Demand-Driven Planning with SAP Consulting Solutions for SAP S/4HANA and SAP ERP

Demand-driven replenishment, demand-driven planning, or demand-driven MRP for S/4HANA help in efficiently planning and managing supply chains based on customer demand, as opposed to traditional MRP procedures. Demand-Driven Planning (DDP) was developed by the Demand Driven Institute. DDP strategically decouples material flows, making them less vulnerable to supply chain disruptions, and ensures the availability of relevant products through dynamically managed buffers.

Decoupling material flows at strategic points can help avoid the bullwhip effect, that is, increasing fluctuations in inventory along the supply chain in response to changing customer demand. These stock fluctuations can increase exponentially along the supply chain, resulting in excessive inventory costs or losses due to the scrapping of slow-moving items.

SAP offers two different demand-driven solutions:

• Demand-Driven Planning with the SAP Consulting Solutions for SAP ERP and SAP S/4HANA
• Demand-Driven Replenishment (DDR) for SAP S/4HANA (not available for SAP ERP)

To make a simple distinction for the reader, I will abbreviate the consulting solutions for demand-driven planning with DDP and the SAP standard S/4HANA solution with BWB.

Demand-Driven Planning

Demand-driven planning is used for both planning and execution control by defining: where to store the stock; how much buffer stock is needed that is dynamically adjusted by sales orders according to the average daily usage; qualified demand peaks; and visually controlled execution using alerts.

The five steps defined by the Demand Driven Institute for the demand-driven planning procedure are:

1. Strategic inventory positioning
2. Buffer management
3. Dynamic adjustments
4. Demand-driven planning
5. Visible and collective execution

Demand-Driven Planning with SAP Consulting Solutions for SAP ERP and SAP S/4HANA

SAP add-on tools on SAP ECC and SAP S/4HANA can cover these five steps by:

With SCM consulting solutions, customers that use SAP ERP version ECC 6.0 and higher can benefit from demand-driven replenishment planning. Since 2018, various SAP add-ons have enabled this. They are MRP monitor, Replenishment lead time monitor, Safety stock simulation, Customized MRP type, and Advanced MD04 tools, as detailed below.

MRP Monitor: MRP monitor determines the place for decoupling points in bills of materials. If a certain number of products are due to be ready for dispatch in 20 days’ time, several algorithms analyze the bills of materials and suggest when and where a buffer of raw materials, semi-finished products, and end products should be created.

Replenishment Lead Time Monitor: This monitor calculates the time needed to restock materials. It calculates the replenishment lead times based on decoupling points determined by the MRP monitor and empirical analyses of historical data.

Safety Stock & Buffer Simulation: This tool facilitates optimal calculation and dynamic adjustment of safety buffer levels and reorder points. This is more intuitive than statistical methods and buffers can be adjusted based on empirical observations.

Customized MRP Type: Once per day, for example, buffer sizes are analyzed during the MRP run. To do this, the customized MRP type add-on takes the logic used to calculate material requirements as part of the demand-driven replenishment approach and adds it as a new MRP type. Compared to traditional demand-driven planning procedures, this method plans for spikes in demand.

Advanced MD04: MD04 is a frequently used standard transaction which gives planners an overview of demand, inventories, and goods received. SCM consulting solutions provide an advanced version of this transaction as an add-on, which features a range of additional functions including information for a demand-driven approach. It uses color coding to indicate the status of materials, from dark red (highly critical), red (critical), yellow (low), and green (sufficient), to blue (overstocked) as seen in the image below.

Using SAP GUI and Migrating to SAP S/4HANA

This selection of basic demand-driven replenishment functions shows that the demand-driven replenishment (DDR) approach makes supply chain planning more flexible and intuitive for the planner. But there is another difference between the add-ons and the DDR functionality in SAP S/4HANA that may interest planners who have been working with the traditional SAP GUI for years.

If you opt for the SCM consulting solutions, you do not have to switch to the new role-oriented SAP Fiori interface straight away but can continue using “your” SAP GUI until you are used to SAP Fiori. Equally important is that if a company decides in three years’ time to upgrade from SAP ERP to SAP S/4HANA (on-premise), for example, a migration service is available. This service allows companies to make a seamless transition to the SAP S/4HANA functions later. In this case, the demand-driven replenishment functions offered by SAP SCM Consulting Solutions can be used, as can, for example, SAP GUI transactions.

All five steps of DDP and how you can use your SAP ECC with demand-driven planning and the new MRP-type DD including reference cases will be discussed in future articles.