistics projects has been on the optimisationof certain logistic functions – e.g. the optimisation of the transportationand distribution structure – usually with small concern to the adjacentprocesses and to the complete product portfolio. The supply chain man-agement approach differs from this by grouping products with similarproperties (from a logistics point of view) to a supply chain and taking allthe processes – in SCOR terminology: plan, source, make, deliver – persupply chain into account. Figure 1.1 visualises the different approaches tostructure the logistics processes within a company.

Source Make Deliver

Plan

Supply Chain A - Make to Stock

Source Make Deliver

Plan

Supply Chain B - Make to Order

Procurement

Fig. 1.1. The Supply Chain Approach

The main differentiator for supply chains is the production strategy, that isif a product is created according to a specific customer demand (make toorder) or anonymously (make to stock). Other criteria for separate supplychains might be different customer groups or product properties as theshelf life or the value.

4 1 Supply Chain Management Projects with APO

The advantage of the supply chain approach is that the processes are exam-ined from the point of view how they contribute to the targets of the supplychain management (e.g. low operating costs, flexibility and responsivenessor delivery performance). Therefore the integration between different lo-gistical functions, for instance sales planning and production planning, isstronger within the focus of the supply chain management approach. Inmany cases the transparency between different logistical functions and be-tween planning and execution offers already a significant potential for op-timisation. The next step is to extend the supply chain approach beyond thelimits of a single company and regard the entire value chain from the rawmaterial to the finished product for the consumer. In this area the collabo-rative processes gain increasing importance.

• Beer GameThe beer game illustrates the importance of the transparency within thesupply chain in a playful way. The supply chain for the beer game consistsof a retailer, a wholesaler, a distributor and a factory. Each round a cus-tomer order is placed at the retailer, the retailer places his order at thewholesaler and so on unto the factory. The factory finally creates produc-tion orders. The goods flow is modelled by deliveries from the factory tothe distributor, from the distributor to the wholesaler and so on to the cus-tomer. Each delivery requires goods movements across two fields andtakes therefore two rounds. The production – the time between the creationof the production order and the goods receipt at the factory – requires threerounds. Figure 1.2 shows the structure for the order flow and for the goodsflow.

Wholesaler Distributor FactoryRetailer

Receive/ PlaceOrder

Customer

Order FlowGoods Flow

Receive/ PlaceOrder

Receive/ PlaceOrder

Receive/ PlaceOrder

Fig. 1.2. The Beer Game

The customer orders are given and represent a steady demand with one in-crease of the level, as shown in figure 1.3. The game starts at a steady statewith initial stock, orders at all levels and deliveries. The time lag betweenplacing the order and receiving the supply, the insecurity about the future

1.1 The Supply Chain Management Approach 5

orders of the partner on the demand side and the insecurity regarding thestock outs at the partner on the supply side usually cause overreactions forthe own orders, which destabilise the supply chain. This behaviour isknown as the ‘bullwhip effect’. Figure 1.3 shows the result of a gamewhich was played with experienced sales and logistics managers. The or-ders of each team – retailer, wholesaler, distributor and factory – are dis-played, and the amplitude of the changes in the order quantity increaseswith the distance to the customer.

Fig. 1.3. The Bullwhip Effect

The impression at the factory site is that the customer demand is com-pletely arbitrary. It is evident that a visibility of the customer demandacross the supply chain helps to prevent this kind of destabilisation of thesupply chain. To improve the transparency both a change of the processesand a system which enables the data transparency is necessary.

0

5

10

15

20

Periods

Ord

erQ

uan

tity

Customer

Retailer

Wholesaler

Distributor Factory

6 1 Supply Chain Management Projects with APO

1.2 Supply Chain Management Projects with APO

A successful supply chain management project requires more than the im-plementation of a planning tool. The belief that the implementation ofAPO solves all problems is in fact one of the major causes for the failureof SCM projects.

APO is able to support SCM processes by visualising and processingdata with a set of algorithms, but the adaptation to the particular businessrequirements has to be done in the particular implementation project. Theprerequisite for this is that the requirements are clearly defined. No plan-ning tool is able to provide the results you always wanted to have butnever really thought of how to get them. Even if detailed requirements re-garding the use of a planning tool exist, exaggerated expectations are a ma-jor risk for any APO implementation. We strongly recommend to keep thesolution as simple as possible – at least for the first step. To our experienceall projects which aimed too high – by modelling too many constraints,avoiding manual planning steps at any price and including too many busi-ness areas, countries or plants – were significantly prolonged and had toreduce their scope in the end nevertheless.

