I’m going to explain the various APO requirements strategies, how they work, and what is required to make the system really work for you. This article applies to a manufacturing environment, where the required products are made, but you could also use the described requirements strategies in a purchasing scenario. Requirements strategies are used by the system to answer the following questions:

• Is the forecast used to drive the production and translated directly into manufacturing orders? Is manufactured stock controlled per customer or as general warehouse stock?
  
  
• Is the forecast consumed once sales orders are received?

Principles

You can view the product’s requirements strategy in the product master Demand tab (Figure 1). This field is usually maintained via the R/3 Core Interface (CIF), which uses the R/3 Material Requirements Planning (MRP) strategies. R/3 has more planning strategies than there are requirements strategies in APO, since only planning strategies that require up-front planning are sent to APO. In a pure make-to-order environment, no activities are carried out before the sales order is created. Thus, no product forecast exists and APO does not need to carry out any planning tasks. Sales orders created in R/3 are flagged automatically as not relevant to MRP when using the planning strategy 10 (make-to-stock) in R/3. This causes APO to ignore these sales orders during the planning run, ensuring that the demand is the forecasted demand only.

Figure 1

Use the Demand tab to view the Requirement Strategy profile

The forecast consumption logic plays a vital role and works hand-in-hand with the respective requirements strategy. It is a common but incorrect assumption that forecast consumption is used to measure the quality of the forecast. Forecast consumption is a tool to fine-tune the demand pattern based on sales orders, which replace the initial forecast as soon as they are known. Using forecast consumption allows you to react more quickly and accurately to demand that is not exactly as forecasted. Up to Release 3.0 the product forecast was released from Demand Planning for location product only. Since Release 3.1, it is also possible to release the product forecast on a more detailed level (e.g., per location product and customer).

The two main settings of requirement strategies are their allocation to an assignment mode and to a planned independent requirements (PIR) segment. The following sections provide an introduction to these topics before I go through the individual requirements strategies. I’ll start with the assignments modes, which describe the way the system consumes the forecast by incoming sales orders.

Assignment Mode

The forecast is a PIR and anticipates sales orders to be received by the business later on. The sales orders are also PIRs and “replace” the forecast. Dependent requirements, as a rule, are not forecasted and for this reason they do not “replace” the forecast once they are known. The exception is the so-called sub-assembly planning, where dependent requirements reduce the product’s forecast. Examples of such dependent requirements consuming the product forecast are those created by manufacturing orders or stock transport orders.

The definition of the forecast consumption logic as such is independent of the product’s allocation to the correct PIR segment, but keep in mind that the combination of PIR segment and assignment mode must make sense. For example, it makes no sense to have a make-to-stock environment, where the manufacturing quantities are based solely on the forecast, and then reduce this forecast by incoming sales orders.

Four assignment modes are possible, all predefined by APO. They are linked to requirements strategies. Table 1 outlines the APO-defined assignment modes, including how the forecast is consumed and in which segment. All orders in APO are stored in segments. These segments are described in more detail in the next section.

APO uses segments (also known as planning segments) to store forecasts, sales orders, and manufacturing orders. APO uses predefined segments to carry out requirement planning separately per segment.

PIR Segment

All forecast and sales order requirements stored in APO and in R/3 are allocated to a PIR segment. The product’s requirement strategy determines which PIR segment is used in APO. The requirements strategy profile contains an indicator, which drives where the PIRs and the sales orders are stored (Figure 2). Products are linked to a requirements strategy and, depending on the requirements strategy’s PIR segment setting, one or two PIR segments exist for the product. This means that with some requirements strategies more than one PIR segment is used to store orders of the types planned independent requirement and sales order.

Figure 2

Requirement strategy profile showing indicator 20, PLANNING WITH FINAL ASSEMBLY

The main task of the PIR segments is to separate orders based on a make-to-stock and a make-to-order principle and subsequently handle the product requirements in different ways. It also has an impact on whether the finished products are received into anonymous warehouse stock or into customer-specific stock. The following is a detailed explanation of the PIR segments:

• Net segment: The classic make-to-stock principle uses the product forecast to determine the procurement quantities. There are variations on this principle, where the combination of product forecast and incoming sales orders determine the procurement, or where only the sales orders determine procurement. The net segment is used in these cases to store all requirements.
  
