Learn how to execute multi-level manufacturing production orders through component replenishment driven by SAP Extended Warehouse Management (SAP EWM). Understand the overall concept, implementation best practices, and configuration steps involved.
Key Concept
SAP ERP Central Component (ECC) has provided Kanban functionality for many years. With this functionality, operators on factory floor’s manufacturing lines obtain component materials in bins that are set to either FULL or EMPTY status. This approach streamlines replenishment of component parts to shop floor operators by reducing interruptions caused by material shortages during assembly operations.
SAP SCM’s Extended Warehouse Management (EWM) offers multiple Kanban processes that natively integrate with SAP ERP Central Component’s (ECC’s) production planning (PP).
EWM-enabled Kanban replenishment is relatively unknown and rarely implemented because of its perceived complexity and risks it carries (more on risks in the conclusion of this article). However, this functionality is very valuable as it can drastically improve your raw and component material replenishment times through functionality available in EWM. This article is a direct result of my implementation experiences and the documentation of this process is available exclusively here.
Traditionally, problems with the Kanban approach using ECC have been directly linked to large quantities of inventory having to be readily available near a factory floor’s assembly lines. Specifically, companies would incur high inventory costs by storing large amounts of parts in staging areas close to manufacturing floors, or have trucks carrying component parts continuously circle the factory (just-in-time, i.e., a JIT approach).
SAP SCM’s EWM to ECC’s production planning (PP) native integration described in this article enables a company to supply Kanban-replenished component parts from a warehouse that runs EWM. The warehouse can be physically located near the factory building or at a more distant location. In the SAP system, the factory floor automatically sends signals to the warehouse to replenish its Kanban inventory. The warehouse, using advanced inventory management techniques (e.g., dynamic bin allocation), then quickly ships component parts that replenish factory Kanban inventory.
Kanban Implementation
Figure 1 outlines the process flow for a warehouse Kanban replenishment business process, with actions by both factory and warehouse personnel.
Figure 1
Process flow for a Kanban replenishment business process
Implementation Options
When replenishing shop floor materials using EWM Kanban, you can choose from four distinct options that SAP offers. Your selection depends on the nature of your manufacturing operation (i.e., the general availability of the part in question and the way you procure it).
- Replenish Kanban material with a stock transfer from a warehouse
- Replenish Kanban material by purchasing it from a vendor or purchasing it from another manufacturing plant that is owned by your enterprise
- Replenish Kanban material by requesting it to be manufactured by your plant
- Replenish Kanban material by any of above options, then consume material to a cost center (used for non-backflushed bulk materials, such as lubricants)
Kanban replenishment with stock transfer from a warehouse is most commonly used. This approach is highly automated and requires only a few user touchpoints with the system. Its functional SAP process flow is shown in Figure 2.
Figure 2
Process flow of Kanban replenishment with stock transfer from a warehouse
Note Storage locations from which the Kanban material is replenished must be EWM managed. Destination storage locations can be managed by EWM or by the inventory management component of SAP Materials Management (MM-IM). In Figure 2, the EWM warehouse delivers Kanban material to an IM-managed shop floor location in a single step.
Implementation Examples
Kanban replenishment with EWM is particularly flexible as it covers virtually all possibilities for material procurement and delivery to a shop floor location. Making a decision to select a replenishment option is driven by couple of factors. Most importantly, you need to consider how your Kanban materials are procured (make versus buy) and where they are stored. You also need to understand the levels of inventory you typically have on hand (both in the warehouse and in your factory Kanban bins). Additionally, you need to assess the level of skill you have available from future users at each manufacturing site and warehouse to drive toward automated or more sophisticated solutions. Finally, you need to evaluate whether there is any room for business process change on your factory floor, your warehouse, or both. Kanban implementation is an opportunity to streamline your component supply chain. Small changes can significantly improve your manufacturing performance and eliminate the need for SAP programming enhancements.
