Production Planning Innovations in SAP S/4HANA for Faster and More Efficient Manufacturing

Manufacturing is under increasing pressure to deliver faster, better, and smarter. From the rise of additive manufacturing and robotics, to e-commerce and same day delivery, the list of technology and market trends reshaping the manufacturing function is only growing. These disruptions create new challenges for classical manufacturing especially around production planning processes.

But as these new technologies present new challenges, they also present new opportunities. 3D printing may be disrupting centralized manufacturing, but it also gives manufactures more freedom to bring new more complex geometrical designs, that have been difficult to create with subtractive manufacturing techniques, all while reducing inventory levels, time to market and waste. By simplifying the underlying data model of their manufacturing systems, companies can better tap into their data supply and capitalize on new trends. All of this is possible now, with the application support that allows for streamlined, agile manufacturing.

SAP S/4HANA has come a long way since its first iteration as a purely financial module. Starting with the 1511 release, we began focusing on simplified supply chain and manufacturing solutions, architectures, and data models. Now, with the release of 1610, we are taking these enhancements and innovations to another level. In this post, I want to focus on material requirements planning (MRP), the process by which a manufacturing company analyzes its sales orders, demand forecasts and inventory to determine which materials and components it needs to purchase, produce in house or transfer from a neighboring plant to deliver on its order commitments.

Classical ERP vs. S/4HANA

In the classical ERP solution, MRP has been extremely effective in offering manufacturing customers with basic production planning capabilities that were quick to implement and easy to use. The downside is that MRP assumes infinite manufacturing resources. MRP’s lack of acknowledgement of production environment constraints such as skilled labor pool or manufacturing capacity sets up an obviously unrealistic scenario that must then be addressed by a secondary application such as Production Planning and Detailed Scheduling (PP/DS) in SAP Advanced Planning and Optimization (SAP APO). This is one of the manufacturing inefficiencies we are addressing with the 1610 release.

To better illustrate the difference between old and new, let us look at a hypothetical bicycle manufacturer called Speedy Bikes. Let us say, Speedy Bikes gets an order to build a bicycle and deliver it by noon the same day. Let’s also assume for simplicity that the Bill of Material (BOM) of Speedy Bikes consists of only 3 components as in figure 1.

Figure 1. Bicycle Simplified Bill of Material

In the classical ERP solution, the sales order is passed on to MRP which explodes it into its BOM, compares that against inventory levels and then determines what components need to be built in house, transferred from another plant or ordered externally to deliver the bicycle. Taking into account the dependability between the different BOM levels, MRP works its way backward from the delivery date and builds a production plan like the one in Figure 2.

Figure 2. Infinite MRP Planning in Classical ERP

That’s all fine, but now let us assume that one of the production lines used to build the wheels is unavailable or occupied between 9:30 to 10:30, and the chain cannot be installed until the wheels are ready because of the BOM dependency. The classical ERP solution in MRP would not be able to deal with such a constraint, because of its assumption of infinite resources. So, the MRP controller now has to rely on an advanced production solution, such as SAP Advanced Planning and Optimization (APO), to build a constraint based plan for the wheels and then go back into MRP to consolidate both plans. It is a cumbersome, time-consuming process that slows down production (Figure 3 and Figure 4).

Figure 3. Current Functional Model in Classical ERP

Figure 4. Finite Planning in APO PP/DS

If we look at the same scenario using SAP S/4HANA, that now has both constraint and unconstraint based planning embedded in one system, we see a much simpler and more efficient process (Figure 5). Now an MRP controller can build the entire bicycle and factor in the constraints on a particular material in a single place. In addition to being obviously simpler for the controller in terms of time, effort and user-experience, there are fewer errors in terms of transferring and consolidating data between two systems.

Figure 5. Unified Production functionality in SAP S/4HANA

If all this seems a little too confusing then watch this 2 min explanation video.

Innovation beyond integration

We have done more than take advanced functionalities from other areas of the SAP portfolio and embed them into S/4HANA. We are also delivering new innovations and functionality. One example of an innovation that we are bringing with MRP is the Truckload Optimized Purchase Orders Fiori app (Figure 6.).

Figure 6. Screenshot of new Truckload Optimization Fiori App

If your company places multiple orders for different materials with the same vendor, the truckload optimization app can bundle these orders in a way that optimizes the shipments of these materials. The app allows the MRP controller to enter in the load capacity of the trucks that the vendor uses to transfer the materials to your site, and the app considering the priority of the materials – optimizes them so that they consume fewer trucks or fewer shipments from the vendor.

Of course, the vendors bill for every truck transaction, so by minimizing the number of transactions, you can save on supply chain and transportation costs and, at the same time, ensure that you are fulfilling the orders of the highest priority among your sales orders.

The next level of efficiency

Essentially, when you look at the changes that S/4HANA has brought to production planning, it has simplified things by integrating constraint and unconstraint planning and it has offered users new capabilities and innovations that will make a big difference in manufacturing efficiency and effectiveness and the overall ability to respond to new technology and market trends.