Vendor-Managed Inventory (VMI) helps with collaboration between a vendor and a customer using electronic data interchange (EDI) to gather data, such as on-hand inventory, which is then used to create an inventory plan. This inventory plan directs how the vendors create sales orders to replenish the customer’s stock. With VMI, the vendor takes over the job of the customer’s buyer and saves the customer time and money by placing replenishment orders for them. VMI spans multiple systems, including SAP Advanced Planning & Optimization (SAP APO), SAP ERP Central Component (SAP ECC), and EDI. Recently, SAP APO 7.0 and SAP ECC 6.0 have made it easier to execute the VMI process with EDI in a seamless manner with the time series mapping feature, which I explain later in this article. This article is based on SAP ECC 6.0 and SAP SCM 7.0. You can implement VMI in other versions, but time series mapping is available only in these versions. In my scenario, a major retailer called MJA Corporation (the customer) uses a legacy ERP system to track inventory. MJA plans to execute the VMI process with ABC Limited (the vendor), a global company. ABC uses SAP SCM 7.0 for global planning and SAP ECC 6.0 for reporting. The companies plan to use EDI to exchange data to and from MJA’s legacy ERP system and ABC’s SAP environment.

Basic Concept

In my example, I focus on the standard VMI process (not consignment VMI) as shown in Figure 1. In my scenario, MJA uses EDI 852 (i.e., product activity data) to send sales history and stock data from MJA to ABC. In turn, ABC uses this data to create a forecast, which it sends to Supply Network Planning (SNP) where VMI sales orders are created. Other EDI documents, such as EDI 855, automatically send the sales order information to MJA.    

Prerequisite Configuration Steps

You need to perform a number of prerequisite configuration and technical steps before you can execute VMI in SAP APO 7.0 and SAP ECC 6.0. The following data is required to perform these steps:

• Master data setup to create the vendor distribution centers (DCs) and production plants
• SAP ECC products at the vendor production plants and DCs
• Core Interface (CIF) setup
• SAP APO products at customer ship-to locations
• SAP APO transportation lanes

Additionally, you need to configure settings in transaction SPRO to maintain purchase order number assignments in SAP APO. Furthermore, you need demand planning (DP) and SNP VMI planning books and macros to display and process the data. The detailed steps to set up the prerequisites are outside the scope of this article. For more information, go to https:// help.sap.com.

VMI Process Steps

I explain the steps for executing the VMI process — including EDI, demand management in DP, replenishment planning in SNP, and sales order execution in sales and distribution (SD) — in the following sections: Step 1. Receipt of EDI 852 into vendor’s SAP APO system Step 2. Create a demand plan and release it to SNP Step 3. Create a supply plan in SNP using location heuristics Step 4. Run the transport load builder (TLB) algorithm Step 5. Publish the TLB VMI sales order from SAP APO Step 6. Automatic VMI sales order creation in SAP ECC

Step 1. Receipt of EDI 852 into Vendor’s SAP APO System

The VMI process starts when ABC receives EDI 852 from MJA. The EDI 852 is updated by using transaction /SAPAPO/MAP_TSER (time series mapping), which is a new feature in SAP APO 7.0. Time series mapping allows a user to map a planning area and key figure to a specific qualifier in the EDI 852. In my scenario, the DP planning area (Plng area) ZDEMO_VMIDP and InfoObject 9ADMDVMI store Qualifier 003 (sales history), as shown in Figure 2. The next step is to create a demand plan using the sales history.      

Step 2. Create a Demand Plan and Release It to SNP

In this step, you create a baseline demand (i.e., sales expected without promotions) with the sales history by using transaction /SAPAPO/SDP94. The EDI sales history shows up automatically in the DP planning book (Figure 3). When the vendor receives EDI 852 data from the customer, the planning book is updated automatically for each characteristic value combination (CVC). The vendor then uses the sales history to generate a statistical forecast with a background job. Alternatively, the vendor can enter a judgmental forecast manually. The statistical forecast is created by SAP APO when you run a statistical algorithm, such as exponential smoothing on the historical data. When not enough history is available or the future trend is very different, you can use a judgmental forecast. This is the baseline VMI demand. The VMI planner can add VMI promotions to calculate the total VMI demand to release to SNP for replenishment.     Next, the VMI planner releases the total demand plan created in the DP planning book to the SNP planning area by using transaction /SAPAPO/MC90 (release to Supply Network Planning) or by following menu path Advanced Planning and Optimization > Demand Planning > Planning > Planning > Release. The total demand plan is released from the field that holds the total forecast. The total demand plan is also released for the time period with to and from dates and for the product and location characteristic specified as shown in Figure 4. This total demand plan becomes one of the inputs along with on-hand inventory, in transits, and other data for generating a replenishment plan.    