Examples listed in Table 1 illustrate a scenario that fits each Kanban replenishment option provided by SAP.
| Kanban replenishment method | Business example |
| Stock transfer | Your warehouse stores all Kanban materials and can quickly replenish bins on the factory floor where bin storage locations are either MM-IM or EWM managed. |
| External procurement (buy) | Your Kanban materials are replenished by issuing a purchase order to a vendor or another manufacturing plant. |
| In-house production (make) | Your Kanban replenishment parts need to be manufactured on demand. Setting the bin to EMPTY creates a production order for the Kanban material. |
| Withdrawal to cost center | You use bulk materials in your manufacturing operations (e.g., lubricants). Since bulk materials do not have an operation quantity, you need to expense consumption of that material directly to a cost center, and then, when needed, replenish the bulk material by setting the bin status to EMPTY. |
Table 1
Kanban replenishment options
Note You can select more than one option if certain components are procured differently from others. For example, you can use stock transfer replenishment model for standard component materials and cost center consumption for bulk materials. In case of a withdrawal to the cost center, replenishment of bulk items can be achieved through any available model (e.g., stock transfer, make, or buy).
Common Implementation Problems and Risks
Although Kanban replenishment using EWM for the purpose of production order execution is natively supported with full integration between ECC and SCM, significant go-live problems are commonly encountered due to timing issues between production order confirmations (i.e., component backflushing) and picking or stock transfer transactions.
In addition to the need for high master data accuracy (e.g., bill of material [BOM] quantities), warehouse and shop floor employees must be trained to execute transactions in the correct sequence, as an incorrect order of transactions can rapidly generate a great amount of EWM inbound queue errors.
The following list represents common go-live problems and related solutions:
- Sequence of transactions: Production order confirmations cannot be carried out without error unless the EWM warehouse has properly issued components to the shop floor first. The solution is to train warehouse users to always transact the goods transfer in the system (EWM), never physically moving inventory to the shop floor without a record in the SAP system.
- Errors during the postprocessing of faulty goods issue postings (transaction code COGI): Most often, goods issue errors happen when there is insufficient stock available for backflushing of component-level materials. This problem is solved by executing transactions in the correct sequence (as explained in previous bullet). However, COGI analysis can be extremely complex and SAP offers troubleshooting tools to help. Implementation of SAP Note 1894587 (Display and deletion of data records in AFFWPRO) is very powerful. With this note, the system logs all changes and deletions of incorrect goods movements (COGI records) in a separate table that can be analyzed to spot trends and problematic materials. Important: this enhancement should be removed from the system once analysis is complete to avoid system performance problems as the error table grows in size over time.
- EWM queue errors (transaction codes SMQ1 and SMQ2): Inventory discrepancies between ECC and EWM commonly happen because of core interface (CIF) problems (e.g., storage location values do not exist in both systems). To find materials that are causing stock discrepancies, inventory compare reports between ECC and EWM can be viewed by executing transaction code /SCWM/ERP_STOCKCHECK. It is helpful to identify materials causing the most, or largest, discrepancies to resolve errors in the fastest manner.
- Safety stock levels: Kanban can handle sudden increases in demand very well. As such, it is critical that the warehouse perform periodic (e.g., quarterly) review of the safety stock data it stores. Summit Global recommends this data is reviewed and socialized well before go-live. In addition to the reorder point, safety stock is an important value to maintain — it serves as an “emergency parachute” in case of a sudden demand increase. This process helps greatly improve component material availability and improve on-time factory output.
- Bulk material: Automatic goods issue of bulk materials assumes manual (i.e., visual) replenishments. Examples of bulk materials are lubricants or screws that are constantly used on the production line. It is important that specific shop floor personnel are put in charge of ordering bulk materials to avoid an unforeseen material shortage.
- Serialization: Serialized items cannot be backflushed. It is important this is considered during blueprint and end users are trained properly.
- Issue list definition: Once live, a multitude of issues emerge. Therefore, it is important to have a standardized workflow to create, track, resolve, and close issues. Another common problem area is lack of definition of issue workflow status (e.g., what constitutes a critical, high, or medium issue classification). When you develop and communicate these statuses in advance of go-live, the project will benefit from faster issue resolution.
