I recently helped implement direct ship functionality at a big computer company that manufactures and distributes goods to end customers through various channels. The company operates in the United States, Canada, and Latin America, and has its own manufacturing facility in the U.S. In addition, the company uses OEM vendors from far-eastern countries such as Taiwan and China to fulfill demand.

To reduce order cycle time (from order entry to delivery of the product to the end customer), the company has three third-party logistics (3PL) provider warehouses spread across the continent. It ships the product from whichever of these hubs is closest to the end customer.

Direct ship in this context is the ability to ship products from the manufacturing source directly to an end customer, bypassing traditional company distribution facilities. If implemented properly, a direct ship model can help a company fulfill these objectives:

• Ship products directly from the manufacturing site to the customer whenever possible.
• Reduce order cycle time by shipping products from a warehouse closest to the ship-to customer whenever possible.
• Reduce overall inventory investment in the supply chain.
• Avoid multiple "touches" of the product before it is shipped to the customer.

My requirement for implementing the direct ship functionality was to create the logic to determine which delivering plant and shipping point in the sales order is populated. Note that it is not always from the predefined material master, customer master, or both. In standard SAP, the plant from which the goods should be delivered to the customer is automatically copied into the sales order item based on the following hierarchical sequence:

1. From the customer master record of the goods recipient
2. From the sales view of the material master record
3. From the customer material information record

Also, consider the case of a one-time customer placing an order for a product via the Web. The delivery plant in the one-time customer master is fixed, whereas the ship-to address for every customer changes based on the end- customer location. In this case, you can develop intelligence to populate the delivering plant in the sales order as the nearest logistics hub to the end customer based on the transportation zone rather than a fixed plant irrespective of the location. This way, both order cycle time and freight cost can be reduced.

Benefits of This Configuration

Shipping details like the shipping point and plant are populated in the sales order based on the hierarchical sequence of the customer master, material master, or a combination of both. Thus, if a delivery plant is defined in the customer master, then this value is fixed and SAP populates this plant for all the materials ordered by this customer without considering the closest alternate source of supply. Similarly, if a delivery plant is defined in the material master, then this value is fixed and SAP populates this plant for all the customers without considering the closest logistics hub to the end customer.

The direct ship model I used overcomes this limitation by populating the delivery plant in the sales order to deliver directly from the OEM plant, the closest logistics hub, or the company's own manufacturing facility. This way, you are not restricted to the standard SAP-provided means of populating the plant and shipping point in the sales order.

To achieve the stated business objectives, the following design was implemented on the Sales and Distribution (SD) module of SAP R/3 4.70. This design can be implemented in all previous versions as well.

• Each OEM vendor location and logistics provider hub was modeled as a unique shipping point and plant.
• All materials that were part of the direct ship model were uniquely identified.
• A few customized tables were added to hold data used in direct ship sales user exit execution.
• The sales order user exit was used to include the program flow logic for the direct ship process.

OEM Vendor Location and 3PL Hub

Each OEM vendor location and 3PL hub was modeled as a unique shipping point and plant combination. Consider that this company has two OEM vendors, OEM1 and OEM2, in Taiwan and one in China, OEM3. This can be set up in SAP as shown in Table 1.

Also, the company has three 3PL provider warehouses — LH01, LH02, and LH03 — and its own manufacturing facility/warehouse, OMFL. This can be set up in SAP as shown in Table 2.

Shippable Materials

All shippable materials that are part of the direct ship model are uniquely identified by the MRP group setting on the material master. The MRP group is maintained in the MRP 1 view of the material master as shown in Figure 1. All materials included in the direct ship model are divided into two categories: build to replenish (BTR) materials with the MRP group as ZBTR and configure to order (CTO) materials with the MRP group as ZBTO.

Figure 1

Maintain the MRP group in the MRP 1 view of the material master

CTO: These are company products that are configured after a customer places an order. They can be shipped from an OEM vendor location or from the company's manufacturing facility. These materials are set up with MRP group ZBTO. Item Category Group for these materials is BANC, and Item Category defaults to TAB. In this model, a purchase requisition is created behind the sales order. The purchase requisition is converted to a PO, which is sent to the OEM. The OEM builds the product, and either ships the product to the company's warehouse to be included on a delivery from its warehouse, or stores the product at the OEM hub and sends a signal (EDI or flat file) to the company that results in a goods receipt being posted against the PO.

Once the goods receipt has been posted, the company can trigger a delivery signal for the OEM to ship the product from the OEM hub directly to the end customer. For the scope of this project, CTO products are not supported at 3PL provider hub locations.

Customized Tables

The following customized tables are added to hold data used in the execution of the direct ship sales user exit.

Z101 (direct ship): This table lists all the valid locations from which a specific material can be shipped to the customer. These locations could be either OEM plants or 3PL warehouses. It has the following fields: Client, Sales Org., Plant, StorageLocation, Material, and Shipping Point. It also includes two fields that are used in the direct ship sales user exit: direct ship Flag and Effective Date.