Ideally a SCM project starts with a business case to define the targetsand quantify the benefits of the project and is followed by a high level pro-cess design. The high level process design defines which processes are inthe scope, whether they are local or a global and is used to define the ac-cording roles and responsibilities. Depending on the impact of the organ-isational changes, change management gains increasing importance tosupport the acceptance of the new processes and thus indirectly of the newplanning system.

Another case is the implementation of APO as a replacement of the ex-isting planning systems due to support problems and/or strategic IT deci-sions. To our experience these cases are less apt to compromise regardingtheir expectations.

Since the supply chain management projects can significantly affect andchange the company, a strong commitment by the sponsor in a sufficientlyhigh position is necessary.

1.3 APO Project Peculiarities and Project Management 7

1.3 APO Project Peculiarities and Project Management

APO projects differ significantly from R/3 implementation projects, be-cause the planning processes are usually more complex and less standard-ised and the integration aspects have an increased importance. The possi-bilities to model processes across modules and systems are quite numerousand the technical aspects of the system and the data integration do play animportant part.

The challenges for the project management in APO implementations aremainly to define an appropriate project scope, avoid dead ends in the mod-elling approaches, ensure the integration of the processes and plan the nec-essary tests with sufficient buffers for changes (e.g. after the stress test).

Since APO offers many functions and possibilities, it is very tempting tostretch the scope by including too many functions, constraints and businessareas, countries and plants, so that the project becomes too complex to besuccessful. Therefore both in the definition of the scope as well as in thefunctional requirements a clear prioritisation is necessary. Generally werecommend a roll-out approach instead of a ‘big bang’ scenario, that is todivide the scope of a big implementation into several smaller implementa-tions. The roll-out approach has the advantage of increased acceptance bya faster success and decreases the risk of running into a dead end (becauseof organisational incompatibilities, inappropriate modelling, insufficientmaster data quality ...).

We strongly recommend to start any APO implementation project with amore or less extensive feasibility study. The benefits of the feasibilitystudy is an increased security regarding the modelling approach and a basisfor the definition of the scopes for the pilot and the following roll-out pro-jects as well as for the project planning. The result of the feasibility studyhas to be a prioritisation of the functions and the business areas and anagreement about the scope and the modelling approach. To avoid misun-derstandings due to working on a high level of abstraction and to ensurethe feasibility of tricky modelling approaches, we recommend to create anintegrated prototype in the systems already at this stage.

In general the benefits of advanced planning systems like APO are thedata transparency to support SCM decisions and the possibility to applycomplex planning algorithms and optimisation techniques to improve theplan. Though optimisation techniques are often placed in the foreground,in most cases the main benefit is derived from the data transparency, andthe application of processes which require a consistent global data basis –e.g. a coordinated sales and operations planning, demand visibility and

8 1 Supply Chain Management Projects with APO

forecast collaboration, global inventory management – is usually already abig challenge for a company. Often however a master data harmonisationis required before these benefits might apply – the quality of the masterdata is a severe threat for any SCM project and has therefore to be care-fully examined during the feasibility study. Another issue regarding theuse of optimisation techniques which should not be underestimated iswhether the result is understandable and hence accepted by the planner.Though there are processes where optimisation tools provide a clear ad-vantage, an awareness for the implications is necessary – especially in thefirst implementation steps.

One main advantage of APO to its competitors is its property regardingthe integration to R/3. Nevertheless both the importance and the difficul-ties of the integration to the execution system(s) are usually underesti-mated. The integration is not just a simple exchange of data but an align-ment of planning and execution processes, the more the scope of theplanning moves towards execution.

SCM processes are often modelled across modules and across systems.To avoid the risk of unfeasible interfaces (both from a process as from adata point of view), the project organisation has to be according to theprocesses and not according to the systems and modules (especially if theimplementation project contains both R/3 and APO).

