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Demand review process focuses on unconstrained demand plan at a sellable product/family/customer

/customer grp/

Supply review process focusses on all types of products, manufacturing locations, vendor , resources
across the network.

The supply review process determines how each product’s customer demand is fulfilled, where and
when the products are manufactured, the capacity required, the material requirements plan, and the
distribution plan.

This is referred to as demand propagation because it traces the path for a given product from a
customer to its ultimate supply source through the internal distribution network, up to exploding the
bills of material for production processes, resulting in raw material requirements coming from suppliers.

Heuristics – unconstrained or infinite supply planning engine , which doesn’t automatically restrict the
supply plan based on resource capacities or material constraints. Decision support algorithm

Define alerts to check the bottlenecks of capacity or material shortages

Simple master data types –

1. Product
2. Customer
3. Loation
4. Resource

Compound master data types

1. Customer product (optional)

2. Location Product
3. Location Resource
4. Location Product Resource
5. Sourcing rules (customer source, location source, production source)

Product, Location and Customer

Location – Locations in SAP – IBP cover all the entities in the supply network that aren’t
customers and for which supply (inventory, production, lead times, and supply constraints) needs to be

Manufacturing facilities – with resources (production, handling) production process, raw

material requirements

Distribution centers – storage, distribution of finished products

External locations – Suppliers, Contract manufacturing, Ports (Suppliers – for modeling key
constraints, collaboration around likely requirements

All these are locations.

Compound master data types – location products and customer products allows modeling attributes at
the combined level. E.g. location product – the sub network is a key attribute (will discuss in next

Customer level- though the customer –product combination is optional – a sales planner name could be
modeled as an attribute, perhaps the market segment the customer sells this product in.

Sourcing Rules

Where this product does come from. Three types of sourcing rules:-

1. Customer sourcing rules – sourcing rules start from the level at which the unconstrained
consensus demand is defined : typically a specific product at a specific customer or
customer group.

For each group its defining the customer demand fulfillment location for each product.

The customer sourcing rules is captured in the source customer master data type.

Sourcing ratio ( with the attribute CRATIO) which establishes the split between possible
sourcing locations. If only one location it will be 100 for one location. If multiple there will be
split. And it should add up to 100. It could be time phased. Varying over that case master
data will have flag set as X(RATIOTS =X). based on the time series flag, the heuristics will not
consider the constant sourcing ratio but will use the customer sourcing ratio key figure for its

Customer sourcing ratio have a lead time assigned. Which marks the time it takes to
transport products from a location to a customer .

Following factors should be considered when modeling customer lead time.

 Time required to pick , pack, and load the product and make it customer ready
 Time required to process product through customs
 Physical transportation time between fulfillment location and customer site
(Customers in SAP IBP are modeled as groups of customers, average lead time
should be taken)
2. Location Sourcing rules ---- Next level of sourcing rules determines how the demand is
fulfilled at a location other than the customer. Location sourcing rules are used to represent
the stock movement between different locations – stock transfers from a Plant
Distribution center.
Location sourcing rules also have sourcing ratio --- can be constant or time phased. Master
data for constant location sourcing ratio TRATIO needs to be maintained. For time varying
ratio the time series flag will be set in master data type RATIOTS- ‘X’

Lead time are also available in location sourcing rules to account for the transportation
time between the sending and receiving locations.

Factors considered for modeling the transportation lead times.

 Time required to pick, pack and load the product at the source location
 Physical transportation time between source and destination locations
 Other time considerations for receiving the product at the destination location,
such as time at customs
3. Production sourcing rules –this is applied for two distinct scenarios.
a. Type P (for Production) – Production & Bill of material
b. Type U (For unspecified) – Depicting the end of the supply network

Different types of BOMs

Standard BOM – to produce final product , production sourcing rules of type P

will be applied ( SOURCETYPE = ‘P’ )

PSR are defined using two simple master data types: production source header and
production source item.

The production sourcing header assigns a source ID to an output product at a specific

location. We also have ratio rule here, constant (PRATIO) or time phased , which will be
modeled as the production ratio key figure. PRATIOTS = ‘X’

To control the output quantities in the production process, production sourcing item
have an output component coefficients. These are used to provide the number of
products becoming available after performing the production operation. Just like
sourcing ratios, they can either be constant over time and be modeled in the production
source header (OUTPUTCOMPONENT) or vary over time. which requires the time series
flag to be set (OUTPUTCOMPONENTS =’X’) when the time series flag is set the system
will the component key figure to model the output of the production process.

Multilevel bills of material

Multilevel is also possible in S&OP heuristic model using the rules that have
been introduced. A multilevel BOM is modeled by assigning a component of the BOM, a
production sourcing rule of type P. There is no documented limit to the levels in a BOM
that can be established.

Unspecified rules

Specific subtype of production sourcing rules that depicts the end of the supply
network. Used to model product sources the planner doesn’t plan. Only requires
production source header, in which the source type is set to U ( SOURECTYPE = ‘U’).

Traditionally, U-rules are used to depict the incoming supply at the vendor. Since SAP
IBP release 1705. However, its possible to set the location type to V for vendor. Which
makes it clear that no incoming supply is expected at this location and it is the end of
the supply network.

Coproduct Plannig
Such co product situations can be modeled by setting the source type to C, which is
connected to the main product through source ID. e.g.

Source ID Product Source Type Output coefficient

Chicken breast Breasts P 2
Chicken_wings Wings C 2

Supply network Accuracy and Check mode

Sub networks

Using subnetwork , its possible to limit the run of the S&OP operators to only a limited set of
data. Heuristics or other algorithm will plan for whole network , independent of whats selected in the
planning view. Subnetwork reduces the scope of planning e.g. to a business unit or region

Planned independently

Limted supply can be bartered

In checmical factory only one plant will give the demand or else for whole business there will
unconstrained picture of total demand.

More control over how potentially limited quantity will be distributed.

Sample Supply Network

Factory ------production sourcing

Distribution - Location sourcing

Customer ---Customer sourcing

Customer Sourcing

The information that allows a heuristics to propagate demand further lies in the source
customer table, which defines the customer sourcing. It’s at this point that the heuristic identifies all
connected locations for a customer, along with the corresponding lead times, sourcing ratios, and lot

Sourcing can be split in different ratios—which is defined in the demand fulfillment model.

Output customer demand

DEPENDCUSTOMERDEMAND – this represents a portion of demand for a product in particular period

from a specific customer to the supplying location. This demand quantity is based on the receipt date at
the customer; therefore , no lead time offset is considered while computing this demand. While defining
the key figures.

Outbound Customer Demand = Consensus Demand x Customer Sourcing Ratio

Dependent customer demand = Outbound customer demand with backward lead time offset

Net Demand Calculation =