  Procurement considers the product forecast (PIR), if it exists. You can convert planned orders for production in this PIR segment to production orders. Sales orders are also captured in the net segment and might influence the production quantity depending on the assignment mode. The goods receipt transaction updates the quantity and value of the warehouse stock (settlement of cost against stock account). Stock elements are anonymous warehouse stock and can be seen in the net segment.
  
  
• Planning without final assembly with individual requirements segment: The term planning without final assembly describes a make-to-order principle. Typically, in a make-to-order environment no product forecast is required, as production is triggered solely by sales orders. In the purest form, this type of planning does therefore not require any product forecast. Such a forecast is nevertheless created in some business cases to determine the dependent requirements of components caused by the finished product’s forecast.
  
  Production never considers the product forecast, but the forecast is used to create dependent requirements. Planned orders in this PIR segment cannot be converted to production orders, since they are used only to create dependent requirements. Sales orders are captured in a customer segment and always determine the procurement quantity. They also consume the product forecast. During the goods receipt the cost of production is settled against the requiring order. In R/3, this is either a sales order or a project order. Stock elements in this planning segment are order-specific stock and can be seen in the customer segment. “Order specific” in this context means that the stock element is linked to either a sales order or to a project order (R/3 WBS element).
  
  
• Planning without final assembly, without individual requirements segment: This PIR segment is not set up in the standard-delivered APO system, but can be added if required. It is used in the R/3 planning strategy 52 and offers a variation on the principles described above. Unlike a typical make-to-stock principle, it is possible to receive the produced goods into the net segment rather than a customer segment.
  
  Production never considers the product forecast, but the forecast is used to create dependent requirements. Planned orders in this PIR segment cannot be converted to production orders, since they are used only to create dependent requirements. Sales orders are captured in a customer segment and always determine the procurement quantity. They also consume the product forecast. The goods receipt transaction updates the value of the warehouse stock (settlement of cost against stock account). Stock elements in this planning segment are anonymous warehouse stock and can be seen in the net segment.

Note that the cost settlement rule of production orders is very important in R/3, but has no significance for the APO quantity-focused planning task. Now I will take a look at the requirement strategies delivered in the standard system.

Requirement Strategies Overview

SAP R/3 uses the term “planning strategy” rather than “requirement strategy.” They are nevertheless the same, but not all planning strategies that can be found in R/3 have a counterpart in APO, since only products that require advance planning activities are present in APO. This means that make-to-order planning strategies are not transferred to APO as requirements strategies. Next, I’ll describe APO requirements strategies in detail.

Make-To-Stock without Forecast Consumption

This requirements strategy is called MAKE-TO-STOCK PRODUCTION in APO and has the identifier 10. Find it in R/3 as the planning strategy group 10.

Using this requirements strategy, the procurement is based solely on the product forecast and potentially other dependent requirements, but excluding sales orders. Existing sales orders are ignored during planning. Forecast consumption is not carried out and sales orders are satisfied from the warehouse stock. The forecast is reduced with the goods receipt and sales orders do not influence the product planning at all. Sales orders might be visible in APO (depending on CIF settings), but are not MRP-relevant and thus are not seen as a requirement. The goods receipt cost settlement is against the stock account. Forecasts in the past should be deleted to avoid oversupply.

Make-to-Stock With Forecast Consumption

This requirement strategy is called PLANNING WITH FINAL ASSEMBLY in APO and has the identifier 20. Find it in R/3 as planning strategy group 40 (planning with final assembly) or 70 (planning at assembly level).

Procurement is carried out based on the product forecast as well as the sales orders. To avoid overestimating the demand, it is mandatory to use forecast consumption and optionally forecast adjustment logic. Based on these principles, the system plans procurement in accordance with forecast (medium and long term) and sales orders (short term). This could also be described as a “make-to-order-quantity” principle. SAP also uses the terminology “sales order orientated planning” to describe this process, which I detail later on.