Typically an implementation project contains the phases project prepa-ration, blueprint, realisation, test, go live preparation and support after golive. For the blueprint phase of an APO implementation it is absolutelynecessary to perform a prototyping in parallel, because the processes aretoo complex to design without system feedback. During the entire projectthe basis support has an increased importance due to the more complexsystem landscape and additional, new technologies as the live cache andBW, which require administration.

A challenge for the project management is to plan sufficient buffers foradjustments and corrections after the integration test and the stress resp.the performance test. Especially the performance test has to be as early aspossible, since the result might cause the procurement of additional hard-ware or even a redesign of some processes. Another important issue whichis often neglected is the system management concept, which defines therequirements and procedures for the system administration, e.g. for backupand recovery, for downtimes and for upgrades.

SAP offers a set of services to check and review the implementationprojects at different stages both from a technical and a process modellingpoint of view. We recommend to use these services to recognise problemsas soon as possible.

2 SCM Processes and APO Modules

The focus of this book is the SCM processes within a company. Thoughthe possibilities of collaboration with customers and suppliers and the ac-cording processes are mentioned as well, the focus is on the SCM within acompany, because to our experience in this area there is still the biggestpotential for most companies. From a company's point of view a supplychain usually consists of

• customers,• distribution centers (DCs),• plants and• suppliers.

There might be several levels for distribution (e.g. regional and local DCs)or several levels of production, if one plant produces the input material foranother plant. Another characteristic of a supply chain is whether sourcingalternatives exist. Multiple sourcing is common for suppliers, and in manycases alternatives exist for production and distribution as well. Commonvariants in the distribution are direct shipments from the plant to the cus-tomer (instead from the local DC) depending on the order size. The mostcommon supply chain processes cover the areas

• demand planning,• order fulfilment (sales, transportation planning),• distribution (distribution planning, replenishment, VMI),• production (production planning, detailed scheduling, production

execution) and• external procurement (purchasing, subcontracting).

In cases of multiple sources for internal procurement an integrated ap-proach for distribution and production planning may be favourable as de-scribed in chapter 10. The difference between distribution planning and re-plenishment is that the purpose of distribution planning is to propagate thedemand in the network to the producing (or procuring) locations. There-fore distribution takes place from short- to medium-term or even long-termand requires subsequent processes, whereas replenishment is concerned inthe more operative task how to fulfil the demands within the network with

10 2 SCM Processes and APO Modules

a given supply quantity (which might be often a shortage). Figure 2.1shows the processes in relation to the part of the supply chain.

Customers

DistributionCenters

Plants

Suppliers

Sales

Replenishment

VMI

Demand Planning

Transport Planning

Distribution Planning

Production Planning

Detailed Scheduling

Production Execution

Purchasing

Integrated Distribution& Production Planning

VMICustomers

Subcontracting

Fig. 2.1. Common Supply Chain Processes

These processes differ both regarding their time horizon and their level ofdetail. A demand plan is usually established for 12 month to 5 years,whereas replenishment is carried out for some days to few weeks into thefuture. Regarding the level of detail, medium-term capacity planning isperformed to get an overview of the monthly or weekly load on some bot-tleneck resources in contrast to a production schedule that contains the al-location of single operations with their exact duration to the resources. Foradditional information regarding the SCM processes Knolmayer / Mertens /Zeier 2002 provide a good overview.

Figure 2.2 gives an indication about common time horizons of the re-spective processes.

2 SCM Processes and APO Modules 11

Execution Short-Term Medium-Term Long-Term

Sales

Replenishment

VMI

Demand Planning

Distribution Planning

Production Planning

Detailed Scheduling

Purchasing

Transportation Planning

Production Execution

Subcontracting

Fig. 2.2. Common Time Horizons for SCM Processes

According to the different levels of the supply chain partners, time hori-zons and processes, APO consists of different modules with different lev-els of detail. These modules are:

• Demand Planning (DP),• Supply Network Planning (SNP) including deployment functionality,• Production Planning & Detailed Scheduling (PP/DS),• Available-to-Promise (ATP) and• Transportation Planning & Vehicle Scheduling (TP/VS).

Figure 2.3 shows the positioning of these modules regarding the coveredtime horizon and the level of detail.

Demand Planning

Time Horizon

Level ofDetail

ATP

PP/DS

SNPDeployment

TP/VS

Fig. 2.3. Level of Detail and Time Horizon for the APO Modules

12 2 SCM Processes and APO Modules

Depending on the implementation, especially the time horizons for ATPand PP/DS might vary strongly. DP, SNP and ATP use time buckets:

• in DP usually months or weeks,• in SNP usually months, weeks or days and• in ATP days or parts of days.

