Aggregate Planning with SAP IBP

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Key Takeaways

⇨ It is not always possible to have a high fidelity forecast for each product at every node in the supply chain.

⇨ The outcome of aggregate planning is a comprehensive plan that guides the organization in making operational decisions to meet demand while optimizing resources, supply, and costs.

⇨ SAP IBP’s capabilities can be leveraged to model aggregate planning covering forecasting, inventory optimization and supply planning (refer to step by step guide).

Aggregate planning is a planning process that involves balancing demand, inventory, capacity, and supply at a higher granularity in order to achieve efficient, cost-effective, and timely production and distribution of goods or services. The goal of aggregate planning is to align the organization’s resources, such as workforce, production facilities, and inventory, with the expected demand and its uncertainties at a granular level over a time horizon.

In many industries like FMCG, consumer electronics, and apparel and footwear, it is not possible to have a high fidelity forecast for each product at every node of the supply chain due to the nature of the business. For instance, for consumer electronics, forecast accuracy drops at the granular level of color, storage size, warehouse location, etc. Similarly, for Apparels, forecast accuracy drops at the granular level of color, size, style, etc. As it is difficult to predict at what location or for which specific SKU demand may originate, supply chain planners need the ability to aggregate its demand, inventory, and supply for these products and/or locations, and thus avoid overstating net requirements for production and risk of excess and obsolescence.

Building Blocks

SAP Integrated Business Planning (IBP) is an advanced planning solution that supports various planning processes. Its capabilities can be leveraged to model aggregate planning. Below are the building blocks for Aggregated Planning with SAP IBP:

  1. Master data

You can model rules in your ERP system e.g., SAP S/4 HANA, SAP ECC, or data warehouse system. Below is a representative example of a rule that can be modeled to create product and location at an aggregated level.

PRODUCT Business Unit Product Group GENERATION COLOR SIZE AGGREGATE ID
PD_SP_4 PERSONAL DEVICES SMART PHONE 4
PHONE_A PERSONAL DEVICES SMART PHONE 4 GREY 128 PD_SP_4
PHONE_B PERSONAL DEVICES SMART PHONE 4 GREY 256 PD_SP_4
PHONE_C PERSONAL DEVICES SMART PHONE 4 BLACK 128 PD_SP_4
PHONE_D PERSONAL DEVICES SMART PHONE 4 BLACK 256 PD_SP_4

 

LOCATION Region Country Area STATE CITY AGGREGATE ID
NA_US_NE North America USA Northeast
DC_1 North America USA Northeast NY NYC NA_US_NE
DC_2 North America USA Northeast DC WASHINGTON NA_US_NE

 

This aggregated master data can be ingested directly using CI-DS integration, IBP add-on tables OR integrated into IBP via RTI using relevant enhancement points. You may also explore ‘Rule-Based Master Data Maintenance’ (part of IBP Response Management) to generate dependent master data like sources of supply.

  1. Aggregated Forecast and Sales Orders

Once the aggregated master data is available as products and locations in SAP IBP, forecast, sales orders and all stored key figures can be visualized at an aggregate level. You may also choose to execute Demand Planning and/or Forecasting at an aggregate level.

  1. Forecast Consumption at an aggregate level

Standard forecast consumption operator in SAP IBP offers the ability to consume forecast at any attribute level. So, the attributes used for aggregation can be leveraged for forecast consumption as well.

  1. Safety stock at an aggregate level

Since product, location and relevant master data are created an aggregated level, safety stock can now be calculated at an aggregate level using standard algorithms. For dependent data like lead time, lead time variability, etc., you may model them as averages, min or max of the child nodes that are part of the aggregation.

  1. Net Requirements Calculation at an aggregate level

Fixed transaction data like stock, production orders, purchase orders, stock transfer orders, etc. would need to be integrated at the aggregate product-location level. This can be achieved using CI-DS integration or IBP add-on tables or enhancement points for RTI integration. All Supply Planning algorithms across time series or order-based planning can be leveraged out of the box to perform net requirements calculations at the aggregate level.

  1. Net requirements calculation at a detailed level

You may choose to perform net requirements calculations at a detailed level as well. This can be helpful to have a more accurate disaggregation of the net requirements from an aggregate level to each SKU-location level.

  1. Disaggregation

Use proportional factors e.g., Net Requirement at Agg level / Sum of Total Net Requirement to disaggregate the net requirement from aggregate SKU-location to each SKU-location.

Process Flow for Aggregate Planning in SAP IBP

Aggregate planning is often employed in manufacturing, distribution, and service industries to achieve operation efficiency. The outcome of aggregate planning is a comprehensive plan that guides the organization in making operational decisions to meet demand while optimizing resources, supply, and costs.

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