Make-to-Order with Forecast Consumption

This requirement strategy is called PLANNING WITHOUT FINAL ASSEMBLY in APO and has the identifier 30. Find it in R/3 as the planning strategy group 50 (planning without final assembly).

A finished product forecast exists and is used to create dependent requirements on lower levels for the components via a special type of planned order. This order cannot be converted into any other type of order (e.g., production order) and merely serves as a vehicle to generate the dependent requirements, which are used to plan procurement on the lower level. For this type of order a special, visible flag is set (e.g., in the Product View transaction). Figure 3 shows product A1 with requirement strategy 20; the planned order can be converted (Conversion ind.). The conversion indicator flag can be set and Plng w/o Final Assem or planning without final assembly is off. Figure 4 shows product A2 with requirement strategy 30; the planned order cannot be converted (Conversion ind. cannot be set and Plng w/o Final Assem is on).

Figure 3

Product view transaction showing conversion indicator flag, which you may set, and planning without final assembly flag, which is off

Figure 4

Product view transaction showing no conversion indicator flag and planning without final assembly flag, which is on

The dependent requirements are usually created based on a make-to-stock scenario, which allows an early procurement of components before the finished products’ sales orders are known. The procurement of the finished product only takes place when the sales order is received.

Make-to-Order with Forecast Consumption Using a Planning Product

This requirement strategy is called PLANNING PRODUCT in APO and has the identifier 40. Find it in R/3 as the planning strategy group 60 (planning with planning material).

Especially in business cases in which variant-rich finished products exist that share the majority, if not all, of the components, it makes sense to carry out the forecast on a “planning product” level. The planning product is not a real existing product, but a type of product group. A forecast exists for the planning product and not for each subordinate product linked to the planning product. The subordinate products are the real products and have individual product numbers. The planning product forecast is used to determine the dependent requirements. Once a sales order is received for any of the subordinate products, the forecast of the planning product is consumed and the subordinate product is procured based on a make-to-order principle.

Make-to-Order with Forecast Consumption and Receipt into Warehouse Stock

This requirement strategy cannot be found in the standard-delivered APO system, but you can easily set it up. You can find it in R/3 as the planning strategy group 52 (planning without final assembly and without MTO).

This is a make-to-order strategy: a finished product forecast exists and is used to create dependent requirements on lower levels for the components by means of a special type of planned order in the “planning segment.” To this extent, the strategy is the same as the APO requirements strategy 30. The dependent requirements are usually based on a make-to-stock scenario, which allows early procurement of components before the finished products’ sales orders are known. Procurement of the finished product only takes place when the sales order is received.

Unlike the typical make-to-order scenario, the finished products are received as warehouse stock into the net segment and not into the customer segment. This has an effect specifically on the product costing. Also, it is possible to better utilize lot sizing procedures and provide customers with product directly out of stock, although this is not the main purpose.

Sales Order-Orientated Planning

The concept of sales order orientated planning is a variation of the make-to-stock requirement strategies. It is typically used with the requirements strategy 20 (planning with final assembly). The concept has no impact on the medium- and long-term Supply Network Planning (SNP)-based planning steps. In the short term, Production Planning/Detailed Scheduling (PP/DS) can reduce the forecast down to sales order level. The levels of planning are:

Medium- and long-term SNP-based planning: The forecast is used as the main demand driver and procurement is based on the forecasted requirements while also taking into account potential sales orders if they are higher than the forecast. Since the sales orders reduce the forecast accordingly, no demand duplication occurs. This is the normal requirement strategy 20 behavior.

Short-term PP/DS-based planning: Once the forecast has reached the PP/DS horizon, you can run a special heuristic to identify all those forecasts for which no sales orders have been received yet. In other words, the forecasted requirements have not materialized and thus no sales orders were captured. Running the heuristic SAP_PP_014 (Ascertaining Pl. Ind. Requirements) lists all forecasts that are not reduced to zero and reside within the “requirements ascertainment horizon,” which is based on the location’s production calendar. This horizon is specified in the location product master PP/DS tab. Only a list is generated in this step, and no forecast reduction takes place.