- Cycle counting: Depending on company culture, unrecorded material movements can be prevalent or very rare. To that end, it is important a prescribed cycle count process be implemented and communicated in advance of go-live, with a set cycle count cadence. Cycle counting is commonly done on a weekend, following a planned plant shut down. It is recommended cycle counts be performed more frequently in the first six months following go-live.
- Identifying top problem materials: It is very common that a handful of materials cause most of supply chain issues following EWM Kanban implementation. As such, I found it is very helpful to create and continually analyze top 10 lists of problem materials. By focusing on most problematic materials first, you achieve greatest impact relative to overall project issue resolution.
Table 2 outlines common EWM Kanban risk factors and ways to mitigate those risks in advance of go-live.
| Implementation risk | Risk explanation and mitigation |
| Low master data quality | Having clean master data is critically important to avoid major EWM-to-ECC integration issues. One of the most common problems is conversion of BOM quantities and unit of measure (UoM). Since components are commonly backflushed in a Kanban environment, erroneously inflated component-level confirmations – which are performed automatically – quickly deplete available inventory in the system. In addition, special attention needs to be paid to more severe data inconsistencies, such as routing operation to BOM component assignment, or BOM header assignment of incorrect routing level. The best remedy for data issues is to start conversion preparation early (immediately after the blueprint phase), then, during the go-live preparation phase, conduct objective analysis and get a project-wide vote on the percentage of clean records acceptable for a successful go-live. |
| Ineffective end-user training | Shop floor and warehouse personnel are always focused on manufacturing product output and material handling as their primary job responsibilities. A direct, easy-to-understand, hands-on training is of critical importance to ensure user adoption from the moment ECC and EWM are live. However, it is very common that training is delivered too early prior to go-live (usually a month to six weeks before). The gap between training and go-live allows users to forget considerable parts of training and to misplace their documentation and user guide materials. To this end, it is very effective to offer a refresher course one or two weeks before scheduled go-live date. This effort allows users to ask quality questions, solidify their knowledge, and feel more confident to start using the system on go-live day. |
| Poor change control | A fundamental task during the blueprint phase is to create user roles and assign SAP transactions to them. While this task is executed very well on most implementation projects, it is common that people working on the shop floor and warehouse are not voicing their confusion relative to their responsibilities from the system perspective. In addition to effective end-user training, an organizational change management (OCM) team needs to communicate upcoming changes early and often. Best practice is to stay in touch with system end users starting during the blueprint phase and then reach out at least once during each subsequent phase. This approach allows the user community to socialize changes and have quality questions ready in advance. |
| Lack of business acceptance | As OCM teams are working with end users, implementation project leadership needs to keep in touch with warehouse and plant management during all phases of the project, with more intensive communication in the latter phases of the implementation. Since plant management oversees and executes a multitude of projects each year, SAP deployment sometimes receives an amount of attention not proportional to the business impact on the local site. Therefore, it is critically important to establish ownership of all system issues the moment they arise following go-live. This is accomplished through effective planning and timely communication. |
| Unavailable helpdesk support | During the first few days of go-live, a multitude of minor issues are commonly experienced (e.g., logging in to RF guns, logging in to correct system environment, and password resets). It is critically important that help desk support is readily available, with minimum hold times, during all hours employees are interacting with the system. Additionally, clearly communicated support contact information needs to be posted in visible areas (e.g., near employee time clocks) just prior to go-live. |
Table 2
EWM Kanban implementation risks (high to lower)
Sasa Mitrovic
Sasa Mitrovic is founder and principal consultant at Summit Global Associates, Ltd. Sasa (pronounced “Sa-sha”) is a supply chain and manufacturing executive with extensive global experience in all phases of the SAP implementation life cycle. With more than 10 years of dedicated project experience, he is seasoned in enabling clients to reach decisions and implement SAP solutions that fit their businesses. Sasa has consulted in aerospace, defense, heavy machinery, consumer product, and life science industries. Summit Global is based in the United States.
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