PP/DS and TP/VS apply a time continuous calculation, so all orders arescheduled to hour, minute and second.

The supply chain processes identified above are generally modelled inthe APO modules as shown in figure 2.4. SNP provides three differentmethods for distribution planning resp. integrated distribution and produc-tion planning: the SNP heuristic which is not constrained by capacity re-strictions, the SNP optimisation based on linear programming and the ca-pable-to-match (CTM) heuristic which considers capacity constraints.Production planning and procurement – to a certain extent even distribu-tion planning – are modelled either in both SNP and PP/DS, in SNP onlyor in PP/DS only, depending on the requirements for the process.

APO-DP APO-ATP APO-PP/DSAPO-TP/VS APO-SNP

Sales

Replenishment

VMIDemand Planning

TransportationPlanning

DistributionPlanning

Production Planning

DetailedScheduling

ProductionExecution

Purchasing

IntegratedDistribution &Prod. Planning

Subcontracting

Fig. 2.4. SCM Processes in APO Modules

From a supply chain project point of view figure 2.3 represents an imple-mentation with the full scope of APO. There are some companies whichapply APO this way and even implement the complete scope at once. Moreoften only a part of this scope is implemented – either as a first step or be-cause this part is sufficient to satisfy the current needs. The advantage of

2 SCM Processes and APO Modules 13

keeping the scope of the implementation small lies in getting early resultsand having a shorter project duration.Many implementations have only DP in scope since it is both technicallyand organisationally the part with the least complications. Especially incases when the APO implementation is done together with a change in theprocesses – e.g. from a (internal) customer – (internal) supplier relation-ship towards a supply chain planning in global or regional companies – theorganisational aspects become most critical to the success of the project.Other common architectures are

• ATP for availability check across several plants,• PP/DS for scheduling and sequence optimisation,• PP/DS for finite production planning,• DP & ATP for demand planning and availability check of allocations,• DP & SNP for demand planning, distribution planning and replenish-

ment,• DP, PP/DS & ATP if there is no focus on distribution in the supply

chain and sourcing decisions are either irrelevant or made using rulesbased ATP.

These are only some of the possible or even of the realised architectures.Because of the multiple possibilities to model processes in APO an experi-enced consultant should be involved at the definition of the architectureand the scope of an implementation.

Collaboration between companies has in some cases doubtlessly advan-tages, but for the vision of competing supply chains this is only one part.The other part is to establish SCM within a company – which is usually themore difficult part because it affects the organisation to a much higher de-gree. The change towards collaboration might be a bigger one lookingfrom a change in the process but it affects only a small part of the organi-sation.

3 APO Architecture

3.1 Technical Building Blocks of APO

APO consists technically of three parts: the database, the BW data martand the live cache. The BW data mart consists of info cubes and is techni-cally the same as in the BW system. The live cache is basically a hugemain memory where the planning and the scheduling relevant data is keptto increase the performance for complex calculations. Though there istechnically only one live cache per installation, the data is stored in threedifferent ways depending on the application:

• as a number per time period (month, week, day) and key figure(time series),

• as an order with a category, date and exact time (hour: minute: sec-ond) and

• as a quantity with a category and a date in the ATP time series.We will refer to the according parts of the live cache as time series livecache, order live cache and ATP time series live cache.

Demand planning uses much of the BW functionality and relies on theinfo cubes as a data interface to any other system – R/3, BW or flat file.Therefore the historical data is always persistent in an info cube. For proc-essing the data is written into the time series live cache. SNP and PP/DSuse mainly the order live cache, though SNP is able to access the time se-ries live cache as well, since there are many structural similarities betweenDP and SNP. ATP at last relies only on the ATP time series live cache.This way of data storage implies a certain redundancy, because orders arestored both in the order live cache and in the ATP time series live cache.The data model is however quite different, and the redundant data storageenables better performance for the applications. TP/VS finally uses the or-der live cache to reference other orders. Figure 3.1 shows how the APOmodules use the live cache and the data integration for transactional datafrom R/3 and BW to APO.