Operational PP/DS-based planning: Some time before the final decision needs to be made whether the product is to be produced or not, a second heuristic is run, which identifies again all such forecasts for which no sales orders have been received yet. The heuristic SAP_PP_015 (Adjusting Orders and Pl. Ind. Requirements) reduces all forecasts and production orders so that they are for same quantity as the sales orders. This adjustment is carried out for a horizon as specified in the location product master PP/DS tab field Adjustment Horizon, which is based on the location’s production calendar.

The functionality of the used heuristic is similar to that of the planning adjustment program, but is more flexible (defined per location product) and controlled by master data rather than a program variant. It also reduces forecast and corresponding procurement proposal in one step.

The heuristic SAP_PP_015 reduces forecast quantities by the same quantity by which it reduces planned production order quantities. That means that forecasts with no corresponding planned production orders are not reduced (or deleted). As a result of this process, no forecasts will be deleted if stock is available to cover the forecasts. The heuristic also adheres to the planning time fence, and does not delete orders that are within it.

Implications for the Default Requirements Strategy

It is not mandatory to define a requirements strategy in APO to carry out the planning tasks in SNP and PP/DS. If no requirements strategy be defined in the product master, then the system behaves in accordance with some predefined rules. The problem is that the way the demand is calculated depends on the planning algorithm used:

• SNP heuristic: The total independent demand considered by the SNP heuristic is calculated using the product’s forecast horizon, defined in the product master. Within this horizon (day 0 through to the number specified in the product master), the total independent demand is equal to the sales order demand. After that day, the total independent demand is the greater of the two, sales order or forecast demand.
  
  
• SNP optimization: Unlike the SNP heuristic, SNP Optimizer uses the sum of forecast and sales order as the total independent demand. The product’s forecast horizon has thus no impact.
  
  You can change this logic (from version 3.1 upwards without source code correction) so that SNP Optimizer works the same way as the SNP heuristic. A change of logic might be helpful if no requirements strategies are defined in the product master.
  
  
• PP/DS heuristic: The PP/DS heuristic works in the same way as the SNP Optimizer. Both SNP Optimizer and PP/DS heuristics take past forecasts into account. Note that good “forecast housekeeping” is required: forecasts in the past, as a rule, should be deleted.

The dependent requirements are always added to make up the overall demand. This, by the way, also applies when defining requirement strategies.

Dependent Requirement Strategies

In cases in which finished products are made based on a make-to-order principle, you must also decide whether to procure the components (dependent requirements) based on the make-to-order principle or the make-to-stock principle. APO offers both options, with some variations:

• Dependent requirements always make-to-stock: With the option Always Collective Requirements selected, APO creates dependent and stock transfer requirements for the finished product in the make-to-stock PIR segment — the net segment. Any dependent requirements are covered by the anonymous warehouse stock. Shortages of the component stock lead to procurement orders in the net segment. In this way, the dependent requirements of one or several make-to-order finished products are satisfied by stock or a single procurement order. Dependent requirements can be accumulated per period (e.g., day or week) and thus influence the lot size building of the component during procurement.
  
  The cost settlement of the component’s procurement order is against anonymous warehouse stock.
  
  
• Dependent requirements possibly make-to-stock: You must consider two scenarios. The distinguishing factor is the requirements strategy of the dependent demand-generating finished product.
  
  Should the finished product be procured based on a make-to-stock principle, then the dependent requirement of the component is also procured based on the make-to-stock principle. Orders are then created in the net segment. Should the finished product be procured based on a make-to-order principle, then the dependent requirement of the component is also procured based on the make-to-order principle. Orders are then created in the Planning without Final Assembly Segment. This means that for every finished product demand (sales order or project order) a procurement order for the component will be created (one-to-one relation).
  
  The cost settlement of the component’s procurement order is against the demanding order of the finished product.
  