If the direct ship Flag is set as 1 for a particular location, then the user exit always attempts to ship the material from that location, provided that other business rules are not violated. The effective date provides the ability to control the activation of the user exit for specific materials. If an effective date is set in this table for any material, then that material/plant combination is considered by the user exit only if the sales order creation date is after the effective date.

Figure 2 shows sample entries in table Z101 with all fields relevant for the direct ship sales user exit. In this example, I've designated the Sales Org. for the U.S., Canada, and Latin America as US00, CA00, and LA00, respectively.

Figure 2

Figure 2Table Z101 fields relevant for the direct ship sales user exit

Z102 (shipping point and storage location combination): This table lists all the valid storage location and shipping point combinations that could exist on a sales order line item. Just before completion, the user exit verifies that all plant shipping point combinations on the sales order are consistent with entries in this table. This is designed to protect the business user from unwarranted sales order maintenance. Z102 has the following fields: Sales Org., Plant, Shipping Point, and StorageLocation.

Z103 (geographical hub based on transportation zones): This table is designed to meet the company's requirement to ship direct ship products from warehouses closest to the ship-to customer. It is keyed on sales organization and transportation zone and contains the storage location and plant and shipping point combination deemed to be closest to the transportation zone. The transportation zone is derived from the ship-to customer on the sales order. Figure 3 shows sample entries in table Z103 with all fields relevant for the direct ship sales user exit.

Figure 3

Table Z103 fields relevant for the direct ship sales user exit

Z104 (sales user exit fallback parameters): This table lists the warehouse of last resort. If the user exit is unable to pick a plant and shipping point from Z101 and Z103 tables without violating the company's business rules, it chooses the entry from this table. It has the following fields: Client, Sales Org., Plant, StorageLocation, and Shipping Point. The company's own manufacturing facility can be maintained as the plant/storage location/shipping point of last resort for all the sales organizations. Figure 4 shows sample entries in table Z104 with all fields relevant for the direct ship sales user exit.

Figure 4

Table Z104 fields relevant for the direct ship sales user exit

The key business rules implemented in the direct ship sales user exit are:

• The direct ship model should be active only for valid sales organization/order type combinations. Table Z105 is used for this with sales organization and sales document type as the primary keys.
• The user exit should be activated only when products that have been identified as direct ship materials — materials with ZBTR or ZBTO as the MRP group — are on the sales order.
• The user exit should have the option of temporarily turning off for specific materials for a certain period. An effective date is maintained for each unique material/plant combination in table Z101. The user exit is effective for only those materials for which the effective date is less than or equal to the sales order creation date. If the effective date is blank, then the user exit is always active for this material.
• If a material has been identified as direct-shippable from the OEM vendor location and it is the only shippable material on the sales order, then point it to the OEM vendor location.
• If a material has been identified as direct-shippable from the OEM vendor location and it is on a non- ship complete order, then point it to the OEM vendor location.
• If all materials on a ship-complete order are direct-shippable materials from the same OEM vendor location, then point all line items to the OEM vendor location.
• If a material is not direct-shippable from the OEM vendor, then attempt to point it to the 3PL provider location closest to the ship-to customer. Table Z103 is used for determining the appropriate plant.
• If a material is not set up to be shipped from an OEM vendor location or a 3PL provider location, then point it to the warehouse of last resort — the company's own manufacturing facility. Table Z104 is used for this.

Sales Order User Exit

The sales order user exit is used to include the program flow logic for the direct ship process. Figure 5 shows the program flow logic of the direct ship sales user exit. It is activated when a sales order line item is created or updated. The user exit always populates the shipping point and plant as a pair. The user exit relies only on tables Z101, Z103, and Z104 for these entries. This logic can be coded in the user exits in the SAP standard program MV45AFZZ. The two user exits used in MV45AFZZ are USEREXIT_MOVE_FIELD_TO_VBAP and USEREXIT_SAVE_DOCUMENT_PREPARE.

Figure 5

Direct ship sales user exit program flow

USEREXIT_SAVE_DOCUMENT_PREPARE is used for a number of tasks shown in Figure 5. Use it to ensure that the direct ship model is active only for valid sales organization/order type combinations (first decision box).

If a material has been identified as direct-shippable from the OEM vendor location and it is the only shippable material on the sales order, then use it to point the material to the OEM vendor location. If a material has been identified as direct-shippable from the OEM vendor location and it is on a non-ship complete order, then use USEREXIT_SAVE_DOCUMENT_PREPARE to point it to the OEM vendor location. If all materials on a ship complete order are direct-shippable materials from the same OEM vendor location, then point all line items to the OEM vendor location via this user exit. Finally, implement a consistency check for valid storage location and shipping point combination based on table Z102 using USEREXIT_SAVE_DOCUMENT_PREPARE.