Step 3. Create a Supply Plan in SNP Using Location Heuristics

In this step, the VMI planner creates a supply plan in SNP using location heuristics. The supply planning part of the VMI process starts in this step. After the demand plan’s release, the forecast is received in the SNP VMI planning book as shown in Figure 5. The VMI planner at ABC can also enter data in the external sales order field based on information received from MJA. The macros in the SNP planning book calculate the total demand automatically. The EDI 852 received by SAP APO also enters the stock on hand in the EDI 852 STOCK row in the SNP planning book.     Once all the data — such as forecast and inventory — has been updated in the SNP planning book, the VMI planner can run an SNP planning algorithm such as heuristics or optimizer, depending on the business needs. For complex requirements, such as optimizing the capacity use or lot sizing, you can use the optimizer. Otherwise, heuristics meets the needs of most companies. In my scenario, the VMI planner has found that running SNP location heuristics is the best option for the company because it focuses on target stock levels at the distribution centers. The VMI planner uses transaction /SAPAPO/SDP94 and clicks the Location button (Figure 6). The location heuristic automatically calculates the VMI Distribution Receipt (Planned) or Production (Planned) quantities and adds them up in the Total Receipts row to generate a replenishment plan.     The result of the SNP heuristics run is an SNP VMI sales order that you can see in transaction /SAPAPO/RRP3. You can also follow menu path Advanced Planning and Optimization > Production Planning > Interactive Production Planning > /SAPAPO/RRP3 - Product View (Figure 7). The system proposes the SNP VMI sales orders to the VMI planner. These SNP VMI sales orders are for the product at the vendor’s DC. These orders are only proposals and have not yet been published to SD.    

Step 4. Run the TLB Algorithm

Next, run the TLB algorithm that groups multiple SNP VMI sales orders to create one or more TLB VMI sales orders, which in turn creates a shipment. To do this, you need to maintain a TLB profile defining the lower and upper capacity limits using transaction /SAPAPO/TLBPRF or by following menu path Advanced Planning and Optimization > Supply Network Planning > Environment > Current Settings > Profiles >  /SAPAPO/TLBPRF - Define Transport Load Builder (TLB) Profiles. I created profile ZVMI_TLB_1 and specified the lower and upper limits as 5 and 500 cases in the TLB profile (Figure 8). When creating shipments, TLB attempts to reach the maximum limit where possible. The goal is to combine multiple shipments to maximize transportation capacity utilization.     After defining the  TLB profile, go to the upper left corner of the planning book (Figure 9) and click the TLB view icon.  The SNP planning book and the selection profile window in the left pane are used to load the data for the selected transportation lane.     When you click the TLB View button, you see the screen shown in Figure 10, where all the SNP VMI sales orders are displayed with availability date and confirmed quantity. You can select one or more sales orders and then right-click the order to display the options available. The option For TLB Shipments (Entire Quantity) groups multiple SNP VMI sales orders into one TLB shipment.     The menu option For TLB Shipments (Entire Quantity) allows you to create a new VMI sales order in the vendor’s SAP APO system and then publish it in SAP ECC. The VMI planner can check that the TLB VMI sales order has been created for products at the vendor’s DC for the requested delivery date by using transaction /SAPAPO/RRP3: (Product overview) screen. The VMI sales order is now converted into a TLB VMI sales order, as shown in Figure 11.     

Step 5. Publish the TLB VMI Sales Order from SAP APO

The VMI planner can now publish the TLB:VMI sales order created in SAP APO to the online transaction processing (OLTP) system (e.g., SD). The SAP APO TLB sales order is published from SAP APO to SAP ECC via CIF using change pointers, as explained in the next step. In the TLB interactive planning screen, the VMI planner can select the VMI sales order created and click the Orders Directly to OLTP System icon (Figure 12).    

Step 6. Automatic VMI Sales Order Creation in SAP ECC

The system automatically creates a new VMI sales order in SD when the TLB VMI sales order is published in SAP ECC. The automatic creation is similar to transaction VA01: Create Sales Order in that the new VMI sales order can have multiple line items with different requested delivery dates. A new sales order number is generated automatically in SD, which replaces the old TLBVMI sales order (Figure 13).     In SD, the VMI sales order goes through the normal process of creating deliveries, shipments, and invoices like any other EDI sales order. The goods receipt of the product at the customer (MJA) updates the data, which is then reflected in the next EDI 852 update. The VMI business process cycle is complete for the stock keeping units and customer DC for today. The VMI process is repeated when new EDI documents are received.