  Since the selection of the planning segment is driven by the demanding finished product, the component might be planned in both planning segments.

Planning Product Hierarchy

As you have seen, some of the requirements strategies use planning products to combine the forecast of several “real” products. A planning product does not have to be a physical product — it is merely something that is used to group forecasts and consume them later in the process. The relation between the planning product and its subordinate real products is defined in R/3 and sent over to APO via the CIF. APO automatically creates a location product hierarchy in this case. This hierarchy consists of the planning product on the top level and the real products on the lower level. The forecast released from Demand Planning is for the planning product and the forecast consumption of the planning product is carried out whenever a sales order is received for one of the real products linked to the planning product via the hierarchy. To view the generated product hierarchies, use menu path Master Data>Hierarchy>Maintain Hierarchy (transaction /SAPAPO/RELHSHOW).

Requirements Strategies in SNP and PP/DS

The requirements strategy you select has an impact on SNP as well as PP/DS-based planning. Since SNP is a medium- to long-term planning tool, it covers products that require planning in this horizon only. In the standard-delivered system, it therefore only displays and considers data that is stored in the Net Segment. It is possible to view data of the make-to-order segments in SNP, via the creation of a special key figure. Note that in this case SNP does still not plan in the make-to-order segment.

PP/DS, on the other hand, displays and uses data stored in both the make-to-stock and the make-to-order segments. The way SNP and PP/DS handle requirements strategies settings is congruent, but PP/DS can also carry out planning tasks within the make-to-order planning segment.

System Setup

You have to make or verify some system settings to use requirements strategies and forecast consumption logic. They are unfortunately not grouped together, but are found in various areas of the system. The following list provides an overview of the required tasks. As some settings depend on those previous, they should be carried out in the order listed.

Step 1. Requirements strategy. Check the system-delivered requirements strategies and create your own using the create function if required. Specifically check that the specified order category defined in the field Category Group is the same that is used for the forecast release (Figure 5). Use menu path Demand Planning> Environment>Current Settings>Specify Requirements Strategies (transaction S_AP9_75000142).

Figure 5

Check that the Cat or Category Group column matches the forecast release in the Requirements Strategy view

Step 2. Order category. Ensure the order category used to consume forecasts (usually order type BM for sales orders) is defined correctly (Figure 6). This is specifically important when using non-SAP categories. Use menu path Customizing>Advanced Planning and Optimization>Global Available to Promise (Global ATP)>General Settings>Maintain Category.

Figure 6

Check the order Category in the Maintain Category view

The order category for sales orders defined above also needs to be defined in the SNP planning area used as the Category of the key figure 9ADMDP1 (Figure 7). The menu path is Supply Network Planning>Environment>Current Settings>Administration of Demand Planning and Supply Network Planning. Next, check that the forecast release from Demand Planning uses the same order category. The order category specified in the release profile must match the one defined above. Use menu path Demand Planning>Planning>Release to Supply Network Planning (transaction MC90).

Figure 7

Check to see if the Category is correct for key figure 9ADMDP1

Step 3. Category group. Check the category groups that are defined in the standard-delivered system (Figure 8). Specifically, when using forecast consumption based on dependent requirements (assembly planning), it is likely that new category groups need to be created. Use menu path Customizing>SAP Advanced Planning and Optimization>Supply Chain Planning>Supply Network Planning (SNP)>Basic Settings>Maintain Category Groups.

Figure 8

Check to see if the CatGrp is defined in the system, or you need to create one

Step 4. Check mode. Ensure that the check modes are set up correctly. R/3 transmits via the core interface the R/3 requirements class as the APO check mode, which must be set up when using assembly planning. Since no plausibility checks are done in APO, you must create check modes in APO with the same names as the corresponding Requirements Class in R/3. Use menu path Customizing>SAP Advanced Planning and Optimization>Global Available to Promise (Global ATP)>General Settings>Maintain Check Mode.

Some of the points listed above may appear redundant, but in my experience it is very easy to overlook an important setting, and it will cost a lot of time at a later stage to find out why the system does not work as expected.