16 3 APO Architecture

liveCache

Time Series Orders ATPTime Series

BW

BW

Info Cubes

R/3

DP

(SNP)

PP/DS ATP

Info Cubes

SNP

ICH

TP/VS

APO

XI

LIS

CIF ALEPlug-In

OrdersForecastHistory

Fig. 3.1. APO System Structure and Integration with R/3 and BW

The transactional data for planning purposes (e.g. planned orders and pur-chase requirements) are created in APO and should preferably remain inAPO only to reduce the data load for the interface. In any case APO shouldbe the master for planning. For data with a close link to the execution (e.g.sales orders and purchase orders) R/3 is the master. Historical data finallyis stored in R/3 and in BW. For the integration of the transactional data andthe data history with the plug-in SAP provides an interface from R/3 toboth to BW and APO. One part of the plug-in is the core interface (CIF),the other provides the interface to the BW structures. The integration ofR/3 to the BW structures (whether in BW or in APO) relies on the infostructures of the logistics information system (LIS) in R/3, where transac-tional data is stored for reporting purposes according to the defined selec-tion criteria. These data are uploaded into an info cube with periodic jobs.A similar logic applies to the data exchange between BW and APO (inboth directions).

In contrast to the periodic data upload to the BW part the CIF providesan event triggered online integration. For example with the update of thegoods receipt an event is created which triggers the transfer of the updatedstock situation to APO. This information creates two entries in APO: oneas an order in the order live cache and one as an element in the ATP timeseries live cache.

3.2 System Integration Overview 17

The release mySAP SCM 4.1 does not only contain APO but other systemsas well: the Inventory Collaboration Hub (ICH), Event Manager (EM) andForecasting and Replenishment (F&R).

None of these systems is part of the scope of this book. Nevertheless wewould like to mention a few words of explanation for ICH. ICH was de-veloped as a system especially for collaboration tasks. Two applicationsare available within ICH: Supplier Managed Inventory (SMI) for inboundprocesses and Responsive Replenishment for high volume customer col-laboration (outbound). The basic idea is to provide an internet based appli-cation for a large quantity of business partners with a generic interface fordifferent legacy systems. This interface is the Exchange Infrastructure(XI). The ICH system stores its own data in the database. This means thatan explicit integration to R/3 or APO is required to provide the ICH withinventory and order data. There is however a common use of the locationand the product master. For the understanding of ICH we recommendLeitz 2005.

3.2 System Integration Overview

The integration between R/3 and APO is based on the Core Interface (CIF)towards the order live cache and on the BW-part of the plug-in for the up-load of the history data into DP resp. the BW-part of APO. The integrationtowards the ICH is performed using the Exchange Infrastructure (XI) sys-tem as middleware. Figure 3.2 provides the overview about the systemsand the interfaces (in dark grey).

APO ICHBW

R/3 BW-Plug In

(APO-)BW

BW-Plug In

CIF

CIF

EM

BW-Plug In

SCM

XI

Fig. 3.2. System Landscape and Integration

18 3 APO Architecture

The new applications are partially developed in JAVA as well as the webapplication server 6.20 which is the basis for SCM 4.1 and R/3 Enterprise.The implications for the technical basis administration is not considered inthis book however.

3.3 Master Data Overview

Like in R/3, master data plays an important role in APO and controls manyprocesses. Organisational entities as company codes or sales organisationson the other hand have no significance in APO. Some master data objectsin APO have analogues in R/3 like the product, and most of these aretransferred from R/3. Others have to be maintained in APO.

• Master Data & ApplicationsFigure 3.3 provides an overview of the most important master data objectsin APO and in which application they are more or less mandatory (dis-played in white) or only required for certain processes (displayed in grey).

DemandDP

SalesATP

TransportTP/VS

DistributionSNP

ProductionSNP & PP/DS

ProcurementSNP & PP/DS

CharacteristicValue Comb.

Location

Product

Resource

Product

Rule

PPM / PDS

Transportation Lane

ProcurementRelationship

Quota Arrangement

Set Up Group& Matrix

Interchangeability GroupInterchangeability Group

Transp. Lane

Quota Arr.

Fig. 3.3. Overview Master Data and Applications

Most of these master data have correspondencies to the R/3 master data.Table 3.1 shows these correspondencies for those master data which aretransferred from R/3 via CIF.